NEC3 contracts: The hole truth and nothing but

What on earth persuaded Atkins to stray from its traditional worldwide construction consultancy into pothole repairs? Seemingly it has 700 staff actually shovelling stuff into those damn holes in the road. And Atkins has caught a cold doing it.

In February 2008 it pulled off one of these seven-year utility contracts. This one was with the Highways Authority. Atkins will do pothole repairs in East Anglia.

Atkins is the pothole repairer in my part of the country and they, like me, are complaining that the amount of repairs now needed is a massive pain. And given that their contract is a lump sum deal per year and given the work has exploded in quantity, the profit and loss account is feeling the draught. They consulted their lawyers. The lawyers consulted the NEC3 conditions of contract. And, as we all know the NEC3 has, well, some potholes.

Atkins claim this comes within the NEC3 “compensation event” machinery since, they argue, “the prevalence of potholes was significantly greater” than it anticipated and it was accordingly “entitled to additional payment pursuant to those compensation events provisions”. The amount was beyond what it would have been reasonable for an experienced contractor or consultant to have allowed for. And just to tickle the fancy of those who delight in clause bumf, the compensation event number is 60.1(11) being “a defect in the physical condition of the area network”.

It’s fascinating how all these highly qualified lawyers are needed to fathom a deal about filling holes in the road

Atkins put the question to adjudication. And from there it went on to arbitration and it went on (extraordinarily) to be argued again in the High Court. The adjudicator was the highly respected QC, Andrew Bartlett. Atkins’ argument was that the lump sum price and the terms of the unquantified contract limited the potholes to those that are reasonably expected. The authority argued that the deal says nothing about numbers. In any case the claim had to fit within the words of the NEC3 claim clause. Essentially it says the contractor can make a claim if he encounters a defect in the physical condition of the road network that “is not revealed in the information given nor available publicly, nor evident from visual inspection at contract date, nor what an experienced contractor with reasonable diligence could reasonably have discovered prior to the contract date and that any experienced contractor would have judged at the contract date to have such a small chance of being present that it would have been unreasonable for him to have allowed for it.”

That’s all very interesting. The fact is that on a practical basis anyone bidding for a seven-year pothole contract these days who knows what motorists are plagued by would think of a number, add his granny’s age then multiply it by any number he thought of. Back in 2007, when bids were sought, the roads were not nearly so awful. The adjudicator saw it Atkins’ way.

The authority immediately went for arbitration. Another QC, John Uff, was appointed arbitrator. The same issue was rehearsed in front of him. He decided the opposite way. Atkins had no right to claim compensation. His decision trumps the adjudicator’s. As you might expect, all of the arguing entails detailed scrutiny of the wording in the NEC3. It’s fascinating how all these highly-qualified lawyers are needed to fathom a deal about filling holes in the road. Why on earth can’t we get those brains working on simplifying these confounded documents?

Atkins said the arbitrator had gone wrong and complained to the High Court. It was said the arbitrator had not decided the right issue. Another very experienced construction law judge examined the whole affair all over again. He could see circumstances that came within wholly unforeseeable deterioration of the carriageway attributable to design, materials selection or construction defects; and see unforeseeable circumstances causing failures. Apart from that the contract was, like most, simply a risk-laden deal. Atkins and the authority took a risk, being a lump of money on what ordinary work would arise: nothing to do with how many holes. Atkins could have won hands down IF the pothole numbers hadn’t gone potty.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple