Under the NEC3, Z clauses are the additional conditions of contract which many (pseudo) legally minded people feel compelled to change regardless of their knowledge of the NEC or the effects on how it will operate.
For a little bit of fun – in an NEC geeky sort of way – we’ve decided to publish some of the worst amendments to the contract that we have seen. Some will spot the daftness straight away, but we provide a little bit of explanation for others.
Note that this is Part 1 … more will follow !
Clause 61.1 can be summarised as:
- The Project Manager should notify a compensation event at the time of giving an instruction or changing a decision.
- He or she should also instruct the Contractor to submit a quotation.
- The Contractor puts the instruction or decision into effect.
The last sentence was amended to say :
“The Contractor puts the decision into effect…only if the Project Manager accepts the quotation.”
So what happens in interim ? The work stops, delay is caused etc. so all the time that it is not accepted the effects are getting bigger and the assessment of the quotation gets bigger leading to the quotation having to be resubmitted to reflect the larger impact ! A never ending circle ?
This was obviously brought to the Employer’s attention, so on the same project, but on a contract let a year later, they re-instated clause 61.1 un-amended but decided to add a bullet to clause 65.1 to read :
“A compensation event is implemented when”:
- the Project Manager accept the Contractor’s quotation
- the Project Manager makes their own assessment
- the Contractor’s quotation is treated as having been accepted or
- “the Project Manager gives an instruction under clause 61.1”
Daft risk transfer … … or is it ?
An additional clause was inserted which read :
“The Contractor has had an opportunity of inspecting the physical conditions (including the sub-surface conditions) and other conditions of or affecting the site of the works and is deemed to be fully acquainted with the same before the date of this contract and to have obtained all necessary information as to risks, contingencies and all other circumstances which may influence or affect the execution of the works. No failure on the part of the Contractor to discover or foresee any such condition, risk, contingency or circumstance entitles the Contractor to any additional payment (whether by way of an addition to the Prices or otherwise) or to any change to the Completion Date."
So how can the Contractor inspect sub-surface conditions ? That is impossible, so in certain circumstances this clause could be deemed inoperable.
However, the easiest way to transfer physical condition risk is just to delete the relevant compensation event and supporting clauses i.e. clause 60.1 (12) and 60.2 and 60.3 … which the client did not do. So if an unexpected physical condition is found, is it still a compensation event ?
The inevitability of an argument
Clause 60.1 (9) is a compensation event for if the Project Manager withholds an acceptance for a reason not stated in the contract. This was changed to be “for any reasonable reason” which is subjective in the extreme !
If you have anything more to say on the above examples, then please discuss below.
If you have some good – or is that bad - examples that you have come across, then please forward to me and we might be able to extend this series to a Part 3 ... or 4 or 5 or forever !
Dr Jon Broome has been involved in the NEC3’s development for over 20 years. He writes, consults and trains on the NEC3 on an international basis for clients, contractors and subcontractors through his own company, leading edge projects consulting ltd. He is also part-owner of BuiltIntelligence. He can be contacted on +44 7970 428 929 or +44 117 909 3297 or firstname.lastname@example.org.