Jacob Austin (00:00:17) - Jacob Austin here from QS.Zone. And welcome to episode 47 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow, and grow their business. Today's episode, number 47, is about NEC obligations, and this follows on from last week's episode where I spoke about NEC mindset, and I mentioned in that episode that there are 33 separate obligations that require either you or the contractor to do something, and there is a corresponding enforcement for if the action fails to be carried out. These are known as the enforcement clauses, and they cover a wide range of different issues, from insurances to defects, to actually doing the work that you're supposed to do. So rather than run through all of these, I've picked out what I think are the 12 most important, and we'll run through them with a bit of an explanation, and we'll also cover what the enforcement is if that obligation isn't met. So I hope you enjoy today's show, and please subscribe for more user friendly advice on all things subcontracting if you're new.
Jacob Austin (00:01:30) - So these clauses are in no particular order of importance. I'm going to read them in the order that you'd come across them in your contract. So the first one I've picked on is the early warning clause. 15.1 the contractor notifies an early warning. So this is the NEC forcing the discussion, forcing you to raise issues that might turn into problems and get around the table to resolve them. It's part of the collaborative approach under the contract, and by the time you get to the end of a project, you should be well and truly in the flow of submitting early warnings, discussing them, deciding whether they become compensation events or deciding how to manage them. And the enforcement associated with early warnings is that if a contractor has not given an early warning and that event subsequently becomes a compensation event, then the project manager can tell you that when they instruct you to quote for the compensation event, and then the event gets assessed as if the early warning had been given, and this more than likely will result in a lower value assessment of your quotation.
Jacob Austin (00:02:35) - It's also worth noting that under your target cost and cost reimbursement options C, D, E, and F, the costs are also disallowed so you can't recover the actual cost. So it is a must that you raise early warnings to avoid the effects of this. You should have told me earlier clause and what you're doing if you miss out raising an early warning is you're removing the opportunity to discuss and reduce the costs to put mitigation in place to debate alternative outcomes. Here's an example. During a refurbishment project, we removed some full height noticeboards from one wall in a classroom, and when we got rid of them, it was quite clear why they were there. They were covering up a load of mess, so it was like the room had previously been some kind of dirty room and had all kinds of hooks dangling from the wall, with 20 or 30 different versions of each tool. It was absolutely covered in tiny holes and some of them quite large holes, actually. So we notified a compensation event. We boarded over the wall, jointed it and made it look good as new.
Jacob Austin (00:03:39) - And then when I had the request for the quotation, I got the old 'you should have told me' clause. I was a bit baffled by that because I thought, what on earth else would you have done with that wall? It looked a shocker, but then two days later, it kind of became clear because we had a separate instruction to cover the area in white rock and install a sink in the location. I don't know whether that's because they knew what was behind those notice boards, or they just wanted the white rock cladding, but certainly talking about it would have brought this to light sooner and would have prevented some unnecessary work. So surprise, surprise, we only got paid a small portion of that boarding work, which was roughly what it would have cost to patch some of the bigger holes purely to get the substrate ready for that cladding material.
Okay, well, we'll move on from that one. The next one I've picked on is 24.1, the contractor to employ competent and reasonable people. So this is requiring your team to be suitably qualified for the work that they're carrying out and for them to be reasonable.
Jacob Austin (00:04:41) - We've all seen those people on site who have this tendency to go out of their way, to fall out with the site manager and the project manager like they're just there to make a nuisance of themselves. They don't want to do instructions, fetching their materials, clearing up after themselves, wearing the right PPE or this lovely clause. That's the project manager. Get rid of them now. They have to give reasons, of course, but under 24.2 they can eject that person from site.
The next one is 25.2. The client and contractor provides services and other things as stated in the scope. I like how simply that is written, and it is as simple as it sounds. You dig out the scope and you are obligated to provide the things that it says that you should. That means that you don't provide anything else, but it also means that if you don't provide everything and somebody else has to be brought in to finish off or to supply it for you, then the client can recover costs from you and they can do that under 60.13.
Jacob Austin (00:05:41) - Another scope related item 27.4. The contractor is to act in accordance with the health and safety requirements of the scope. So this is an important one in terms of clarification, because at the point when you're putting pen to paper on that order, you want to make sure that there are no undue obligation included in that scope, as in, there's no requirements to do things in a particular way that you either haven't priced for or you haven't got the facility to do. Because what can happen here is the job can be stopped under clause 34.1, and it will be a compensation event, but it's not going to lead to any extra money or extra time to complete the job, because failing to comply with the health and safety requirements of the scope is a your fault issue. So you're expected to put that right at your cost. Now, actually, under clause 91.3, the employer can terminate if there is a particularly serious breach. So if the HSA become involved and there's a stop notice or prohibition notice, and you don't put that right within four weeks of being notified about it, then termination can follow.
