If you’re a Project Manager on NEC Contracts, you’re making this mistake without even knowing it (Clause 61.3)
The 8-week time bar in NEC Contract Clause 61.3 for notifying compensation events is a recurring and critical discussion point on many of my projects. To shed light on this crucial aspect, this post provides a detailed analysis of Clause 61.3. Understanding this clause is essential for all Project Managers working on NEC projects, as it carries significant implications. Please note that while this analysis focuses on the standard eight-week timeframe, notification periods can vary across different projects and contracts.
The relevant wording of Clause 61.3 states:
"The Contractor notifies the Project Manager of an event which has happened or which is expected 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 that the event has happened, the Prices, the Completion Date or a Key Date are not changed unless the event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision."
Several key points arise from this clause:
Firstly, establishing when the contractor became aware of the event is crucial. The trigger for notification is not the event's occurrence, but the contractor's awareness of it. In many cases, awareness should be immediate, due to a notification, instruction or some other viable evidence. The importance of accurate record keeping is essential to prove awareness if disputes were to arise.
Secondly, the impact of a late notification on the project and the Project Manager's ability to manage it must be considered. A late notification by the Contractor could mean that decisions that had been open to the Project Manager are now closed due to passage of time and due to superseding events. It could be said that the Project Manager has been prejudiced in their ability to manage the project.
Contractually, the Contractor has 8 weeks only to notify a compensation event. If notification does not take place within this period, then the Contractor loses their contractual right to compensation. However, they still retain their legal right to compensation. This means that an Adjudicator should uphold the 8 weeks, but a legal court could following Adjudication (Tribunal/Arbitration) could instruct otherwise.
It's important to note that even if a contractor fails to notify a compensation event within eight weeks, they may still be entitled to an assessment of time and money if the event should have been notified by the Project Manager. A common example is a change to the works information instruction under clause 14.3, which triggers a compensation event under clause 60.1(1). In such cases, the eight-week time bar does not apply, as the Project Manager bears the initial responsibility for notification.
Clause 61.7 prohibits notification of a compensation event after the defects date. This allows Contractors to potentially submit claims up to 12 months after Completion. While legally permissible under this clause, delaying notification until Completion, even for events occurring much earlier, is contrary to the intended proactive and collaborative approach of the NEC.
In summary, the 8-week notification period does not invalidate compensation events arising from Project Manager's Instructions (clause 14.3). Conversely, for other compensation events incorrectly notified by the Contractor (after 8-weeks) are considered invalid. An adjudicator is highly likely to enforce the time bar and dismiss the claims. Although further appeal to the Tribunal or Arbitration is possible, a different outcome is generally unlikely.