Sunday, April 13, 2014

NEC Contracts – Who is Responsible for Managing Defects?

Guest article from John Peel BSc (Hons) – Assistant Lecturer at Coventry University

....when things go wrong between other people named in the Contract the natural reaction is to look in the direction of the Project Manager (PM) to resolve the issues. It could therefore be argued there is almost an implied duty on the PM under the NEC to attempt to resolve conflicts before they get to adjudication

As a Project Manager (PM) under the NEC I was always glad that the role of defect management was essentially allocated to the Supervisor. Having been party to many long winded arguments over defects under other forms of contract such as the JCT it came as a breath of fresh air to pass the duty of notifying defects, carrying out tests and inspections and issuing the defects certificate etc. to the Supervisor.  Indeed simply not having to draft pages and pages of snagging was enough to make me want to embrace the new procedure under the NEC when I started working with it.

The role of the Supervisor defined by the NEC is that of essentially ensuring the works are built in accordance with the works information. The role of the PM whilst broader in overall scale than that of the Supervisor is essentially limited (when it comes to defects) to the actions of the PM under clause 40.6 and 43.4 as well as the duties when accepting defects under clause 44 and dealing with uncorrected defects under clause 45.

Why then have I recently been involved in long winded protracted arguments over defects under the NEC option A contract? Something must be amiss!

The alarm bells first started to ring when the Supervisor and Contractor could not agree if a defect actually existed. The issue related to an element of the works being designed by the Contractor. The works information contained a specific thickness of material on a drawing but an overall requirement in specification to build to a specific standard of thermal efficiency. Both drawing and specification was included in the Works Information. The Contractor had altered the thickness of material but achieved the required thermal standard. The Supervisor notified a defect when he measured the thickness of material and found it to be not the same as stated in the Works information. The Contractor pointed to the fact the standard had been achieved and that the difference in material thickness had no adverse impact on the building. The issue had not been apparent in any design the Contractor had submitted for acceptance.

The relationship between the Supervisor and Contractor was already strained at this point and the Supervisor was adamant that the change in material thickness was not “in accordance with the Works Information” and as such it was a defect. The notification was duly issued for the Contractor to correct it. The Contractor then made the argument of “inconsistency between the documents” under clause 17.1 as the specification was a performance specification allowing the contractor a degree of flexibility and the drawing gave a specific thickness thus conflicting with the flexibility in the specification. The Contractor then sought an instruction from the PM resolving the inconsistency. One interpretation of the apparent inconsistency was that both documents are read in conjunction with each other. So the Contractor has the flexibility of the specification to select products and comply with the standards but the thickness shown in the drawn information should be adhered to as a minimum and thus there is no inconsistency. However, playing devil’s advocate one might also look at the above scenario and think that as long as the Employer is not in any way at a loss as a result of the change and the performance standards are complied with then the process of achieving the end result is the Contractor’s to manage. After all that is essentially part of the process of design and build.

As PM I could see both sides of the argument. I suspect that had relationships on the project been better, an amicable solution could have been found. However, no agreement was reached and with the defect correction period nearly up the Contractor and Supervisor were becoming more animated in their dealings with each other. Eventually, I was asked to decide who was right and who was wrong which brings me to the crux of the matter from the perspective of the PM.

Contractually there is no role in clause 40-45 for mediation by the PM in disputes over defects. The only negotiation the PM need actually carry out is that related to agreeing to accept defects. We could not reach any such agreement in this case because clause 44.2 requires both the PM and Contractor to agree to consider a change to the works Information to correct a defect. The Contractor did definitely not agree to any such change! Ultimately the process would have been to wait until the defect correction period expired and then apply clause 45 to the matter (dealing with uncorrected defects). If the Contractor is unhappy with the results he has the option of Adjudication under the Contract.

However, there is the concept of a spirit of mutual trust and co-operation to consider. In this instance should the PM acting in such a spirit mediate between the parties to find an amicable solution before the matter gets to Adjudication? This is a difficult point because you cannot “force” co-operation. However, I do believe that all parties have a duty to co-operate and also foster co-operation in others. When one can clearly see parties are not co-operating someone should probably step in to point this out. The onus on the PM to administer most aspects of the Contract also means that when things go wrong between other people named in the Contract the natural reaction is to look in the direction of the PM to resolve the issues. It could therefore be argued there is almost an implied duty on the PM under the NEC to attempt to resolve conflicts before they get to adjudication.

However, there are areas of the NEC where the duty of the PM to determine if actions are reasonable, or unnecessary are expressly stated. For example clause 40.5 require the Supervisor to carry out tests and inspections without causing “unnecessary delay” to the Work. If the Contractor believes that in doing tests and inspections the Supervisor has caused unnecessary delay then he can notify the PM of a compensation event under clause 60.1.11. It then falls on the PM to determine if the delay was necessary or unnecessary.  The PM must also decide if other failures by the Supervisor to act in accordance with the Contract are compensation events although these are far more objective (clause 60.1.6 for example is easy enough to determine simply by looking at the period for reply and the date of a communication).

In conclusion, the PM takes a backseat to the Supervisor when it comes to the process of defects management and the role is strictly speaking limited to a specific few functions. However, the PM might well become more heavily involved in defect management if the process breaks down and the parties are no longer able to co-operate or begin to act unreasonably or cause unnecessary delay. It might well therefore be wise for the PM to take an active role in overseeing defects management to be able to proactively head off issues before they deteriorate. This is certainly the lesson I have learnt the hard way.

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