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Stick Em Up!

Having just watched Toy Story for the one millionth time, this time around with my nephew (honestly!!), I was going to title this article "reach for the Sky" (for all those who have never had the pleasure of enjoying Toy Story, the phrase of one of its main characters, Sheriff Woody), however I was on in somewhat of a dilemma..... Sheriff Woody is surely a good guy? and this article is not necessarily going to be about best/ good practice, so arguably lets go with “…Stick Em Up!...” as a phrase coined by them there cattle rustlers (guessing here!) in the Old West. Cattle rustling and holding up the stage, after all, does seem more appropriate to this topic than law and order!

So what’s the topic....? Well actually it is those them there smart aleck's who have read the small print, know the small print and use the small print..... and as per usual not in the manner that we had planned for.


Many of the standard contracts that the Construction Industry, or contracting generally for that matter, use, have clauses within them, that creates a process that should be followed by the parties. One arguable good example of process and workflows within agreements is the NEC3 suite of agreements. There is actually a publication to explain all the various steps and procedures that should be followed. Now here is the rub - what happens if you do not follow the procedure or the other party does not follow the procedure?

This is an interesting question, and whilst every agreement and situation will have a subtle deviation and needs to be taken on its own merits, I'll tell you a story of what can happen when it goes horrible wrong and someone forgets to follow the process fully or for that matter forgets some of the steps (as prescribed)....

How many of you fully understand and appreciate the NEC3 suite of contracts? Well this tale of woe starts with the NEC3 Engineering and Construction Contract, with primary option A ..... All was well on the western front, when the Employer (poetic licence here using Employer rather than Project Manager - it adds a certain emphasis me thinks) started to think..... "I know.....let’s make some changes".

After considering all of the options the employer went off and thought about what would make his project, a new log cabin, even more special. After a long deliberation with his Consultant Architect, it was decided...... let’s ditch the stoop and go all out for it with a large porch and swing.....! Off he went and issued an instruction, under the existing agreement, to the contractor. So far so good? Now the contractor said.... "...hang on that's a Compensation Event...." and submitted a Compensation Event Notification. Now the employer by this time had become embroiled in the interior decor and was very busy, so they did not reply to this notice. When he did eventually realise this error. "Whoops" the employer thought. "Not to worry, too much time has elapsed and I agree it is a Compensation Event anyways, there is no need to reply now". Thinking all was well he did nothing.

Unfortunately under the NEC3 suite of contracts the failure to reply to a communication or notice, in this example, can set off a chain of events that can become seriously unfavourable. In our story, the Employer continues the default and still does not reply to the Contractor. After the permitted time, the Contractor, knowing his contract, writes to the Employer stating "...pursuant to Clause 61.4..." the failure to respond to the notice results in everyone agreeing that the event is a Compensation Event. Hoorah... an agreement under a construction contract - a first, even if imposed. The Contractor merrily continues with his work on the project. The employer says "...OK. I knew that anyway..." and continues with the interior design of his new cabin. He still does not reply.

Knowing the contract intimately, the Contractor, submits a quotation... (remember, remember Clause 61.4?). He includes absolutely everything in the quotation, he even includes a kitchen sink! After all Clause 61.4 does say that if the Employer (in this tale) does not reply "...the event notice is a Compensation Event and an Instruction to Submit Quotations...." Dan, dan, dahhhhhh!

Our Employer in this tale is still a really busy fellow. He has been far too embroiled in curtains and once again forgets to do anything with the quotation. Time passes by and he still does not reply. He even manages to misplace the letter and quotation. Again our Contractor, ever diligent, notifies the Employer of his failure to assess the Compensation Event and his quotation (remember the one? the one that is including the kitchen sink). He even references his quotation, stating that this should be accepted. Filed in between the toast and marmalade on the breakfast table, the Employer, once again fails to reply to the Contractor.

Now for the rub.... in such a situation, the NEC3 suite of agreements is very clear "...if the Project Manager (Employer in our tale of woe), does not reply within two weeks of this notification, the notification is treated as acceptance of the Contractors quotation by the Project Manager (again Employer in our tale)....". This in turn would result, in the simple interpretation of the agreement, that the Compensation Event is also deemed as implemented (for those really interested in accordance with Clause 65).

As you are no doubt recalling, our Employer wanted a porch! You probably can also recall, that our Contractor priced for a Porch, etc., etc., kitchen sink, etc., etc. and did not keep to the Employers brief when formulating his quotation. I will tell you however, that the Contractor did not build the kitchen sink.... the finished product actually resembled, near as can be expected, the Employers vision. When the Employer came to make payment to the Contractor, he finally woke up, noting that he should not have to pay for the kitchen sink, included in the Contractors Compensation Event Quotation. After all he did not ask for one and it was not installed. The Contractor again having read the small print stated very simply...."in accordance with Clause 65, the assessment of a Compensation Event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong"! He also went on to state that as the Employer had failed to respond periodically, the payment for the kitchen sink, was due and should be paid by him regardless of whether it was or was not provided!

Certainly we are in no doubt that the Employer is never, ever, going to use this Contractor again. Not with an attitude and approach like that, but this little tale of woe, does highlight that when Clauses to an agreement are pieced together as drafted, they do not necessarily give a logical or expected answer. This is just one example in the Contractors' favour - there are others out there!

Our very, very simple advice in this matter..... never leave correspondence unanswered and events open-ended, always reply and close them! If you don't the cattle rustlers may come a calling.