The madness of NEC the third

The adjudicator on this one must have been uncomfortable with fathoming this clause in NEC3. So he asked the parties what they thought. This is a dispute between Farrelly (M&E) Building Services and Byrne Brothers (Formwork) at Hammersmith tube station. The clause means this and that, said one set of lawyers. No, no, it means that and this, said the opposing set. It doesn’t surprise anyone that the adjudicator thought the NEC3 clause neither meant this nor that. He decided against Byrne, on an interpretation that neither party advanced. Is that fair? Byrne didn’t think so.

The snag for Byrne is that it claimed the whole decision of the adjudicator was void because of this alleged unfairness. Ah, but the adjudicator had told the parties what he thought was the correct interpretation of NEC3 before he issued his final decision. In which case, said Farrelly, by not speaking up then, Byrne had waived its right to later shout foul.

So, had Byrne boobed by waiving its claim of unfairness by saying nothing? In this case, the High Court said no. There are however some interesting ifs and buts. The starting point is that the party has to be aware of its right to challenge the adjudicator’s decision and then, for a waiver, make a clear and unequivocal act, which indicates it relinquishes the right. If the objection in the adjudication is about scope or jurisdiction, which a party knows about but continues without raising a challenge, that is likely to amount to a waiver. If the objection is about unfairness but is not raised, the judge thought no waiver would likely arise. But by not raising the objection, the adjudicator is then deprived of the opportunity to correct what might be his unfair process. Yes, I know it’s a tad complicated. It’s called law.

This is the fiendish clause 63.1. Be careful not to dwell on it too long and become a mad swivel-eyed loon

As to what was being debated about NEC3 to cause all this brouhaha, it was how to calculate extra costs known as compensation events. This is the fiendish clause 63.1. Be careful not to dwell on it too long and become a mad swivel-eyed loon. It says, wait for it: “The changes to the prices are assessed as the effect of the Compensation Event upon (1) the Actual Defined Cost of the Works already done; (2) the forecast Defined Cost; (3) the resulting fee.” It then says: “The date when the Project Manager instructed, or should have instructed, the contractor to submit quotations divides the Works already done from the Works not yet done.” And that gives you the price of fish!

Two sets of lawyers explained all this - taking precisely the opposite view as to meaning. Solicitor Wright Hassall said: “The approach of … clause 63.1 is clear. It is based on prospective forecasts of time and costs.” Its opponent Fenwick Elliott said there is a “switch-date” that moves “each time a subsequent instruction is given”. In the case of Byrne, “The compensation events are to be assessed based on the actual defined costs, meaning retrospectively.”

And then up popped an explanation from a textbook called Keating on NEC3: “Leaving aside the quotation being out of time, failure to submit a programme or alterations thereto, or the latest programme not being accepted, the most general ground on which the Project Manager can make his own assessment is if he decides that the Contractor has not assessed the compensation event correctly in a quotation and he does not instruct a revised quotation.”

And remember, on top of all this, Byrne took umbrage because the adjudicator decided it all meant something else. And meanwhile builders and subcontractors are down there on the site in muck and bullets, trying to make ends meet. Lord, who invented all this gobbledegook?

Not stopped yet. The poor old adjudicator was again in the frame for being unfair about extension of time and in particular “concurrent delay”. The subcontractor was, without quarrel, entitled to the extension of time. Yes, but how much and how much delay was payable? The adjudicator awarded 171 days, none of which carried money if concurrent. He then got back into whether the money was assessed prospectively or retrospectively and decided the former. But as Byrne had calculated time by retrospective analysis he concluded the delays were not concurrent. The upshot is that the court enforced the adjudicator’s award. Byrne is to pay up. Forgive me; my eyes have swivelled. Are you flummoxed by all this? Join the club.

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