Mastering the early warning process

20/05/24

Newsletter #7:

This week we delve into the world of early warnings, “but early warnings are unnecessary admin” I hear you say! Well here we take you through the process and explain why they are important…not least difficulties a Contractor can face when the process is not followed…read to the bottom to find out.

Introduction

One crucial aspect of NEC contract management is the early warning process. This process, if managed effectively, can significantly mitigate risks, control project costs, and avoid delays. Here is an in-depth explanation of the early warning process, including clause references to guide you.

What is an Early Warning?

Early warnings are preventative measures intended to identify and discuss potential risks that could adversely affect the project. According to Clause 15.1 of the NEC contract, early warnings are necessary for issues that could:

• Increase the total of the Prices

• Delay Completion

• Delay meeting a Key Date

• Impair the performance of the works in use.

Setting Up the Early Warning Register

The early warning process begins with the Project Manager preparing the Early Warning Register (Clause 15.2). This register is critical for documenting identified risks and proposed actions. The initial register is typically established at the project’s outset and issued to the Contractor for active use. It is essential to ensure that the register starts with the matters listed in the Contract Data.

Arranging the First Early Warning Meeting

Project Managers hold the responsibility for arranging the initial early warning meeting and instructing the Contractors to attend. It's imperative that this meeting is scheduled promptly as per Clause 15.2, as the frequency of these meetings and the date of the first one are specified within the Contract Data. The prompt scheduling sets a clear precedent for the project and underscores the importance of early warnings from the outset.

Conducting an Early Warning Meeting (Clause 15.3)

The purpose of the early warning meeting is to foster collaboration between the Project Manager and the Contractor. The focus should be on identifying risks, proposing and evaluating mitigation measures, and assigning actionable tasks. Key actions include:

1) Making and Considering Proposals

A critical part of the early warning process is the formulation and consideration of proposals aimed at mitigating risks. During early warning meetings (Clause 15.3), Project Managers and Contractors collaborate to:

• Identify potential actions: Discuss actions that could avoid or reduce the impact of identified risks. This could include changes to the project’s approach, resources, or schedule.

• Propose feasible solutions: Ensure that all proposals are realistic, considering the project constraints and objectives. For instance, if a delay in material delivery is anticipated, a proposal could involve securing alternative suppliers or re-sequencing tasks.

• Evaluate potential impacts: Consider the potential costs, time, and quality implications of each proposal. The focus should be on selecting options that provide the best risk mitigation while aligning with project goals.

2) Seeking and Evaluating Solutions

After proposals are made, it is essential to seek and evaluate potential solutions collaboratively:

• Engage stakeholders: Include key stakeholders in the discussion to gain diverse perspectives on possible solutions. This can lead to innovative approaches that might not have been initially considered.

• Analyse effectiveness: Assess the feasibility and effectiveness of each solution. This involves weighing the pros and cons, and possibly conducting a cost-benefit analysis.

• Iterate and refine: The early warning process is iterative. Solutions should be refined over time based on feedback and evolving project conditions. Continuous improvement is key to addressing risks effectively.

3) Assigning and Recording Actions

During the early warning meeting, the Project Manager and Contractor should actively collaborate to decide on the actions to be taken in response to identified risks. According to Clause 15.3, those attending the meeting will:

• Record decisions and actions: Clearly document what needs to be done, who is responsible, and the timeline for execution. Each action point should be specific and actionable to ensure accountability.

• Assign responsibilities: Ensure that tasks are delegated to the appropriate team members who possess the necessary skills and authority to address the issues effectively.

Importantly, this process is not about assigning blame or determining costs. It is a cooperative effort to find practical solutions and mitigate risks before they become issues.

4) Reviewing and Updating the Register

Following the identification and assignment of actions, the Project Manager must regularly review and update the Early Warning Register to reflect the current status of each risk and the progress of actions taken. Clause 15.4 specifies:

• Update frequency: The updated Early Warning Register should be issued within one week of each early warning meeting.

• Remove resolved items: If any risks have been mitigated or are no longer relevant, they should be removed from the register. This helps maintain focus on current and pertinent issues.

• Reassess ongoing actions: Review the effectiveness of actions from previous meetings and decide if further actions are required or if the strategy needs adjustment.

Remember, the goal of this process is to stay ahead of potential issues, hence maintaining a proactive and collaborative approach is crucial. This iterative process ensures that risks are continuously managed and updates are communicated effectively, thereby fostering a culture of transparency and shared responsibility.

I’m a Contractor, why do I need early warnings?

Failure to follow the early warning process can have significant contractual implications for the Contractor under NEC contracts. Clause 15.1 clearly states the obligation to notify early warnings as soon as possible for any issues that could affect cost, timing, or quality. Ignoring this can lead to serious consequences.

Firstly, as per Clause 61.5 and 63.7, if the Contractor fails to provide an early warning, the Project Manager may assess any related compensation event as if the early warning had been given. This means the Contractor might receive reduced compensation, increasing their financial burden. The contract also allows payment reductions for disallowed costs, stated in Clauses 11.2(26) and 11.2(27) for various Options, further impacting the Contractor’s payment.

Moreover, poorly managed early warnings can result in delays and increased complexity in resolving issues such as unexpected ground conditions, supply delays, or design problems. Effective early warnings enable proactive problem-solving during early warning meetings, increasing the likelihood of finding optimal solutions to benefit both the Client and Contractor.

I’m a Client, why do I need early warnings?

Firstly, early warnings enable the Client, Contractor and the Project Manager to address potential threats collaboratively before they escalate. This can include issues like those noted above. By flagging these early, both parties can discuss mitigation strategies during early warning meetings, which helps in preserving project timelines and budgets.

Furthermore, especially under Options C & D, which is a target cost contract, effective early warning management is crucial for risk management where all parties have an vested interest in managing risk, especially the Client who doesn’t have a guaranteed price. If the Client fails to collaboratively support the early warning process, risks can occur, impacts can materialise, and the Client can suffer with increased costs and delayed programme.

Lastly, lets remember the intention of Clause 10. Firstly to act as stated in the contract, and secondly to act in a spirit of mutual trust and co-operation.

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