Projects & Construction Law Update - June 2017

Case Law Update

Like London buses... Another case deciding NEC3 provisions

After waiting a long time for any court decision clarifying the interpretation of NEC contractual provisions, two have come along in quick succession. Following the case of Costain Ltd v Tarmac Holdings Ltd, which was decided at the end of February, we now have the case of Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited [2017] NIQB 43.

Northern Ireland Housing Executive (the "Employer") engaged Healthy Buildings (the "Consultant") under an NEC3 Professional Services Contract ("PSC"). The Employer failed to notify a compensation event to change the scope of the works as it should have and the Consultant then notified it four months later. It provided quotations a further three and five months later, which were all rejected. All of the communications occurred outside of the prescribed contractual timeframes.

The relevant provision of the PSC was clause 63.1, which stated that "changes to the prices are assessed as the effect of the compensation event upon...the forecast Time Charge for work not yet done". The question in this case was how a compensation event should be assessed after the relevant work was completed? Should the prescribed forecast approach still apply?

The Employer argued that, where the evidence is available, the Consultant's actual time and cost incurred should be taken into account by the court - obviously, it ran this argument, because this approach would reduce the amount of compensation payable by it. In contrast, the Consultant pointed to clause 63.1, arguing that its actual costs incurred were irrelevant. It relied on the fact that this clause goes on to state that the point at which the Employer should have instructed the Consultant to submit a quotation "divides the work already done from the work not yet done".

In reaching its decision, the court recognised that the Consultant's time sheets and associated evidence was the best evidence available to decide the dispute. The question was whether it could be used in light of the PSC's express wording.

The court emphasised that the PSC needs to be read as a whole and, as such, the infamous obligation to act "in a spirit of mutual trust and cooperation" was relevant. It held that it would offend this provision for the Consultant to object to the use of its actual evidence. Further, the court held that business common sense should be applied to the interpretation. As such, and irrespective of the express wording of the PSC, the best information should be used, whether actual or prospective, to assess the compensation event.

It must be remembered that this is a Northern Irish decision. It is not binding on courts in England and Wales but will be persuasive. The court's willingness to rely on the best evidence available when assessing compensation events (rather than following the express words of the contract) is likely to create...