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The claims process under the NEC3

15 November 2019

Early Warnings

Early warnings are addressed in Clause 16 of the NEC3, which requires either the Contractor or the Project Manager to issue an early warning as soon as they become aware of any matter which could increase the total of the Prices, delay Completion, delay the meeting of a Key Date or impair the performance of the Works.

Early warnings do not constitute notification of a compensation event and do not interrupt the running of the Clause 61.3 8-week time bar (addressed below). 

The significance of an early warning relates to the assessment of the value of the compensation event.  In this regard, Clause 63.5 states that “[i]f the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an experienced contractor could have given, the event is assessed as if the Contractor had given early warning”.  This means that, if the cost or delay (or a portion thereof) of the compensation event could have been mitigated if an early warning was issued, then the Contractor is sanctioned by losing its entitlement to that cost or delay (or potion thereof) which could have been avoided.

Compensation Events under the NEC3

Compensation Events are addressed in Clause 6 of the NEC3.  Only the events listed in Clause 60.1 are considered compensation events.  Compensation events entitle a Contractor to a change in the Prices (assessed as an impact upon the cost of the components in the Shorter Schedule of Cost Components), the Completion Date or a Key Date.

Compensation events must be notified to the Project Manager within 8 weeks of the Contractor becoming aware thereof, failing which (unless the event arises from the Project Manager or Supervisor giving an instruction, issuing a certificate, changing an earlier decision or correcting an assumption) the Contractor “is not entitled to a change in the Prices, the Completion Date or a Key Date”.  This operates as a time bar.

Once the compensation event has been notified, the Project Manager has one week to respond, advising of his decision as to whether the event in question constitutes a compensation event.  Should he fail to do so, the Contractor may give a notice to this effect, and the Project Manager has a further two weeks to provide his decision.  Should he still fail to do so, the compensation event is treated as being accepted as such by the Project Manager.

Once the compensation event has been accepted, the Contractor has three weeks to submit its quotation (for a change to the Prices, Completion Date or Key Dates as a result of this event) to the Project Manager.  The Project Manager has two weeks to respond. Should he fail to do so, the Contractor may give a notice to this effect, and the Project Manager has a further two weeks to provide his decision.  Should he still fail to do so, the quotation is treated as being accepted as such by the Project Manager (this may be disputed by the Employer and reviewed by the Adjudicator in terms of Clause W1).

Access

Lack of access is often relied upon as the cause of action for a compensation event under the NEC3 and, therefore, warrants specific mention.  Clause 60.1(2) states that it is a compensation event when “[t]he Employer does not allow access to and use of a part of the Site by the later of its access date and the date shown on the Accepted Programme”.

In Imprefed (Pty) Ltd v National Transport Commission 1993 (3) SA 94 (A), however, it was held that a clause which obliges the Employer to give the Contractor initial access to the site, to commence performance of the Works, does not give rise to an entitlement to make a claim when the Contractor, after being initially granted access to the Site, is later prevented from accessing a portion of that Site.  Such prevention constitutes a different cause of action, which must be established under one of the other compensation events listed in Clause 60.1.

Dispute Resolution under the NEC3

Dispute resolution is dealt with in Clause W1 of the NEC3.  Should a dispute arise (most commonly when the Project Manager issues a decision rejecting the Contractor’s compensation event and/or quotation), the referring party has four weeks to issue a dispute notice.  If they do not do so, neither party may refer the dispute to the Adjudicator or the Tribunal.  This operates as a time bar.

The parties are required to appoint the Adjudicator under the NEC Adjudicator’s Contract current at the starting date.  The Adjudicator should be named in the contract data, however, if not, and the parties cannot agree on his identify, either party may apply to the Adjudicator nominating body to chose the Adjudicator.

The referring party must deliver its referral between two and four weeks after notification of the dispute.  This creates a two-week cooling off period after the appointment of the Adjudicator, during which no submissions can be made to him.  If the referring party does not deliver its referral within four weeks of notification of the dispute, neither party may refer the dispute to the Adjudicator or the Tribunal.  This operates as a further time bar.

Following delivery of the referral, both parties have a further four weeks to submit any additional information they wish the Adjudicator to consider.  In practice this does not work well, as the responding party will usually wait until the final day of this four-week period to submit its response, raising new material/arguments.  This leaves the referring party without an opportunity to respond thereto.  It is, therefore, recommended that the parties agree to a more structured approach to the submissions i.e.:

  • The referring party delivers its referral within four weeks of notification of the dispute;
  • The responding party delivers is response within four weeks of delivery of the referral;
  • The referring party is afforded the opportunity to deliver a replication within two weeks of delivery of the response; and
  • The responding party is afforded the opportunity (if required) to deliver a rejoinder within two weeks of delivery of the replication.

The Adjudicator will then have four weeks from the last submission to deliver his decision, which decision is binding unless and until it is revised by the Tribunal.

A dissatisfied party has four weeks to deliver a notice of referral of the dispute to the Tribunal.  If neither party delivers such a notice, the Adjudicator’s decision becomes final and binding.  This also acts as a time bar.

Author: Michelle Kerr, Director