7/14/2019 NEC3 Early Warning System Benefits and Pitfalls - Vol IV Issue No. 7

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Volume IV Issue No. 7

The Global Leader in Managing Construction Risk

NEC3 Early Warning System – benefits and pitfalls

Disclaimer: This article does not constitute advice, legal or

otherwise, and is provided only as general

commentary. Appropriate professional advice should

always be obtained before taking or refraining from taking

any action in relation to such information and/or the

application of applicable law. This article and the materials

contained in it are provided on the basis that all liability for

any loss or damage, whether direct or indirect, arising out of 

or in connection with any use or reliance up on this article is

excluded to the fullest extent permitted by law.

David Brodie-StedmanSenior Vice President & Managing Director

Asia, Middle East and Africa

Abu Dhabi Office

Butti Al Otaiba Bldg., Suite 1601 & 1602

Sh. Khalifa St., P.O. Box: 5201, Abu Dhabi – U.A.E

 Tel : +971 – 2 – 627 2855

Fax: +971 – 2 – 627 2042E-mail: auh@hillintl.com 

David MerrittSenior Vice President & Managing Director

Middle East and Africa

Sultan Business Centre

5th Floor, Suite 501

P.O. Box: 71467, Dubai - U.A.E. Tel. : +971 - 4 - 337 2145

Fax : +971 - 4 - 335 6077

E-mail : dxb@hillintl.com 

Most standard form contracts require

Contractors to give notice of events

that could give rise to a potential delay

or monetary claim, and specify that

failure to do so could lead to a rejection

of the claim. This is an issue that always

seems to be present in the

consideration of claims. But, is there a

better way of doing things?

The NEC ‘family’ of contracts takes a

different approach. It sets out

requirements for the Contractor to

notify the Project Manager of 

Compensation Events. But it also has

taken a further step by putting in place

additional provisions for an ‘early

warning system’ which is designed to

promote collaborative effort and a

proactive risk management process.

The early warning procedure contained

in NEC3 places an obligation on the

Project Manager and the Contractor to

notify each other as soon as eitherbecomes aware of any matter that may

affect the works. These provisions give

each party the right to instruct the

other to attend a risk reduction

meeting, thereby preventing the

Contractor from dealing with the issues

unilaterally. The purpose and the spirit

behind the risk reduction meeting is to

focus on resolving problems and

mitigating risks, rather than looking for

blame, in order to make a positive

change to the course of events when it

is still possible.

The NEC3 contract still contains a bar

for the late notification of 

Compensation Events, but the

Contractor will not lose its entitlement

due to failure to submit an early

warning. However, it has been argued

that the assessment of the Contractor’s

compensation may be affected if an

early warning is not issued. The logic

behind this argument is that clause 63.5

implies that if a warning had been given

earlier, mitigation measures could have

been taken to reduce the time and cost

impact of the event; the Project

Manager may therefore take this into

account in his assessment of the

“value” of any mitigation measures

which could have been taken.

Notwithstanding the above, caution

should be taken, when dealing with the

NEC3 form of contract, not to fall into a

blame game regarding early warnings.

On larger projects, numerous events

may occur for which an early warning

could be issued. It may, however, not

be possible or practicable for a

Contractor to raise an early warning for

every single issue. Further, the Project

Manager needs to be fair and

reasonable when assessing the events

for which the Contractor has not given

an early warning, bearing in mind that

early warnings are separate from the

Compensation Event process despite

there being some connection as stated

above.

In order to benefit from the advantages

that the early warning system can bring

to a project, it is crucial for the parties

to understand the principles under

which the NEC3 form of contract has

been designed. The opening core

clause of NEC3 requires the parties to

act “in a spirit of mutual trust and co-

operation” . This provision is often

ignored by the parties, as it does not

appear to impose any “real” obligation.

However, a recent English case

(Compass v Mid Essex Hospital Trust)

might be seen as heralding a shift in

that position, causing parties to think

more carefully about these and similar

obligations.

UAE law requires that a contract must

be performed in a manner consistent

with the requirements of ‘good faith’.

With this apparent shift in thinking in

common law jurisdictions, these and

similar contract terms should cause

parties to consider their obligations

more carefully. Current thinking seems

to be to give real meaning to these

obligations. So, ignore them at your

peril (or cost!).

Ali Akbar Fard

Senior Consultant

Hill International, Claims Group

Hill International, with 3,200

employees in 110 offices worldwide,

provides program management,project management, construction

management and construction claims

and consulting services. Engineering 

News - Record  magazine recently

ranked Hill as the 11th largest

construction management firm in the

United States.

For more information on Hill, please

visit our website at www.hillintl.com.