COLLABORATIVE PROCUREMENT

Collaborative Procurement And Target Cost Contracts

Collaborative Procurement And Target Cost Contracts

Task 1

NEC 3- Option c

This task discusses the application of option NEC 3 -c of the NEC.

NEC3 has adopted a more strict regime for contractors in respect of compensation events. Core clause 61.3 is set out in terms:

The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event if

the Contractor believes that the event is a compensation event and

the Project Manager has not notified the event to the Contractor

If the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not(Gerard, 2009:80-86).

Clause 61.3 is effectively a bar to any claim should the contractor fail to notify the project manager within 8 weeks of becoming aware of the event in question. The old formulation of a 2-week period for notification has been replaced with an 8-week period, but with highly onerous consequences for a contractor.

The contractor must of course be “aware of the event” in order to notify the project manager under clause 61.3. There will no doubt be arguments about when a contractor became aware or should have become aware of a particular event, and also the extent of the knowledge in respect of any particular event. Ground conditions offer a good example. Initially, when a contractor encounters ground conditions that are problematic, he may continue to work in the hope that he will overcome the difficulties without any delay or additional costs. As the work progresses the contractor's experience of dealing with the actual ground conditions may change such that the contractor reaches a point where he should notify the project manager. The question arises as to whether the contractor should have notified the project manager at the date of the initial discovery, rather than at the date when the contractor believes that the ground conditions are unsuitable(Broome, 2009: 255-261).

Finally, the contractor may be able to rely upon the equitable principles of waiver and/or estoppel. It may be that the contractor does not serve a formal notice because, by words or conduct, the employer or indeed the project manager represents that they will not rely upon the strict 8-week notice period. The contractor would also need to show that it relied upon that representation and that it would now be inequitable to allow the employer to act inconsistently with the representation made by the employer or project manager. In addition, this approach could be further supported by core clause 10.1 which requires the parties to act “in a spirit of mutual trust and co-operation”.

Option C is a target cost contract with an activity schedule where the out-turn financial risks are shared between the client and the contractor in an agreed ...