Chinks in the NEC armour

NEC has both champions and critics. Whatever side of the fence you stand on, there can be no doubt that in recent years it has reigned supreme as the contract of choice. One of the issues with NEC is that there is almost no judicial precedent as to the meaning of its terms. This is due principally to timing, as the adoption of NEC coincided with the rise of adjudication. In the cases which do exist - and there have been three reported in the past year - can anything be learned from the judges’ limited analyses as to their view?

As the ethos of NEC is to agree assessments and quotations for compensation events which involve future costs, how does the contract provide for these to be revisited?

Role of the project manager
The starting point is the case of Costain vs Bechtel back in 2005. It is the only reported case which has dealt with the substance of NEC. It concerned the Channel Tunnel Rail Link project and the duties of the project manager. The PM, concerned about a budget overrun, had instructed his staff to “aggressively disallow” costs. The contractor CORBER sought an injunction against the PM. Although the court disallowed the injunction, it found there was an argument that the PM was under a duty to act impartially. The court, however, decided CORBER’s remedies lay through the contract, namely adjudication and damages - the same approach to the PM’s role as in other standard forms.

Enforcing an adjudicator’s award
This year we have had the Scottish case of RBG vs SGL Carbon Fibers which concerned enforcement of an adjudicator’s award. An argument within the adjudication had been whether the price for work done to date (PWDD), which is the basis for interim payments under NEC3, could be revisited. The adjudicator had decided it could be, but not in that adjudication. The judge found the adjudicator’s decision was unenforceable as he had not revisited the PWDD in its entirety.

While not adding anything to the NEC interpretation debate, it is a timely reminder that payment terms under NEC are different. Although the contract tries to identify every situation where these sums certified can be revisited, as is often the case with a contract which tries to cater for every eventuality, the argument is often to do with what has been omitted. For example, does NEC say enough about how and when the PM can revisit valuations? As the ethos of NEC is to agree assessments and quotations for compensation events which involve future costs, how does the contract provide for these to be revisited, if at all?

The notice clause
In the TCC decision in Anglian Water Services vs Laing O’Rourke Utilities this year, there is much to read between the lines. Here clause 13 of the core clauses came under scrutiny. Laing O’Rourke argued that a notice of dissatisfaction with an adjudicator’s decision had not been served in time.

Clause 13 - the notice clause - is a particularly detailed clause. It provides that a communication has effect when it is received at the address of the recipient stated in the contract data or the last address notified by the recipient. Here the notice had not been served on the address in the contract data but on Laing O’Rourke’s lawyers.

The judge determined that an email from the lawyers confirming they could accept service of any documentation relevant to the adjudication, constituted the last address notified and the notice was therefore in time. This does suggest that while recognising mandatory wording in NEC contracts a way may be found round it.

Within this decision from Mr Justice Edwards-Stuart can be found the following words which may strike fear into the hearts of NEC supporters: “No doubt this approach to drafting has its adherents within the industry but speaking for myself and from the point of view of a lawyer it seems to me to represent a triumph of form over substance.” The judge was referring to the use of the present tense in its drafting, or was he?

Lindy Patterson is a partner at Dundas Wilson