Understanding the contractual and legal roles of NEC project managers

Key Points

• NEC4 ECC project managers are required to make many important contract decisions, not least acceptance
• of programmes and assessment of compensation events.
• In doing so they are required to act on behalf of the client as stated in the contract as well as meet their legal obligation to act impartially.
• A better understanding of these dual roles – which should be kept separate from design, supervision and adjudication – will lead to better decision making on NEC projects.

This article looks at the role of the NEC4 Engineering and Construction Contract (ECC) project manager, in particular when they are required to make decisions involving acceptance of programmes and assessment of compensation events.

It is important that project managers understand both what their clients and contracts require of them and their legal obligation to act impartially. Fully embracing these dual roles will help to improve the quality of their decision making.

Blurring of boundaries

Prior to the NEC being published in 1993, the project manager was not a role in any standard form of construction contract. The decision to have someone manage the contract on the client’s behalf was a deliberate break from the convention of a professionally qualified engineer being responsible for design, contract administration, quality control and dispute resolution.

The NEC drafters’ original intention was that the four roles would be carried out by four different parties, namely the designer, project manager, supervisor and adjudicator. However, some 30 years later, it is not uncommon to see the first three being performed by the same multidisciplinary firm, which can be problematic.

Also, the adjudicator was supposed to deal with discrete time and money issues, not legal issues. Unfortunately, before this idea gained traction in the UK, the Housing Grants, Construction and Regeneration Act 1996 provided for statutory adjudication. What was intended by NEC drafters to be a commercial and technical process has gradually become the quasi-legal process it is today.

NEC project managers and the law

The role of the NEC project manager was not examined from a legal point of view until some 12 years after the NEC had been published. In Costain Ltd and Others v. Bechtel Ltd [2005], it was held that the project manager was obliged to act impartially in matters of assessment and certification.

The case essentially followed the judgement in Sutcliffe v. Thackrah [1974], where Lord Reid stated: ‘It has often been said, I think rightly, that the architect has two different types of function to perform. In many matters he is bound to act on his client’s instructions, whether he agrees with them or not; but in many other matters requiring professional skill he must form and act on his own opinion. The employer and the contractor make their contract on the understanding that in all matters where the architect has to apply his professional skill he will act in a fair and unbiased manner in applying the terms of the contract.’

The duty to act impartially in NEC contracts may also extend to other decisions where the project manager has to use their professional skill, such as deciding whether to accept the contractor’s design or programme.

The case law supporting this decision goes all the way back to Victorian times, the advent of the railways and the case of Ranger v. Great Western Railway Company [1854], involving Isambard Kingdom Brunel as the engineer.

So, the NEC project manager must wear two hats. In addition to acting as an agent of the client, that is acting on the client’s behalf, they must also act as independent certifier, that is acting on their own opinion in a fair and unbiased manner. In addition, they have their contractual duties at clause 10.1 to ‘act as stated in this contract’ and at clause 10.2 to ‘act in a spirit of mutual trust and co-operation’.

NEC programmes and compensation events

Two of the key decisions the NEC project manager is required to make that are often problematic are, firstly, whether to accept the programme or not, and secondly, to assess compensation events.

Programme acceptance under clause 31.3 is the act of deciding whether the programme is acceptable or not. The programme has three functions: reporting progress, co-ordinating the various inputs of the parties and assessing delay due to compensation events. Project managers should ask themselves if the programme is good enough to achieve these three functions. They should also remember that their acceptance of the programme does not mean acceptance of liability for any delays: this is dealt with separately through the compensation event procedures at clauses 61 to 66.

With regards to compensation events, the time and money consequences are initially dealt with in the contractor’s quotation, which is assessed in accordance with clause 63. If the project manager does not agree with the contractor’s assessment, they have a duty under clause 64 to make their own assessment, again in accordance with clause 63. Keating on NEC (Thomas, 2022) suggests an idea of judgement or appraisal, which means the project manager should use their professional skill and ensure their assessment is fair and unbiased as well as in accordance with the contract.

Certainty of decision making

Another question that arises in relation to the project manager’s decision making is how certain they have to be that they are correct? In civil law jurisdictions, the standard of proof is ‘on the balance of probabilities’, which means the project manager only has to be more certain than not. That means they need to be at least 51% certain, for example, that delay and defined cost has been incurred. This becomes more cogent given that both the programme and defined cost include uncertain elements, such as the contractor’s plans, float, forecasts and time and cost risk allowances.

With all this in mind, it begs the question as to whether the project manager’s duty to act impartially should be left as a matter to be implied in NEC Contracts, or whether it should be made explicit?

It would not be a step into the unknown for NEC as the ICE Conditions of Contract 5th Edition was amended to do just this around the same time the NEC was being drafted. So, given the propensity of disputes caused by faulty decision making, maybe after 30 years it is time for a change in policy.

Acknowledgment

This article is a summary of a talk by the author at the NEC People Conference in London in 2023, a recording of which is on the NE Consult website.

Reference

Thomas R (2022) Keating on NEC, 2nd edition, London: Sweet and Maxwell.