Our Legal Director, Peter Jansen, examines the NEC key roles and obligations based on the NEC4 Engineering and Construction Contract (ECC).
Who are the key people involved in NEC contracts and why?
NEC contracts depend on open exchanges of information and a collaborative problem-solving approach. While this applies to the parties of the relevant contract as well as the people involved in it, the key roles in all NEC contracts are that of the project manager and supervisor since they are entrusted to promote the NEC philosophy of a “spirit of mutual trust and co-operation” and are expected to actively facilitate collaborative working. A good example of the project manager working collaboratively is in relation to the contractor’s programme and quality plan. The role is to review the programme and to accept it or to provide reasons for not accepting it.
Other than the contractor, it is the project manager and not the client who has the most visible role under an NEC contract. The project manager is a consultant, engaged by the client. In addition to the project manager, the supervisor will similarly be engaged by the client but with a less intensive role than the project manager. A project manager is critical to the NEC’s success and is more than an administrator or an agent of the client, but their role includes a requirement to manage risk by means of, among other contract mechanisms, the NEC early warning system. In turn, the supervisor is responsible for checking that the works are constructed in line with the scope, any applicable law and (if applicable) the contractor’s design, including conducting site works inspections. Most critically, the project manager (together with the supervisor) acts as a certifier under the contract, whose decisions have an immediate effect on the legal rights of the parties, such as the amount of payments due to the contractor, how compensation events are assessed and whether the works are complete and defect free. For that reason, implied conditions apply to the role of the project manager (and the supervisor) and how they exercise their certifying functions.
What are the main NEC contract obligations under those roles?
Clause 10.2 of the NEC4 states that the parties, the project manager, and the supervisor “act in a spirit of mutual trust and co-operation” which is particularly needed in managing parts of the contract such as early warnings, payment, the programme, and compensation events. Communication is a vital part of co-operation and the contract fixes periods within which the project manager and the supervisor must respond to communications from the contractor.
Early warnings are mandatory and wide-reaching and can require advance notification of anything which could increase the prices, delay completion or the meeting of a key date or be likely to increase the contractor’s total cost. They apply to the contractor and the project manager so claims and concerns are reported at the time and not kept for the end of the project. The contents of the early warning register are set out in clause 11.2(8) which states that the register must describe the matter and the ways that the effects of the matter are to be avoided or reduced, and under clause 15.1, the register is updated by the project manager when early warning notices are given. Management of these risks are coordinated through early warning meetings which are held regularly starting within two weeks of commencement of works until completion.
Managing the contract programme is also a key part of the project manager’s role. The project manager accepts the programme in compliance with clause 60.1 and, under the same provisions, it is this accepted programme which sets the baseline against which compensation events are measured. Clause 31.2 specifies the minimum details that the programme should include, and clause 32.2 allows for the programme to be updated as the project progresses.
It is for the contractor to submit its programme for acceptance by the project manager. The project manager has two weeks to review it and to check that it shows all the elements required of it by the contract. The project manager can either accept the programme or give good reasons for not accepting it. These could be that it does not show all the necessary elements or simply that it shows plans which are not practicable or realistic. In order to proceed, the contractor will need to re-submit its programme, taking on board the project manager’s reasons for non-acceptance. A similar, iterative process is also used for the acceptance of the quality plan which must also be issued by the contractor for acceptance by the project manager before it forms part of the contractual matrix.
Is there any interface between key roles under NEC and how does it work?
As mentioned above, the objective of NEC is for collaboration and co-operation throughout a project. For this to happen, obligations under NEC are not discharged on an isolated fashion, but there has to be interface between the roles. Just to give a few examples, the project manager is to notify the contractor of early warning matters of which it becomes aware (clause 15.1), as well as to call and attend, and instruct the contractor to attend, a first early warning meeting within two weeks of the starting date, and further early warning meetings as required (clause 15.2).
Also, the project manager accepts/considers any proposal the contractor may make to change the scope in order to reduce the cost of providing the works (clause 16.2) or to remove the need for certain defects to be corrected as well as to notify the contractor of ambiguities or inconsistencies in documents (clause 17.1) and that the scope includes an illegal or impossible requirement (clause 17.2).
During the contract, the project manager gives instructions as necessary and as required in accordance with the contract to the contractor. The contractor may be instructed to provide a quotation in response to an instruction if it is likely to require additional work forming part of a compensation event. Instructions have other functions such as requiring the contractor to stop or not to start work, and later to re-start or start work or remove the work from the scope (clause 34). The project manager may propose an acceleration of the programme and instruct the contractor to provide a quotation for acceleration, if required (clause 36.1).
The project manager has a central role and is critical to the functioning of the compensation event regime. The project manager identifies and assesses a compensation event (both as to cost and to time) and assesses any change to be made to the prices in the contract as a result. If the contractor does not provide its own assessment of the compensation event, or it provides an assessment which the project manager believes to be incorrect, the project manager will then assess the compensation event and fix any change to the prices. The project manager also assesses any delay arising out of a compensation event and assesses the extension of time to which the contractor is entitled, providing relief from liquidated damages which might otherwise apply to the delay.
Assessing compensation events and determining extensions of time are examples of the project manager’s role as certifier under the contract. Amongst other things, the project manager certifies the completion date, and the date on which the client takes over any part of the works. The supervisor issues the defects certificate, determining when, and to what extent defects have been corrected. The project manager decides the date of completion and certifies it within one month. The project manager assesses the amount due to the contractor on each assessment date and certifies the payment due to the contractor one week from each assessment date, including the final amount due.
By issuing certificates and determining when payments become due and works completed, the project manager (and supervisor) have quasi-judicial functions, and for that reason the law imposes upon them a duty to act fairly and impartially between the parties. This obligation is an implied condition of the contract binding upon the client. In other words, the client has an obligation to the contractor to see to it that the project manager exercises its functions under the contract as certifier in a fair and impartial way. If there is evidence that a project manager is biased or is not acting fairly and impartially, the contractor would have a potential right of action under the contract against the client.
This article and video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.
