Historically, there has been scarcity of case law concerning NEC suite of contracts since its 20 years of existence. In recent times, case laws concerning NEC suite are on the rise; and it is interesting that you can find many adjudication enforcement proceedings issued on NEC compared to other forms of contracts. Perhaps, these case laws may (or may not) be as a result of the collaborative and proactive approach that the suite encourages. The case between Atkins Ltd v Secretary of State for Transport (SST) [2013] EWHC 139 (TCC) is of particular interest in that the issue between the parties was the interpretation of compensation event provisions of the amended NEC3 contract, which stated that
“The Provider encounters a defect in the physical condition of the Area Network which … an experienced contractor or consultant 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. “
This clause is very similar in terms of terminology and language to clause 60.1(12) of the NEC3 conditions. Whilst Atkins wanted compensation for each and every pothole encountered, the SST said the volume of potholes could have been reasonably foreseen and that any excess in number did not give rise to a compensation event.
The Contract contained a version of the NEC3 Conditions, albeit somewhat modified. Mr Justice Akenhead noted that whilst the NEC3 terms are seen by many as providing material support to assist the parties in avoiding disputes and ultimately in resolving any disputes that do arise, there are also:
“some siren or other voices which criticise these Conditions for some loose language, which is mostly in the present tense, which can give rise to confusion as to whether, … or to what extent actual obligations and liabilities actually arise.”
The contract was based on a lump sum subject to Atkins’ right to claim relief if a “compensation event” occurred. Sub-clause 60.1(11) stated that a compensation event arises where:
- “The Provider encounters a defect in the physical condition of the Area Network which
- is not revealed by the Network Information or by any other publicly available information referred to in the Network Information,
- was not evident from a visual inspection or routine survey of the Area Network at the Contract Date,
- an experienced contractor or consultant acting with reasonable diligence could not reasonably have discovered prior to the Contract Date and
- an experienced contractor or consultant 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
Only the difference between the physical conditions encountered and those for which it would have been reasonable to have allowed is taken into account in assessing a compensation event.”
In his judgment the judge and as a first point, commented on the practical difficulties of determining how many potholes would constitute an excessive number. It would be “an extremely difficult and probably artificial exercise” to try and establish this. Secondly, the Judge did not consider that there is any commercial logic or common sense in defining the contract as enabling the volume of individual defects to be part of the equation.
Please use modern case studies.
The brief (what needs to be done)
As a potential Contract Manager in the UK construction industry, you are to critically evaluate the contractual implication of the case between Atkins Ltd v Secretary of State for Transport [2013].
Your discussions should concentrate on the following key issues:-
- Introduction to the study and legal implication of modifying standard forms of contract to suit contractual parties need in the construction industry.
- Reasons for growing case laws concerning NEC3 ECC in recent times;
- Analysis on why standard forms of contract are not panacea to dispute and or whether reliance on sub-clauses of standard forms of contracts is sufficient to avoid disputes in the construction industry.
- Examine whether there is “commercial logic or common sense” in Atkins’ interpretation or claim for compensation considering that the payment mechanism is based on a lump sum.
- Appraisal of Alternative Dispute Resolution (ADR) and or whether the arbitrator’s decision in this case was wrong.
- A robust assessment of how to avoid dispute in the construction industry.
- Conclusion to entire issues appraised.
