JCT Relevant Events v NEC Compensation Events
All construction contracts seek to apportion the risk of various events occurring between the Employer and the Contractor to achieve a fair balance of risk between the parties. This apportionment of risk is usually delineated by which party is best placed to manage the occurrence of an event. An event which is within the control of the Contractor will be a Contractor's risk while events which are outside the control of the Contractor will be an Employer's risk. Typical examples of Employer's risks include:
- Changes to the scope of works instructed by the Employer.
- Delays in giving the Contractor access to or possession of the site.
- Any act of prevention or impediment to the works committed by either the Employer or an Employer related party.
- Exceptionally adverse weather conditions which affect the carrying out of the works.
- Riots, civil commotion, terrorism, strikes and/or lockouts.
- Events which fall within the meaning of 'force majeure'.
The occurrence of Employer risk events within the JCT 2016 and NEC 4 suites of contract are treated in a broadly similar manner. Both suites of contract identify a series of Employer risks the occurrence of which may entitle the Contractor to claim additional time and/or costs for the completion of the works. These are known as Relevant Events within the JCT suite of contracts and Compensation Events within the NEC suite of contracts. Any risk event not expressly identified as a Relevant Event or a Compensation Event is a Contractor's risk event and the occurrence of such an event does not entitle the Contractor to claim any additional time and/or costs for the completion of the works.
However, while the overarching approach to the allocation of risk is similar within the JCT and NEC suites of contract and indeed the types of risk identified as a Relevant Event or a Compensation Event are broadly the same, there are a number of significant differences between the approaches adopted within the JCT and NEC suites of contract.
JCT Relevant Events and Relevant Matters
Under the NEC suite of contracts the occurrence of a Compensation Event may entitle a Contractor to claim both additional time and additional costs in relation to the completion of the works.
The JCT suite of contracts however differentiates between Relevant Events, which entitle the Contractor to claim additional time, and Relevant Matters, which entitle the Contractor to claim additional costs. The scope of Relevant Matters is significantly narrower than the scope of Relevant Events and is effectively limited to events which are expressly within the control of the Employer.
The effect of this differentiation is to create a category of 'neutral' events (e.g. adverse weather, strikes, force majeure etc.) where the risks are shared between the Employer and the Contractor. On the occurrence of one of these 'neutral' events the Contractor is awarded an extension of time (and is therefore relieved from paying LADs as a result of the event) but the Contractor does not receive any additional money to cover its costs of being on site for longer planned.
Under the JCT suite of contracts the occurrence of a 'Specified Peril' (e.g. fire, lightning, explosion, storm, flood, escape of water, earthquake, riot, civil commotion etc.) constitutes a Relevant Event entitling the Contractor to claim additional time for the completion of the works.
The provisions of the JCT suite of contracts are largely replicated by Compensation Events 60.1(14) (which covers riot and civil commotion) and 60.1(19) (which covers all other events not caught elsewhere). However, Compensation Event 60.1(19) provides that an event which delays or prevents a Contractor from completing the works will only be a Compensation Event where:
- neither the Employer or Contractor could have prevented the event; and
- an experienced Contractor would have judged at the date of the contract that the risk was so small that it would have been unreasonable to allow for it.
The drafting of Compensation Event 60.1(19) means that there is a risk that the Contractor will not be entitled to claim additional time or costs as a result of an event which causes damage to the works but which was either foreseeable and/or preventable (e.g. fire, escape of water etc.). Potentially this could result in the Contractor having to absorb his own additional costs incurred as a consequence of being on site for longer and also becoming liable to pay delay damages to the Employer.
Unexpected Ground Conditions
NEC Clause 60.1(12) provides that the discovery of unexpected ground conditions, which an experienced Contractor would have judged, at the date of the contract, had such a small chance of occurring that it would have been unreasonable to allow for them, constitutes a Compensation Event.
The JCT suite of contracts has no equivalent clause meaning that the risk of unexpected ground conditions on site is a Contractor's risk and that the discovery of any unexpected ground conditions will not normally entitle a Contractor to any extension of time for the completion of the works or any additional costs.
Adverse Weather Conditions
The JCT suite of contracts provides that exceptionally adverse weather conditions encountered on site are a Relevant Event (but not a Relevant Matter). In order to ascertain whether an exceptionally adverse weather event has occurred the JCT suite of contracts depend upon the Architect/Contract Administrator's subjective assessment of the nature, and the consequences, of the weather event. In effect this provides the Architect/Contract Administrator with a degree of discretion to decide whether a Relevant Event has occurred on a fair and reasonable basis.
In contrast, rather than relying on a subjective assessment of the weather conditions, the NEC suite of contracts relies on an objective assessment of the weather conditions. NEC Clause 60.1(13) provides that a Compensation Event will have arisen when a weather measurement (taken at a predetermined meteorological weather station) which is shown to occur less frequently than once every 10 years occurs.
Superficially the NEC approach would appear to be the more accurate and less controversial approach to determining whether an adverse weather event has occurred. However, anecdotal evidence suggests that adverse weather events are less likely to be awarded under the NEC suite of contracts than the JCT suite of contracts and, as such, the NEC drafting may not be preferred by Contractors.
Notification of Events
Under the JCT suite of contracts the Contractor is obliged to notify the Architect/Contract Administrator when it becomes reasonably apparent to the Contractor that progress of the works is being, or is likely to be, delayed by the occurrence of a Relevant Event and/or the occurrence of a Relevant Matter is likely to cause the Contractor to incur loss or expense.
However, while the Contractor is under an express obligation to notify the Architect/Contract Administrator of the occurrence, or anticipated occurrence, of a Relevant Event and/or a Relevant Matter, under the JCT suite of contracts there is no contractual consequence for the Contractor if he fails to do so.
Conversely, under the NEC suite of contracts, pursuant to Clause 61.3, if the Contractor fails to notify the Project Manager of the occurrence, or anticipated occurrence, of a Compensation Event within 8 weeks of the Contractor becoming aware of the occurrence of a Compensation Event then the Contractor loses his entitlement to claim any additional time and costs for the completion of the works which may be attributable to the occurrence of the Compensation Event.
It is worthwhile noting that under the new NEC 4 suite of contracts, the limitation period for a Contractor to notify the Project Manager of a Compensation Event starts to run from the date that the Contractor becomes aware that a Compensation Event has happened rather than the date that the Contractor became aware of the Compensation Event (as was the position under the old NEC 3 suite of contracts). This has removed the potential risk for the Contractor, which existed under the NEC 3 suite of contracts, that the limitation period could start to run before the Compensation Event had actually occurred.
While the JCT and NEC suites of contract adopt broadly similar approaches to the allocation of risks between the Employer and the Contractor, there are a number of differences in the approach adopted by the respective suites of contract which may significantly alter the risk profile assumed by the parties under these different forms of contract.
It is therefore vital that anyone involved in either the negotiation, or the administration, of these forms of contract is aware of the disparities between the JCT and NEC suites of contract to ensure that they are:
- aware of the various potential risks being assumed by each of the respective parties under these forms of contract; and
- able to avoid, or otherwise mitigate, the risks that they are required to assume.
If you would like to discuss the content of this article further please contact Thomas Weld.