construction contract and commercial consultants

The ‘early warning’ procedure is one of the most important management tools contained within the NEC3 ECC contract.

Simply put both the Contractor and the Project Manager are each obliged to warn the other as soon as either is aware of a matter that could:

• Increase the total of the Prices;
• Delay Completion;
• Delay meeting a Key Date or
• Impair the performance of the works in use.

This obligation to warn is not limited to those matters that may end up as compensation events, but extends to all matters, including mistakes of either party, if those mistakes will effect the price, time or performance.

For each early warning notice issued, the Project Manager notes the matter notified on a Risk Register.

That register sets out such things as the risk, the likelihood of it occurring, the consequences, the owner, the anticipated date of its occurrence and/or expiry and actions.

Either the Contractor or the Project Manager may instruct the other to attend a risk reduction meeting and may instruct other people to attend if agreed by the other.

The risk reduction meeting is not a blame-game or finger pointing exercise, rather those in attendance cooperate to make and consider proposals to avoid or reduce the risk, seek solutions and decide how to proceed.

Following the meeting, the Project Manager revises the Risk Register to record the decisions and, at the same time, instructs any necessary changes to the Works Information.

The procedure encourages all parties to work collaboratively and to innovatively react to changes in circumstances throughout the project.

As is usual with NEC3, the ECC contains sanctions for non-compliance with the early warning process.

If the Contractor fails to give early warning:

• Under Main Options A, B, C, D and E, a compensation event is valued as if the Contractor had given an early warning notice. This means that any change in Defined Costs or effect on Planned Completion that arises due to the Contractor not giving early warning, is discounted when assessing a resulting compensation event.
• In addition, under Main Options C, D & E, any cost incurred as a consequence of the failure by the Contractor to give an early warning, is a ‘disallowed cost’.

The failure of a Project Manager to give early warning is not expressly stated within the Contract, however, such failure will likely result in an increase in cost or time or degrade in performance of the works, all sanctions against the Employer.

Written by Steven Evans who is a construction contract and commercial expert with particular specialism in NEC3, and a tutor for NEC Contracts and Thomas Telford Training.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.

© 2024 Steven C Evans Ltd