NEC contracts: Love and understanding

The “spirit of mutual trust and co-operation” is invoked in the first clause of all NEC contracts and similar wording appears in other standard forms such as the PPC/TPC suite. The question is: what do these words actually mean both legally and commercially? When can they do any good and can they do harm?

Many commentators have offered opinions, some of them quite surprising. For example, Judge Humphrey-Lloyd has suggested the phrase requires not only honesty and reasonableness, but also creates an obligation to do more than the contract strictly calls for. If so, how far does that obligation go and how much can it cost?

On the other hand, Mike Barlow, winner of the Society of Construction Law Hudson Prize 2011, has queried whether the requirement of mutual trust and co-operation can really affect the meaning of any other contract provision. Hence, are these words only “mood music” to remind the parties
how they should be behaving, and do they have no legal value whatsoever?

NEC contracts require the employer, contractor, project manager and supervisor to act in accordance with the contract and in the spirit of mutual trust and co-operation. This is a separate obligation and if the parties sign up to it, then they should expect it to have some meaning for the contractor, employer, project manager and supervisor.

Trowers & Hamlins has advised on more than 50 NEC adjudications and, so far, not once have the words “mutual trust and co-operation” directly influenced an adjudicator’s decision. However, that is not to say that the parties have not tried to ensure that these words have a great deal of influence.

Are the words mutual trust and co-operation only ’mood music’ to remind the parties how they should be behaving, and do they have no legal value whatsoever?

A typical submission could be: “I haven’t got what I wanted out of this contract - therefore you haven’t acted in a spirit of mutual trust and co-operation.” No one can blame the parties and their advisers for trying to persuade an adjudicator in a dispute, but the more one-sided the interpretation of these words, the more this shows that there has been no mutual trust and co-operation at all.

If the words do not bite when the parties are trying to construe the contract, then does this mean there is a problem? The mantra that NEC contracts are deliberately written not to be interpreted by lawyers does not really get you very far if nobody can understand or benefit from the contract wording.

So if there is a problem, what could it be? Do the words “mutual trust and co-operation” only work if the parties are partnering? These words are repeated in the NEC Partnering Option X12, but is repetition necessary if they are already effective under clause 10.1? Option X12 refers to all the “partners” named in a schedule and extends the scope of the group who are agreeing to trust and co-operate with each other. This may be the key, although Option X12 does not create a multi-party contract.

Without Option X12, the NEC mentions mutual trust and co-operation only between the employer, contractor, project manager and supervisor or, under an architect’s or engineer’s appointment, between the client and the consultant. The employer, as the only contractual common party, has to mutually trust and co-operate with everyone, but there is no corresponding duty of mutual trust and co-operation between the contractor, the architect, the engineer and other design team members. But it is in this critical interface that mutual trust and co-operation is vital.

For example, it is between the design consultants and the contractor that disputes often arise as to the timing of design releases, the exact scope of design responsibility, warning of problems or timely feedback of comments/proposals.

So to bring mutual trust and co-operation to life, the NEC Option X12 should be dusted off and given more serious consideration. An integrated team can co-operate far better than a fragmented one.

Also, despite the NEC drafting, it is not safe to rely on mutual trust and co-operation as a separate contractual commitment that can be the basis for any kind of claim. It is more likely that these words will be interpreted as part of the NEC contract as a whole, reminding the parties that there are other obligations (such as early warning, advance evaluation of variations and adherence to the accepted programme) that should be adhered to with the interests of all parties in mind.

Co-written by Robert Horne. David Mosey and Horne are partners in Trowers & Hamlins