early warning notice under nec 3

8/3/2019 Early Warning Notice Under NEC 3

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Early Warning Notice under NEC 3Posted on March 14, 2011 by admin

NEC 3 addresses the key recommendations of Sir Michael Latham in his report

³Constructing the Team´; including:

The contributors to the operation of NEC contract to do so in a spirit of ³mutual

trust and co-operation´

Firm duties of teamwork, with shared financial motivation to pursue those

objectives

A wholly interrelated package of documents which clearly defines the roles and

duties of all involved, and which is suitable for all types of project and for any

procurement route

A choice of allocation of risks appropriate to each project according to the party

best able to manage each risk

Provision for changes to be priced in advance with reference to independent

adjudication, if agreement cannot be reached

Flexibility as to interim payments by milestones, activity schedules or otherwise

Early Warning Notice Clause in NEC 3 Contract

One aspect of ECC 2 (the Engineering and Construction Contract), which attracted

attention and commendation was that it provided for early warning. Early Warning

notice is to be given of potential problems. Its operation in practice has been generally

successful. This did much to enhance the status of ECC 2 as a collaborative contract.

NEC 3 retains provision for early warning but they are now integrated with the risk

reduction matters. Early warning meetings are also re-named risk reduction meeting.

What is NEC3 Clause 16 ± Early Warning Notice all about?



The purpose of early warning is to make binding the obligation on both the Contractor

and the Project Manager to give an early warning notice to the other as soon as either

³becomes aware´ of anything which may

A ffect the contract price

Delay completion

Impair the performance of the works in use and

Delay meeting key date

The project manager is motivated to give early warning in order to maximise the time

available to consider the problem with the contractor and thereby to increase the

likelihood of finding the best solution (in the spirit of mutual trust and cooperation) to

meet the Employer¶s interest.

Early warning issues

The early warning clause 16.1 provides that the contractor µmay¶ give early warning to

the project manager of any other matter which could increase his total costs. The clause

goes on to state that the project manager enters early warning matters in the risk

register and that early warning of a matter for which a compensation event has

previously been notified is not required.

Some things which would obviously come within the scope of mandatory part of the

clause are discovery of unforeseen ground conditions, design problems, insolvency of

key subcontractors, materials or plant shortage and the like. Considering the wordings

of the clause, it is clearly more than a mechanism for one party informing the other of its

faults. But in the spirit of ³mutual trust and co-operation´, one could say, that this is the

core value and culture of NEC forms of contract, it requires disclosure of the parties own

fault.

One of the difficulties of the early warning clause is that it is unclear how rigidly its

mandatory parts are to be operated. Some degree of common sense and some tests of

reasonableness and seriousness must be applied to avoid trivial matters obscuring the

true purpose of the provision.

The additions to clause 16.1 in NEC 3 address three separate matters:



Discretionary early warning by the contractor of matters which could increase his

total cost. The purpose of this is not quite explicit. Under Options C,D, E and F of

ECC 3, increased total costs could increase the total of prices would seem,

therefore, to come within the mandatory part of the clause.However, it may be

argued that the mandatory part is worded to strictly and for Cost Reimbursable

Options it is not practicable to require early warning notices for every price

increase. In so far that the discretionary provision applies to Options A and B it is

perhaps, simply early warning that the contractor may be looking for claim

opportunities or may be running into financial difficulties.

If an early warning is given by either the project manager or the contractor, the

project manager is required to make an addition to the Risk Register to cover the

matter. Both mandatory and discretionary matters seem to be included.

Early warning is not required for matters previously notified as compensation

events. This remedies a procedural defect in ECC 2 and remover duplication of

notices. However, it raises questions, as to whether all compensation events

should be entered into the Risk Register.

Consequences for failure to give early warning notices:

The sanction on the contractor for failing to give a required early warning notice is

found in clause 63.5. This relates to the assessment of compensation events. This means

that if the contractor does not give a required early warning then the assessment of a

compensation event cannot be greater than the assessment which would have followed

the notice.

It is important to note that obligation on the contractor under clause 16.1 is to give

notice µas soon as¶ becoming aware of any matter requiring notice. However to apply

clause 63.5 to assessment of compensation event arising, the project manager must first

have notified the contractor under clause 61.5 of his decision that the contractor did notgive early warning which µan experienced contractor could have given¶. It is possible that

early warning could have allowed actions to be taken which would have reduced costs

and save time.

It is worth noting that there no express sanction in NEC 3 for failure by the project

manager to give early warning. But, acting in the best interest of the employer, the



project manager would be expected to be conscientious in doing so. A ny proven failure

by the project manager to give early warning of a matter which he became aware would

have potentially be a breach of clause 10.1 and arguably entitle the contractor to

damages for breach against the employers or payment under the compensation event

clause 61.8.

R isk Attendance R eduction Meetings ± Clause 16.2

Clause 16.2 authorises the project manager or the contractor to call a risk reduction

meeting at any time to discuss any problems or potential problems. This clause provides

instruction to attend the meeting, however the consequences of one party find the

instructions inconvenient or impertinent and failing to attend are not addressed.

Clause 16.2 also provides that either the project manager or the contractor may instruct

other people to attend if they both agree. Literarily, this would depend on the project

manager or the contractor having it within their power to instruct to attend. What this

means is that it he project manager and the contractor so agree then either can invite

other persons to a risk reduction meeting if they think their presence would be helpful.

It is worth noting that the supervisor has no automatic right to attend and therefore, he

can only attend if the contractor and the project manager agree that he can.

R isk R eduction Meetings ± Clause 16.3

Clause 16.3 of NEC 3 is a version of clause 16.3 of ECC 2 expanded to refer to and

include for risk reduction. The intention of the requirement for the contractor and the

project manager, and any other people attending the meeting, to co-operate is to ensure,

as far as possible, that actions are taken and decisions made which avoid or mitigate the

effects of identified risks on cost, quality and time.

Clearly the obligation to co-operate only extends to those who are bound by the contract

but it does raise some questions on whether it really is intended to be an obligation ormerely exhortation. However, given the obligation in clause 10.1 of the contract for the

parties to act in a spirit of mutual trust and co-operation it may be a breach of a contract

not to co-operate.

R evision of the R isk R egister ± Clause 16.4



This clause in NEC 3 requires the project manager to revise the risk register to record

decisions taken at each reduction meeting and to issue the revised risk register to the

contractor. The clause also provides that if a decision needs a change to the works

information, the project manager should instruct the change at the same time.

It is useful for the project manager to record any decisions about actions to be taken,

stating not only who will take them but also when action when action will be taken.

In conclusion, early warning and its operation in NEC 3, is one of the features of

dissimilarity to existing standard forms of contract. It is essential to understand that

NEC 3 is a collaborative contract, when you consider the requirement for principal

contributors (i.e. the employer, the contractor, the project manager and the supervisor)

to the operation of NEC 3 contract to do so in a spirit of ³mutual trust and co-operation´, operating the early warning notice clause is key to achieving this objective.

A lthough the NEC 3 is designed to motivate and inspire all contributors to execute the

contract in a collaborative and continuous improvement performance, however strong

management discipline and change of organisational culture may be required to achieve

this aims.

early warning notice under nec 3

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