Welcome to the fifth in our series of educational articles, providing you with practical insight into the various mechanisms in standard form contracts and their practical application.
In the last blog, we looked at how and when an Accepted Programme under the NEC4 engineering and construction contract (ECC) is used. In this latest blog, we look at how a compensation event is assessed under NEC4 when the Accepted Programme is out-of-date.
An Accepted Programme is a baseline for assessing compensation events
One of the primary functions of an Accepted Programme is to act as a baseline for assessing delays caused by compensation events (CE). The intention in the ECC is that the current programme at the time of a CE is used to assess the delay caused (see clause 63.5).
As a reminder Clause 63.5 provides “A delay to the Completion Date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme current at the dividing date”.
The “dividing date” is described at clause 63.1 which provides:
“For a compensation event that arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision, the dividing date is the date of that communication.
For other compensation events, the dividing date is the date of the notification of the compensation event.”
Thus the programme to be used as a baseline for assessing a CE is “the Accepted Programme current at the dividing date”.
Assessment of CE when an Accepted Programme is out-of-date
The “current” Accepted Programme refers to the latest Accepted Programme. As the acceptance of programmes requires the Contractor to submit a compliant programme and the Project Manager (PM) to accept it, this can and frequently does lead to submitted programmes not being accepted. If this state of affairs continues for several months (which is not uncommon), this could result in the last (and therefore the current) Accepted Programme being out-of-date, in that it no longer accurately reflects the actual durations of activities and anticipated programming of the works.
In these circumstances, clauses 64.1 and 64.2 apply.
Clause 64.1 provides “The Project Manager assesses a compensation event:
- If, when the Contractor submits quotations for the compensation event, it has not submitted a programme or alterations to the programme which the contract requires it to submit, or
- If, when the Contractor submits quotations for the compensation event, the Project Manager has not accepted the Contractor’s latest programme for one of the reasons stated in the contract.”
Clause 64.2 provides “The Project Manager assesses the programme for the remaining work and uses it in the assessment of a compensation event if:
- The Contractor has not submitted a programme or alterations to a programme for acceptance as required by the contract, or
- The Project Manager has not accepted the Contractor’s latest programme for one of the reasons stated in the contract.”
Thus, where the Contractor has not submitted a programme for acceptance or the PM has not accepted a programme for a reason stated in the contract, clause 64.1 is invoked and the PM carries out his own assessment of the CE. To enable him to do that in the absence of an up-to-date programme, under clause 64.2 he “assesses the programme for the remaining work”. In other words, he produces his own programme which he considers accurately reflects the progress of the works at the time.
By the time the PM decides to invoke clauses 64.1 and 64.2, there is a reasonable chance the parties are heading towards a dispute about the effect of a CE on the Completion Date. This is because for that provision to be invoked the Contractor and the PM are likely to already be in disagreement about what constitutes an accurate current programme. Thus, if the current baseline programme is disputed there is a reasonable chance the assessment of the delay caused by the CE will be disputed.
If after the PM has carried out his own assessment of a CE the Contractor disagrees with that assessment, the Contractor has the choice to activate the dispute resolution. In the UK, this most likely means referring the dispute to an adjudicator.
In summary, where the current Accepted Programme is out-of-date:
- The PM is able to assess CEs (clause 64.1).
- The PM produces his own programme to accurately reflect the progress of the works at the time (clause 64.2).
- If the Contractor disagrees with the PM’s assessment of a CE, it may activate the dispute procedure.
Standard contracts explained
Look out for more in our series in the coming weeks and months where we will be providing more practical insight into the various mechanisms in standard form contracts, to help businesses navigate the complexities involved in administering those contracts.
How to get in touch
Berwick Law is a specialist construction law and tax advisory practice. Our lawyers and advisers understand these sectors and have often worked within them. We have an intimate understanding of the issues our clients face. This enables us to guide our clients to establish realistic objectives and then devise a strategy to help them achieve those objectives.
To find out more about how we can help you, contact our Director Warren Berwick on 0121 663 0287 or email email@example.com.
How to subscribe
If you would like to be added to our mailing list to get our series of articles sent to you, simply complete the form on our Contact Us page.
As with all our blogs, these are intended to share general information. If you have any specific contractual issues, you should take specific legal advice.