Collaborate to avoid commercial risks and systemic failures

Clients should work collaboratively to minimise commercial risks and avoid inappropriate risk transfer as this will not only lead to a negative outcome on individual contracts but also systemic failure in a fragile market, the Construction Leadership Council has warned.

The CLC, in collaboration with NEC, has today published joint guidance to industry and clients on dealing with and accommodating the impact of Covid-19 on work under NEC4 contracts.

The guidance adds to the suite of outputs from the CLC’s Business Models: Contractual Best Practice group which has routinely called for strategic collaboration between clients and the supply chain to avoid systemic market failures and compromised project delivery.

The guidance focuses on the NEC4 Engineering and Construction Contract (ECC), although it can also be applied to the NEC4 Engineering and Construction Subcontract (ECS), NEC3 ECC and ECS, subject to some amends which are outlined within the guidance.

To help clients and the supply chain to collaborate, the joint guidance offers support in navigating a number of circumstances within the context of the Covid-19 pandemic, including: Act of prevention; Project Manager’s instructions; Compensation events; Evaluation of a COVID-19 Related Compensation Event; Working Areas; Resource Utilisation; and Dealing with risk on future contracts.

Steve Bratt, Chair of the CLC’s Business Models Workstream said this guidance was developed in response to a series of questions which were raised with regard to projects impacted by Covid-19 operating under NEC contracts.

“As industry continues to manage the challenges of Covid-19, we are becoming increasingly concerned that many outstanding disputes remain unresolved and much uncertainty exists with regard to future contracts," he said. "We are therefore keen to do all we can to ensure clients work with their supply chains to fairly and collaboratively manage the commercial risks caused by Covid-19. Safety is paramount, but collaborative risk sharing will ensure secure project delivery and a long-term sustainable industry.”

Covid-19, safe working procedures and wider disruption has presented all parties with unquantifiable and unmanageable risks and costs, he added. Traditional behaviours such as inappropriate risk transfer will not only lead to a negative outcome on individual contracts but will almost certainly lead to systemic failure in a fragile market seeking to build back greener and better.

Peter Higgins, Chairman of the NEC4 Contract Board said NEC is pleased to have worked with the Construction Leadership Council in preparing this advice on dealing with covid-related issues under NEC contracts. "NEC has always been a contract focusing on the parties working together to achieve a successful contract, and this guidance will help in managing collaboratively the risks which have arisen from COVID-19," he said.

Industry leaders have called for acceleration of rules relaxing requirements for COVID-19 self-isolation for double-vaccinated workers. Currently the rules will only be relaxed on August 16.

CLC co-chair Andy Mitchell said it has received reports from across the industry of plants, sites and offices having to wind down activities as staff have been asked to isolate.

"This is putting very significant pressure on the sector, risking project delivery and even the viability of some firms. Where staff are already fully vaccinated, and recognising that such people will be free to work from 16 August anyway, we are asking the Government to bring forward this date for essential industries like construction, ensuring that the industry doesn’t grind to a halt."

An RICS survey of the global construction sector found over 40% of professionals reporting an increase in disputes since the onset of the COVID-19 crisis. By contrast, fewer than 3% of respondents noted a fall in disputes over the same time, suggesting that the pandemic is exerting further pressure on an already stressed industry.