Volume IV Issue No.

The Global Leader in Managing Construction Risk NEC3 Early Warning System benefits and pitfalls
Most standard form contracts require Contractors to give notice of events that could give rise to a potential delay or monetary claim, and specify that failure to do so could lead to a rejection of the claim. This is an issue that always seems to be present in the consideration of claims. But, is there a better way of doing things? The NEC family of contracts takes a different approach. It sets out requirements for the Contractor to notify the Project Manager of Compensation Events. But it also has taken a further step by putting in place additional provisions for an early warning system which is designed to promote collaborative effort and a proactive risk management process. The early warning procedure contained in NEC3 places an obligation on the Project Manager and the Contractor to notify each other as soon as either becomes aware of any matter that may affect the works. These provisions give each party the right to instruct the other to attend a risk reduction meeting, thereby preventing the Contractor from dealing with the issues unilaterally. The purpose and the spirit behind the risk reduction meeting is to focus on resolving problems and mitigating risks, rather than looking for blame, in order to make a positive change to the course of events when it is still possible. The NEC3 contract still contains a bar for the late notification of Compensation Events, but the Contractor will not lose its entitlement due to failure to submit an early
David Brodie-Stedman Senior Vice President & Managing Director Asia, Middle East and Africa Abu Dhabi Office Butti Al Otaiba Bldg., Suite 1601 & 1602 Sh. Khalifa St., P.O. Box: 5201, Abu Dhabi U.A.E Tel : +971 2 627 2855 Fax: +971 2 627 2042 E-mail: auh@hillintl.com

warning. However, it has been argued that the assessment of the Contractors compensation may be affected if an early warning is not issued. The logic behind this argument is that clause 63.5 implies that if a warning had been given earlier, mitigation measures could have been taken to reduce the time and cost impact of the event; the Project Manager may therefore take this into account in his assessment of the value of any mitigation measures which could have been taken. Notwithstanding the above, caution should be taken, when dealing with the NEC3 form of contract, not to fall into a blame game regarding early warnings. On larger projects, numerous events may occur for which an early warning could be issued. It may, however, not be possible or practicable for a Contractor to raise an early warning for every single issue. Further, the Project Manager needs to be fair and reasonable when assessing the events for which the Contractor has not given an early warning, bearing in mind that early warnings are separate from the Compensation Event process despite there being some connection as stated above. In order to benefit from the advantages that the early warning system can bring to a project, it is crucial for the parties to understand the principles under which the NEC3 form of contract has been designed. The opening core clause of NEC3 requires the parties to act in a spirit of mutual trust and cooperation. This provision is often ignored by the parties, as it does not appear to impose any real obligation.
David Merritt Senior Vice President & Managing Director Middle East and Africa Sultan Business Centre 5th Floor, Suite 501 P.O. Box: 71467, Dubai - U.A.E. Tel. : +971 - 4 - 337 2145 Fax : +971 - 4 - 335 6077 E-mail : dxb@hillintl.com

However, a recent English case (Compass v Mid Essex Hospital Trust) might be seen as heralding a shift in that position, causing parties to think more carefully about these and similar obligations. UAE law requires that a contract must be performed in a manner consistent with the requirements of good faith. With this apparent shift in thinking in common law jurisdictions, these and similar contract terms should cause parties to consider their obligations more carefully. Current thinking seems to be to give real meaning to these obligations. So, ignore them at your peril (or cost!).
Ali Akbar Fard Senior Consultant Hill International, Claims Group

Hill International, with 3,200 employees in 110 offices worldwide, provides program management, project management, construction management and construction claims and consulting services. Engineering News - Record magazine recently ranked Hill as the 11th largest construction management firm in the United States. For more information on Hill, please visit our website at www.hillintl.com.

Disclaimer: This article does not constitute advice, legal or otherwise, and is provided only as general commentary. Appropriate professional advice should always be obtained before taking or refraining from taking any action in relation to such information and/or the application of applicable law. This article and the materials contained in it are provided on the basis that all liability for any loss or damage, whether direct or indirect, arising out of or in connection with any use or reliance upon this article is excluded to the fullest extent permitted by law.