C&H Quantity Surveyor Sam Whitehouse plots a safe path for subcontractors through Early Warning Notices and Compensation Event Notifications
The NEC suite of contracts is drafted with effective project management at its centre. The contract sets out specific tools in the way of Early Warning Notices and Compensation Event Notifications to manage risk and change. Yet frequently subcontractors are pressured by the main contractor’s (MC) team not to apply these tools so as not to ‘rock the boat’. The legendary pipeline brimming with future work often makes an appearance in these conversations.
Building good relationships is unquestionably important but doing so by holding back notices increases risk on the subcontractor and impairs effective project management. An unnotified risk event might evolve into a major cause of project delay, at which point the subcontractor will likely be asked the difficult question of why they did not notify the risk in accordance with the contract.
Add to this the common Z clause amendment making EWNs a condition precedent for time and monetary compensation, and a subcontractor all too easily finds themselves behind programme and incurring additional, non-recoverable costs for events which were not of their making. Furthermore, the relationship-building achieved through not bothering the MC’s team with EWNs is quickly soured by what they perceive as poor performance by the subcontractor. Pipelines can be redirected!
Early Warning Notices, Compensation Events and the Programme
The subcontractor is obligated to issue EWNs for any matter which may delay them in meeting Keydates or Completion; that risks increasing the total prices; or which might impair the performance of the works. They may also raise EWNs for matters which could increase the subcontractor’s costs.
A key point on EWNs is that they do not give the contractor entitlement to cost or time increase in themselves. They are a tool to formally notify potential risks to the MC so that they can be managed and mitigated. If the risk event does create a delay or increase in cost, the subcontractor must issue a Compensation Event Notification to be entitled to a change in a contract date or monetary increase.
A question that often arises is whether to issue a CEN for events which do not currently impact on the contract dates and have no cost implications. This commonly occurs where the MC is late in issuing lead design information or else the subcontractor cannot commence in an area because of incomplete preceding works. These are notifiable events under the contract but the temptation is not to raise CENs where compensation is not yet claimable.
This is where the time bar on the notice period must be remembered. Under the standard contract, a CEN must be issued within seven weeks of the subcontractor becoming aware of the event. Here again, Z clauses reducing this period are common. Notification within the period is a condition precedent for the subcontractor’s entitlement to a change in dates or increase in prices.
While an event may not be on the programme’s critical path when it occurs, if left unaddressed, it may evolve into the lead cause of critical delay and increase the subcontractor’s costs. If this occurs beyond the notice period, the subcontractor is not entitled to an increase in their costs or a change of date to protect them from liquidated damages. In comparison to this, the time in drafting a CEN is a minimal imposition on the subcontractor and certainly worth issuing to the MC.
In practice, issuing effective EWNs and CENs relies on maintaining an up-to-date and accepted programme. The programme is the means by which the subcontractor communicates their sequence of works to the contractor. Maintaining an up-to-date and accurate programme allows the subcontractor to identify where they need to raise EWNs and CENs and ensures the contractor has been informed of their obligations. Furthermore, the effect of compensation events must be reviewed against the accepted programme. Ensuring that the accepted programme is up-to-date reduces the complexity of demonstrating the occurrence and effect of compensation events and is more likely to result in their acceptance by the project manager.