Construction and engineering: guidance for dealing with impacts of COVID-19 for NEC contracts

Governments in many countries have imposed restrictions on freedoms of movement for people, goods and services to prevent the spread of the COVID-19 epidemic. The impacts of these measures on ongoing projects will vary from country to country and project to project.

The NEC has published a practice note and video that set out general guidance for dealing with the impacts of COVID-19 for projects using NEC4 contracts. 

It is important for parties to consider whether any additions or modifications have been made to the standard wording in the NEC4 contracts which may impose additional obligations.

Early warning

The NEC4 suite of contracts provide for ongoing and active contract management by a project manager or service manager. As soon as the contractor or the project manager becomes aware of a matter which could have delayed completion of the work, it should send an early warning notice to the other party.

The project manager must add the matter to the early warning register for discussion at the next early warning meeting. The early warning meeting allows the parties to discuss the matter and identify how the problems can be avoided or their impact mitigated. The project manager should provide instructions to the contractor regarding any agreed actions from the meeting.

Compensation events

The NEC4 contracts provide for a mechanism by which a contractor can obtain an extension of time or a change to the price for completing the works upon the occurrence of named compensation events.

COVID-19 related restrictions may trigger a number of compensation events in NEC4 contracts, including:

1. A change of law (if Option X2 has been incorporated).
2. The contractor may be prevented from completing the whole of the works by the completion date (if clause 19 (Prevention) has been incorporated). In such circumstances the project manager is to take control and provide instructions to the contractor.
3. Instructions issued by the project manager may trigger a number of compensation events including a variation to the scope of works or a lack of access to site.

The contractor must give notice of the occurrence of a compensation event to the project manager within the period specified in the contract. 

The default notification period in NEC4 contracts is eight weeks. Failure to comply with the notification provisions could result in the contractor losing its right to an extension of time or a change of price. The giving of an early warning notice is not considered to be notification of a compensation event.

For contracts that have not yet been awarded, contractors will find it very difficult to argue that they were unaware of the potential impacts of the COVID-19 epidemic at the time of execution. 

Parties that are currently negotiating NEC4 contracts should therefore consider how best to make express provision for the effects of COVID-19 in their contracts, for example through the preparation of a bespoke compensation event.

For more on the impact of COVID-19 on your business, visit our risk and compliance blog and coronavirus alert hub.