The NEC was supposed to move from legal language to something more practical at project level. But a case from last year shows what can happen when courts are left to interpret the contract

Rob Horne

What is the most basic requirement of a construction contract? A signature? A method of payment? Surely even more basic is to provide an obligation to do work and then identify what that work is.

Under the NEC that can be found at clause 20.1 and then through the definition of “to provide the works”.

This definition starts off helpfully with “to do the work necessary to complete the works in accordance with this contract…”, and goes on “…and all incidental work, services and actions which this contract requires”.

For some people this is a complete jumble, for others it is simplicity itself. What though would a court make of it? Lawyers can, after all, be quite particular about the words used in contracts.

Step up Mr Justice Ramsey in the recent case of Liberty Mercian vs Cuddy Civil Engineering Limited and Cuddy Demolition and Dismantling Limited. Others have discussed the bulk of the decision in that case, which focuses on what parties were and were supposed to be to the contract (see “What’s in a name” by Simon Lewis, Building, 11 October 2013).

However, the court also had a look at what “to provide the works” means under the NEC. Specifically, it was asked to consider whether, after a termination, an obligation to provide bonds, warranties and parent company guarantees remains effective.

It’s a neat piece of legal reasoning but how many engineers, quantity surveyors and project managers would have understood that?

The discussion of this important point on the NEC is tucked away, starting at paragraph 166 of the judgment but it is well worth a read.

The argument put forward was that, under the terms of the NEC clause 90.5, once a termination certificate is issued “the contractor does no more work to provide the works”. Therefore, as provision of warranties, bonds and guarantees are part of the obligation to provide the works the obligation to provide them ceased on termination.

The counter argument was twofold: either the obligation had already accrued before the termination, or
the obligation to provide a bond, guarantee or warranty was not within the scope of “to provide the work” but was actually ancillary or collateral to that requirement.

Although this case focused on the consequences of termination, cause enough for it to be considered in detail, it actually has wider application as insight to the way the primary obligation in any construction contract to provide the work, will be viewed.

The court found it difficult to see how the provision of bonds, warranties and guarantees could fit within the definition of to provide the work.

It concluded that “…the termination provision in this case, clause 90.5, was intended to apply so that the contractor did no more work necessary to provide the works but this would not include the obligations […] in relation to the parent company guarantee, the bond or the warranties”.

So, the provision of a bond, warranty or guarantee is not work (that, I think, is fairly self-evident), but neither is it incidental work, a service or an action required by the contract. This is a much tougher proposition to understand.

The problem is, what happens if such requirements are not within the definition?

If the contractor’s obligation is to provide the works and that does not include providing bonds, guarantees or warranties, how do you ensure they are provided?

Interestingly, the court found that although the obligations were not part of “to provide the works”, they in fact sat outside or collateral to the main agreement and were therefore enforceable directly.

Alternatively, they did not form part of the work necessary to provide the works as referred to in clause 90.5 and therefore the prohibition of further action did not apply. This might be a neat piece of legal reasoning but how many engineers, quantity surveyors, project managers and the like would have understood that when looking at the contract? Not many I would expect.

Is this decision helpful? The real point of the NEC was that it was written in plain language so that those operating it could understand and apply it.

The NEC was an attempt to move away from legalistic drafting into something more focused on project level application. So when a clause says to provide the works means carrying out “all incidental work, services and actions”, how is the provision of a bond, warranty or guarantee not caught?

The approach adopted in this case perhaps looks too closely at the legal argument and too little at the practicalities of construction projects, and this is the real danger the court faces in looking at so proactive a form
of contract as the NEC.

Rob Horne is a construction partner who specialises in dispute resolution at Trowers & Hamlins