Without professional guidance, it can be difficult to know where to start with the management of risks through NEC3 and NEC4 Engineering and Construction Contracts (ECC). The short answer is before the contract is agreed, but here is some practical guidance on managing risks under NEC contracts, based on some simple fundamental principles and provisions.
Risk Allocation
Under cl. 80.1, the risks for which the Client is liable are listed; therefore, it is important for the Contractor to understand that all other risks are the Contractor's responsibility.
If the Client's liabilities under cl.80.1 are to be supplemented, then this is agreed expressly under the Contract Data Part One.
The Early Warning Register
At the start of the project, the Client and the Contractor identify risks in the Contract Data so mitigation actions can be discussed, all of which are recorded in the Early Warning Risk Register, which is managed by the Project Manager.
In this way, the Contractor can express any concerns and plan mitigation actions with the Client at a very early stage and in a collaborative way.
Key risks to be identified are those relating to potential effects on time, costs, quality, or design matters.
The Early Warning Procedure
If the Client or the Contractor becomes aware of a risk that could affect cost, time, or performance, they must provide an Early Warning Notice, which is included on the Early Warning Register so mitigation actions can be discussed in the meetings.
Compensation Events
Crucially, the Contractor should be aware that if they fail to give an Early Warning in accordance with the contract, which may include a prescribed time for the notice, then the compensation event will be valued as if the Early Warning notice had been given in accordance with the contract. So, the Contractor should ensure its internal management processes and procedures are set up and timed in such a way that it is not possible for early warnings to be missed or deemed out of time.
The Programme
The programme, which should include the start date, any key dates, completion date, the sequence for the works, any float and other time risk allowances, must be updated with the actual progress and any agreed revised programming.
The Contractor submits revised programmes for acceptance, following which, the Project Manager has a prescribed time to accept or reject the programme. A failure by the Project Manager to respond may lead to acceptance of the programme subject to the notification procedures for that situation.
If you need help in the identification and mitigation of risks under an NEC contract, do not hesitate to contact us for a no-obligation review of your requirements.
You can learn more about our Contract Review Risk Register service here:
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