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construction contract and commercial consultants

NEC3 questions #6 – breakdown in communications?

In this series titled “NEC3 questions”, Steven Evans addresses the most common questions asked about the NEC3 contract.

“There has been a breakdown in communications and a breakdown in the spirit of mutual trust and co-operation – what are the consequences?”

The question is in two parts:

  • A breakdown in communications between the parties; and
  • A breakdown in the spirit of mutual trust and co-operation.

Dealing with the easier part first:

A breakdown in communications between the parties is easily addressed under NEC3. In any communication for which the Contract requires a reply, such reply must be provided within the timescale stated in the applicable clause or, if none stated, in the period for reply stated in the Contract Data.

If the Project Manager fails to reply to the Contractor, it is a compensation event. Additionally, if the Project Manager fails to reply to a Contractor’s quotation for a compensation event and fails to reply to the Contractor’s reminder then the Contractor’s quote will be deemed to be accepted and implemented.

If the Contractor fails to reply to the Project Manager, the Project Manager may assess the cost of that failure to the Employer and make that adjustment in the next payment to the Contractor.

If the Contractor fails to give early warning then the Project Manager takes that into account when valuing a compensation event arising from it. Under main options C, D, E and F any costs incurred as a result of a failure by the Contractor to give an early warning are disallowed costs and excluded from Defined Cost.

If the Contractor fails to notify the Project Manager of a compensation event that the Project Manager is not required to notify the Contractor of within 8 weeks of becoming aware of the event, the Contractor will lose his right to claim an adjustment to the Prices or the Completion Date.

Fail to communicate at your peril!

As for the second part, mutual trust and co-operation is enshrined in NEC3 at the first clause:

The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in a spirit of mutual trust and cooperation.

There appears to be two separate obligations; that the parties stated shall:

  • act as stated in this contract; and
  • act in the spirit of mutual trust and cooperation.

The first part is straightforward and the remedy for most breaches of that obligation are contained within the contract, for example the failure to reply to a communication as set out above.

The second part is more problematic from a legal point of view. There is no concept of good faith in English Contract Law, however, this clause imports such an obligation into the NEC3.

Clearly, it is an obligation that can be breached, but there is no remedy for the breach contained within the contract; accordingly, the innocent party’s remedy lies outside the contract, i.e. common law damages (or possibly an equitable remedy in appropriate circumstances).

The problem for the innocent party is proving that the behaviour of one of the parties is, whilst not a breach of the other parts of the contract, a breach of the spirit of mutual trust and cooperation. The innocent party would then need to assess and prove a monetary compensation.

There are other interpretations and we wait for the first court case to settle the point.

For more information, please contact us.

Written by Steven Evans who is a construction contract and commercial expert with particular specialism in NEC3, and is an NEC accredited tutor.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.