NEC4 and managing the programme

The NEC4 Engineering and Construction Contract (ECC) contract issued in June this year makes some important changes to the procedure for managing the programme under the contract, write Tim Willis and Tanya Chadha.

The programme performs a dual function under the NEC ECC contract. First, it is the basis for managing the work, requiring considerable detail of the contractor’s planned delivery of the works. Second, it creates a series of obligations and entitlements and has contractual force.

It achieves that contractual force as the “Accepted Programme”. This may be the programme accepted as part of the tender or, if there is none, the first programme accepted by the project manager.

The contractual force of the programme is significant. For example:

• The contractor’s right to an extension of time is measured by the effect of the event on planned completion as shown on the Accepted Programme, so preserving the terminal float for the contractor. 
• The employer is entitled to withhold a quarter of the sum due until a first programme complying with the contract requirements has been submitted.
• Numerous compensation events are defined to arise where the employer or others do not do what is shown on the Accepted Programme.

Given the importance of the Accepted Programme a particular concern has been what happens when there is no Accepted Programme. This can arise in two ways: the contractor does not submit an acceptable programme; or the project manager wrongfully rejects the programme or simply does not respond to the contractor.

Where the contractor fails to submit a contractually compliant programme the contract provides a default that the project manager is entitled to assess an extension to the completion date and NEC4 states: “The Project Manager assesses the programme for the remaining work and uses it in the assessment of the compensation event.”

This slight change in drafting from NEC3 is an improvement recognising the fact that an event can impact upon existing work and not just the remaining work. Under both NEC 3 and NEC 4 the fact that assessment defaults to the project manager has a number of implications for both the contractor and the employer:

• The programming is taken over by the project manager.
• Those compensation events which are triggered by something not happening as programmed in the Accepted Programme lose their reference point.
• The agreed programme in terms of the record of the progress of the works and the remaining work has been lost.
• The assessment of the financial implications of a compensation event, which the contract envisages being assessed through the contractor quotation process, also revert to assessment by the project manager. 

Where the contractor is at fault any prejudice the contractor suffers is its own fault. Less satisfactory is that the additional cost to the employer of the extra work the project manager has to do.

Although the employer can withhold payment until a first programme that complies with the contract is submitted, the employer cannot withhold money on that basis for later non-compliant programmes and cannot deduct the additional cost of resourcing programming from the payments otherwise due.

The sanction for the employer in that respect is weak. It is quite common for contractors not to submit a compliant programme. Employers may want to consider beefing up the drafting.

The other potential problem has been where the project manager does not reply to the contractor and so the programme is neither accepted nor rejected. This is contrary to the requirement for the project manager to act in accordance with contract and creates uncertainty.

Under NEC4 the contractor can now notify the project manager of that failure and if that continues for a further week the notification is treated as acceptance of the contractor’s programme.

NEC4 has also changed the drafting to address the question of which programme is used when assessing a compensation event. The assessment is made on the basis of “the Accepted Programme current at the dividing date”.

This date is either the date on which the project manager issues the relevant instruction or notification constituting the compensation event, or in other cases the date of notification of the compensation event. If there is no Accepted Programme then assessment is made by the project manager under the default procedure.

NEC4 has removed from the drafting the express requirement to show the effect of any implemented compensation events on any revised programme. This should make agreeing the programme easier. A project manager when implementing compensation events will still need to record the effect of a compensation event and resources associated with it so that those effects can be distinguished from general delay and original resourcing in an activity.

These changes may address the tension between the need to freeze the programme at a point where entitlement is being determined and the reality that progress is not itself frozen. Parties will still need to agree how the impact of multiple events is managed.

The goal of simply leaving it to the contract to cover every situation is an ambitious and possibly unachievable aim. It is also remains true that if the parties simply do not follow the contract process and do not agree and record such departures that difficult questions will arise as to the basis upon which additional time and money is to be assessed.

Tim Willis is a consultant and Tanya Chadha a senior associate at Trowers & Hamlins