Early Warnings in Contract Data. Why it won’t protect you.
03/06/24
Newsletter #9:
Welcome to the Instruct newsletter, where we delve into a weekly NEC topic. It’s like dipping into a pic’n’mix and always coming out with the jelly babies!
This week we got asked about Contract Data and whether there is any benefit to adding items to “The following matters will be included in the Early Warning Register”?
Let me give some context, the following was proposed to be added by a client:
Poor ground conditions
Buried services
Contamination
Condition of existing assets
Contract Data Part 1 (Client), and Contract Data par 2 (Contractor) both allow matters to be listed for inclusion in the Early Warning Register.
So here’s the rub…why bother listing them in the Contract Data, how is this beneficial? Does it remove liability, or limit impact if one of the items occurs? Surely it must because why would you bother?
Why list matters for the Early Warning Register in the Contract Data?:
NEC is about being collaborative and working with a common understanding. By listing matters in the Contract Data each party is being upfront about what could happen and therefore the risks that need to be managed. The other party can be aware of these and therefore assist in mitigation. Entering them into the Contract Data means both parties are aware before entering into the contract!
It does not assign liability for the matters.
Does this mean early warnings are not needed for these items?:
Clause 15.1 says an early warning needs to be notified by the Contractor or Project Manager (no Client mentioned), if an even could increase cost, cause delay, or affect performance. The problem is, if you have an item in the Contract Data does it count as a notified early warning?
No.
The contract gets unclear here, but reading the wording provides clarity.
Contract Data - “The following matters will be included in the Early Warning Register”
Clause 15.1 - “The C and the PM give an early warning by notifying the other…”
I.e. just because its in the Contract Data, doesn’t mean it has complied with the need to notify the early warning.
Why this impacts Contractor’s specifically
The problem is that if a compensation event occurs, and the Contractor notifies it, the Project Manager will check Clause 61.5 and if the Contractor “did not give an early warning of the event which an experienced contractor could have given”…the Project Manager states this in the instruction to submit quotes.
This means if the Contractor has had something happen which is an entirely valid compensation event, the PM can still determine that they didn’t notify an early warning about it (if they didn’t!) and totally change the assessments…
Jump to Clause 63.7 “the compensation event is assessed as if the Contractor had given the early warning”
Stop.
The compensation event is now assessed as if the early warning had been notified and the impact could have been mitigated, this puts the Contractor in a very different position and they could lose out on costs they have incurred because the risk wasn’t mitigated.
How to deal with matters in Contract Data
First of all, as soon as the contract is executed and the contract has started, both the Project Manager, and Contractor should notify each other of all the matters included in the Contract Data!
This passes the first test of “give an early warning”
Protecting the Contractor and ensuring Clauses 61.5 and 63.7 do not apply!
Clause 15.2 requires the Project Manager to prepare the first Early Warning Register, so whilst the matter will be on the register, it won’t technically have been notified as an early warning, and that is a must for the process to be properly administered.
Subsequent early warnings are then notified as per standard practice under Clause 15!
But wait, I also get penalised if its Option C or D?
Yes, if you are a Contractor under Option C or D, costs can be disallowed if they were “incurred only because the Contractor did not give an early warning which the contract required it to give.”
So there you go, we’ve run out of Jelly Babies, but don’t worry, the bag will be filled in readiness for next week!