The NEC programme: stimulus to good management, or fertile ground for claimsmanship?

Why is NEC programme acceptance so important?

The rationale that underpins the NEC is its strapline, ‘a stimulus to good management’. The contract is both procedural and prescriptive, and a key contractual document is the NEC programme.
The importance of the programme on an NEC project cannot be overstated. Not only is it afforded contractual status – which is atypical when compared with other standard forms – but failure to achieve acceptance obligates the Project Manager to assess the impact of all compensation events.1 The Project Manager is unlikely to be best placed to make such an assessment, especially for compensation events that require a forecast.2 The emanating subjectivity in such a scenario will only serve to increase the occurrence of disputes.

Therefore, contrary to what is often seen in practice, it is not in the interests of the Project Manager, or the Client, not to have an accepted programme.

What is required for programme acceptance?

In order for the Contractor to obtain acceptance of its programme by the Project Manager, the submission must show all of the information listed under clause 31.2, which includes seventeen
separate criteria.
Some of the requirements are self-evident, and simple to include, such as the starting date. However, other aspects are not only more onerous to satisfy, for example, ‘preparing a statement for each operation’, but the Contractor may not have the necessary details until some way in to the project.

Why is this a problem?

The vast majority of large capital projects are design and build, with contracts being let on the basis of Client requirements and preliminary drawings. In the early stages of such a project, there are often numerous unknowns relating to the post-contract delivery of activities as the final design will be pending. In these circumstances, completing all of the clause 31.2 criteria will frequently not be possible.

Let’s consider this obligation in a hypothetical scenario (albeit one based on recent experience).

From a contractual perspective, the Project Manager should reject a programme that fails to satisfy all of the clause 31.2 requirements on the basis that it ‘does not show the information the contract requires’;3 an explicit reason for programme rejection by the Project Manager.

Yet, the Project Manager is faced with a predicament. His foremost duty is to discharge the functions he is expressly required to perform under the contract;4 but he, along with the Parties, is also
obligated to act in a spirit of mutual trust and cooperation.5 

He considers it pragmatic to accept the Contractor’s programme, despite not all of the clause 31.2 criteria being included, on the basis that rejecting it could be construed as unreasonable, and at
odds with the spirit of mutual trust and cooperation.

Fast forward six months, and the Project Manager, who has now accepted six consecutive clause 32 programmes that do not contain all of the information the contract requires (on the basis that it was collaborative to do so), now opines that the Contractor should be in possession of necessary detail, and that this ought to be included in the next clause 32 submission.

Despite the Project Manager’s request, the Contractor is aware of the opportunity that has manifested, and with a focus on optimising the extent of the programme delay for impending compensation event quotations to increase the recovery of time related costs, opts to withhold the information.

The Project Manager reminds the Contractor that such wilful abrogation of its responsibilities is uncollaborative. The Contractor however, is aware that the Project Manager will not want to
highlight to the Client that he has failed to comply with the contractual specifics relating to the programme rejection, and in the knowledge that the Project Manager only has the spirit of
mutual trust and cooperation on which to rely as a defence for his position, continues to avoid divulging the requested details.

What is the Project Manager to do? Does he reject all future clause 32 programme submissions that are not strictly compliant with clause 31.2, or does he continue to accept the programmes,
despite persistent non-compliance?

 If the Project Manager adopts the former approach, not only does this have the potential to highlight the issue to the Client, who may question his conduct; but clause 64.1 mandates that in the absence

of an accepted programme, the Project Manager must assess all compensation events. As he will be unlikely to have a handle on the specifics of the programme (as is typically the case in major
projects which will include thousands of activities), such mandatory assessment of compensation events by the Project Manager has the potential to result in highly subjective outcomes, especially for
those events that involve a significant time impact.

The Project Manager can of course include assumptions,6 which if found to be incorrect, can provide entitlement to a subsequent compensation event7 to permit a correction. Problem solved then? Not quite.

The inevitable claimsmanship that ensues in this scenario often results in the Contractor attempting to have his cake and eat it; keeping quiet when the assumption is favourable, and seeking
additional recovery through clause 60.1(17), when it is not.

In the alternative, should the Project Manager progress the latter option, continuing to accept programmes which are not compliant with clause 31.2, he is leaving the Client commercially exposed to potential programme manipulation by the Contractor, which will likely include excessive preliminaries in compensation event quotations that are ‘demonstrated’ through the clause 32 impacted programme.

Furthermore, this failure by the Project Manager to discharge his contractual obligations could lead to him being held liable to the Client for negligence.

 Case law

The NEC is widely used and it might therefore have been expected that the courts would have provided decisions, indicating how such a scenario might be determined. To date however, there has been relatively little case law on the NEC, and the consequences of a breach of the duty to act in a spirit of mutual trust and cooperation remains unclear. This lack of clarity is further complicated by the positions differing markedly in England and Scotland.

In England, the courts decided that the obligation to act in a spirit of mutual trust and co-operation should not prevent reliance on the agreed terms of contract.8

By contrast, in Scotland,9 the operation of the explicit terms of the contract is dependent on compliance with acting in a spirit of mutual trust and co-operation, which is considered a ‘counterpart’.10

What is the solution?

The unamended NEC programme obligations in clause 31.2, particularly in the early stages of a major project, are frequently not possible for the Contractor to fully satisfy. Whilst it should be noted
that not all Contractors will seek to maximise the emanating opportunity in the manner described above, Blake Newport has recently advised Clients on projects where this situation has come
to pass.
What appears clear is that this matter is being increasingly recognised by Clients, with Z clauses often being included to modify the programme requirements. Blake Newport has been recently commissioned on projects which have included amendments such as: varying states of acceptance of a programme available to the Project Manager; the requirement to fully resource portions of works over a specific period; and, commercial ramifications in the event that the Contractor fails to
comply, such as disallowing costs or commercial rights of set-off.

Conclusion

Uptake of the NEC across multiple sectors is testament to the fact that in theory it is an attractive proposition. In practice however, the NEC relies on the Parties and the Project Manager behaving in a
reasonable, collaborative manner, with little available contractually to combat any adversarial behaviour.

The over-reliance many NEC practitioners place on acting in the spirit of mutual trust and cooperation, and the current polarity on this matter under English and Scottish law, leaves a Client who is keen to reduce the likelihood of claims, with little choice but to modify the NEC conditions of contract.

Amending the programme-related obligations to provide for fluidity in the requirements, thereby permitting a pragmatic approach whilst maintaining contractual compliance and limiting opportunities for malpractice, is considered a prudent measure.

Despite the impending wrath of NEC advocates, the NEC in its unamended form affords few solutions to combat such tactics. Any reliance placed on the spirit of mutual trust and cooperation in
England would be expected to be ineffective, with the only ramification in the unamended terms being termination11 – an unlikely outcome on most major capital projects.

1 NEC4 Engineering and Construction Contract, Clause 64.1

2 ibid, Clause 63.1

3 Reasons for rejection of the programme by the Project Manager – NEC4 ECC, Clause 31.3

4 Sutcliffe v Thackrah [1974] AC 727

5 NEC4 Engineering and Construction Contract, Clause 10.2

6 NEC4 Engineering and Construction Contract, Clause 61.6

7 Ibid, Clause 61.1(17)

8 Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC).

9 Van Oord UK v Dragados UK [2021] CSIH 50

10 Subject to appeal in the Supreme Court

11 Clause 91.2. R11