Strict time

The New Engineering Contract has become the form of choice for public works. Schools, sewers, hospitals, the Olympics – they are all using the NEC. Unfortunately not everyone who is doing so understands it. It is a deceptively simple contract that offers huge scope for lawyers to argue. We need more cases to come before the courts, but they seldom do because by the time the parties have been through adjudication they can’t stomach further battles.

The decision of Mr Justice Jackson in Multiplex Constructions (UK) vs Honeywell Control Systems (covered by Dominic Helps on 11 May, page 63) was not about the NEC, but it may have brought an end to one of the biggest arguments about its interpretation.

This was all about the timing of compensation event notices. Compensation events are at the heart of the NEC. The only way that a contractor can recover additional payments or time is through the compensation event procedure. Valuation of variations, loss and expense claims and extensions of time under JCT all become compensation events under NEC.

Under NEC2, the contractor had just two weeks from becoming aware of the event to notify the project manager about it. Some thought that if the contractor failed to notify within that time, any entitlement to extra money or time was lost. Others said that was nonsense, and delay in notifying could not deprive the contractor of its entitlement.

NEC3 has changed that. Now the contractor has no time limit if the event is a project manager’s instruction, and for other compensation events the time limit to notify is eight weeks. The contract seems rather clearer that the contractor loses entitlement if the event is not notified in that time.

But still some commentators say the contractor cannot lose its entitlement because of delay. What happens if the employer causes delay by failing to provide access or some specialised item of equipment? Surely the contractor should be entitled to more time regardless of the notice?

Those commentators rely on an Australian case, Gaymark Investments vs Walter Construction Group. That case involved the construction of a hotel. The employer had caused a delay of 77 days, but the contractor had failed to comply with strict notice provisions. The employer said the contractor was not entitled to an extension of time, and it deducted liquidated damages. The Australian court decided that it was wrong to allow the employer to benefit from its own failings in that way, whatever the contract said. The court said if the contract stated that the employer couldn’t give an extension of time because the contractor had failed to jump through procedural hoops, then time was set at large, there was no finite contractual completion date and there could be could be no liquidated damages.

Mr Justice Jackson made it very clear that the Australian case would not have been decided in the same way in England

A similar issue arose over Wembley stadium, which is how Multiplex and Honeywell ended up before Mr Justice Jackson. Honeywell was responsible for several electronic communications systems, and its contract required it to give prompt notice of any delay.

Honeywell said it had been delayed by all sorts of issues for which Multiplex was responsible, and it argued that time had therefore been set at large. An adjudicator decided that it was right. Time was at large.

In a rare example of an adjudicator’s decision being taken further, Multiplex asked the court to rule that time was not at large, because there was a perfectly proper mechanism for extending time.

Honeywell had various arguments in reply, one of which was the Gaymark point – it said Multiplex should not be able to get out of the consequences of delays that it had caused itself by relying on notice provisions.

The judge found against Honeywell on several grounds, and in the end the Gaymark point was not the deciding issue, but he made it clear that anyone relying on the same approach in his court would have a very difficult time.

So if a contract requires notice within a given timetable as a condition precedent to an extension, that notice must be given. NEC3 requires notice of most such claims within eight weeks, and if notice is not given, there will be no entitlement. NEC3 expects everyone involved in the project to play strictly by the rules.