Glenn (GMH Planning) and Neil (NE Consult) have noted several errors they see when managing NEC contracts. In an effort to promote better project outcomes, strong contract compliance, and increased trust in NEC management, Glenn and Neil explain these errors.
To help you steer clear of these pitfalls, we address common misconceptions and recommend best practices from industry experts.
Misunderstanding Early Warnings & Liability
The webinar began with Neil, who highlighted that Early Warnings are often misunderstood at the pre-contract stage. When you are used to an adversarial approach, the collaboration and mutual trust needed to navigate NEC contracts (and the Early Warning system in particular) can be quite the culture shock.
Early Warnings provide space in both Contract Data Part One and Two for either party to flag potential issues early, ensuring they’re “on the table” for discussion once the contract begins.
Importantly, capturing items in the Early Warning Register does not assign liability or blame; risk allocation is determined elsewhere in the contract. Instead, this process promotes proactive co-operation and minimises potential impacts.
Expecting Formal Responses to Early Warnings
Many people think that there is an obligation to formally reply to an early warning, but there is no contractual obligation to do so. Early Warnings are dealt with through the Early Warning meetings, with actions recorded in the register.
Some established cloud-based digital platforms create confusion by prompting mandatory replies. During the webinar, Glenn asks, “How does Digital Beehive deal with this? Is it mandatory to respond to an early warning or not within Contract Bee?”
Digital Beehive’s Brad Cahill states;
“We don’t mandate responses to early warnings in Contract Bee. Instead, the system supports issuing early warning actions and meetings, without counting responses towards overall compliance scores in the contract.”
Contractors Adding Their Own Assumptions in CE Quotations
Another common pitfall in NEC management is Contractors inserting their own assumptions in Compensation Event quotations. Under the full ECC (Engineering and Construction) contract, Contractors cannot include their own assumptions within quotes.
Clause 61.6 allows only the Project Manager to state assumptions, which can reduce risk allowances in the quotation.
Glenn and Neil propose that in a future ECC edition, it should allow Contractors to propose assumptions for Project Manager’s approval.
Neil’s key point is that “There is no such thing as a Contractor’s assumption, only Project Manager-confirmed assumptions are valid under the contract.”
Leaving X7 Delay Damages Blank
Contractors sometimes leave X7 empty, believing that it reduces risk. However, this exposes them to unliquidated damages claims, as, despite it not being in the contract, clients legally have the right to claim back loss.
The best practice, as recommended by Neil, is to include X7 with a stated value, even £0 or £1, to establish clarity and protect both parties.
This makes it clear that the damages are liquidated and there would be no other legal recourse for claiming additional costs.
Using Actual Cost Instead of Forecasts for Compensation Events
We see the question “should compensation events be based on actual or forecast cost?” a lot when dealing with compensation events, Some people consider that if a quotation has not yet been agreed or implemented, and the works have already been done, then the quotation assessment should revert to ‘actual Defined Cost’.
However, this is not what the contract states. Clause 63.1 says that it should be assessed based upon the following:
- The actual Defined Cost of the work done by the dividing date,
- The forecast Defined Cost of the work not done by the dividing date,
- The resulting Fee
Assessments are based on forecasts at the time the instruction was given or the compensation event was notified, not on actuals, and Project Managers cannot retrospectively adjust for risk or duration. Contractors must act efficiently to minimise cost and delay.
Assuming All PM Instructions Entitle Time/Cost Recovery
Lots of people assume that all instructions from the Project Manager trigger time or cost recovery. However, only instructions that fall under clause 60.1 qualify as compensation events. For example, an instruction to change the Scope or an instruction to stop work.
Instructions that clarify the Scope or enforce safety will not trigger entitlement. Contractors must distinguish between clarifications and genuine changes.
Misinterpreting “Mutual Trust and Co-Operation”
Many people misinterpret acting in “a spirit of mutual trust and co-operation” to mean ignoring contractual rules and obligations to maintain relationships. For example, the Contractor shouldn’t follow verbal instructions simply to keep the peace.
Neil’s golden rule when it comes to this is;
“The phrase “…act in a spirit of mutual trust and co-operation.” should be seen and not heard.”
The clause supports good behaviour within the contract’s structure.
It can be used cynically during disputes to push for an agreement. In those moments, Neil advises returning to clause 10.1- “…shall act as stated in the contract.”
Knowledge Sharing Is Key
Recognising and addressing these common misconceptions is key to avoiding disputes, improving unity, and ensuring projects are delivered more efficiently and successfully.
Glenn, Neil, and Digital Beehive emphasise education, clarity, and proper use of digital systems as key to NEC success.
This article highlights the key points – watch the full webinar on YouTube below to explore the full discussion in detail.
Improve NEC Contract Management With Contract Bee
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