Jacob Austin (00:06:50) - 30.3 the contractor to meet the stated conditions by the key date, the client may require stated conditions to be met by key dates in the contract, which they show in contract dated part one, and the key dates could be used to manage all kinds of things that the client wants to happen. It could be when they want all of the foundations to be started or finished by for a funding milestone, or it could be that they're bringing in some fitout work, like a kitchen fitter, and they want to have that kitchen room ready by a given date. Now, whatever those conditions are, there will be unique to your job, but if you don't achieve them, clause 25.3 allows for costs to be recovered from you for any additional costs in either carrying out that work or paying somebody else to come in and do it on your behalf. Clause 30.1 the contractor is to achieve completion by the completion date. Now option five can also introduce different sections of work, and that can then create multiple opportunities for you to be late in the same job.
Jacob Austin (00:07:54) - And if contract option X7 is included, there is no project managers discretion involved. If the contractor is late, the project manager deducts the delay damages from the assessment of the amount due next, along 44.1 and 44.2. These obligate the correction of defects within the defects correction period. Now interestingly, with this one, the remedy involves charging you some money. But that's not the interesting part. The interesting part is there is no need for that money to have actually been spent. The project manager can value the cost of correcting the defect and they deduct that from you whether or not that work has been carried out. So it's completely up to the client to decide whether they want to correct that defect or whether they're happy. Just have the benefit of that bit of money. Clause 50.2, which covers the submission of an application for payment before each assessment date. Note it says before each assessment date, not on and not after. Now, this is a bit of a hard line clause in response to submitting late, because if an application is not received, the amount due is not increased from the amount in the last assessment, which means you get no more money.
Jacob Austin (00:09:14) - There's no payment getting deferred by a few days because you submitted a few days late. It quite simply isn't paid at all, so you can expect a payment notice showing nothing in the period. Clause 51.2 covers payments and then being made on time. Now the subsequent clause is 51.3 and for allow for interest to be added to whatever amounts have been outstanding. And you can do that by applying for it in the following application period. So if your contractor pays you late, then you get the small added benefit of recovering some interest from them. The next one is a vital one. 61.3 notify compensation events when they happen. If the contractor does not notify within eight weeks of becoming aware of the event, there is no change to the prices, the completion date or any of the key dates. And the only exception to this is if the project manager issues an instruction which triggers a compensation event because the project. Malaysia, in the view of the contract, should know well enough that when they're instructing something and it's a change, that they trigger a compensation event.
Jacob Austin (00:10:24) - So if they forget to do that, then whenever the contractor notices, they can come back in and claim a compensation event for it. That is the only exception to the eight week time bar. And this is again, to get people thinking about things at the right time, to get the conversations happening when information is still fresh and available, before everybody's moved on to the next big issue. So no matter what your compensation event is triggered by, if it's a weather event, if it's a drawing change, if it's something you found in the ground, the date that you become aware of it, you ought to try and raise your compensation event straight away. But that date is when the clock starts ticking and you've got eight weeks from then to raise your event before it's too late. On to item number 11, which is clause 62.3. Again, this is part of the compensation event clauses, but this clause defines the time that you have to submit a quotation. And it says that you should submit a quotation within three weeks unless a longer period is agreed.
Jacob Austin (00:11:24) - So three weeks is the standard period. But what you'll find is that quite a lot of contractors will shorten your reply period to allow themselves the time to respond to their client, and if they notified a compensation event upstream to their client at the same time as they notified one downstream to you, then it would allow you to submit them a quotation for them to take that into consideration as part of their quotation and submit it onwards up to their client. So it's important that you adhere to those periods, because quite often you'll be part of a chain of information that's required to assemble the contractor's quotation for their compensation event. And if the contractor misses their submission, what can happen is under clause 64.1, the project manager makes an assessment of their own and accordingly, the same thing will happen to you. So if the contractor needs to submit a price to their client, they can make their own assessment of your change. Confirm that back to you to say this is how much it's going to be, and then they can submit that same price to their client as part of their quotation.
Jacob Austin (00:12:30) - And the same applies if you don't remember to pick up the time within your assessment. So if you only look at the price and not the program, then the contractor can assess the program for you and tell you when your revised completion date will be. Or he more likely will say, oh well, you haven't asked for any time, so I'll agree with that and not give you any. So now it's important that you remember that time is part of your compensation event. Because once there is a contractor's assessment, that assessment is final and the only way to overturn it is to go to a formal dispute resolution. Now, the 12th and the final item that I've picked on is the subcontractor to assess the compensation event correctly. This is a little bit similar to the last one, certainly because the remedy is exactly the same. The contractor can assess your quotation. If it doesn't like the answer that you've come up with, or you've got it wrong, the contractor can do their own assessment and decide how much you're going to be paid.
Jacob Austin (00:13:29) - And if that's happening and they're knocking things off your price, then it either means one of two things. One, it was wrong and that might well be the case. Everyone makes mistakes from time to time or two. You haven't given enough information to justify why the cost is what it is. And this is where a lot of people fall down because they just go, right, that's ÂŁ2,000. And then you say, oh, where's the breakdown? Oh well, I, I'm not giving you a breakdown. My policy is I don't give you a breakdown. And that's absolutely useless. And what that will result in is your contractor saying, if you're not giving me a breakdown, I'll come up with my own, I'll do my contractor's assessment, and that's how much it should be. And whether you like the answer of that or not, the answer is final. Barring going to again dispute resolution. So the onus is on you here to give enough information to justify how much you want or how much you need.
Jacob Austin (00:14:27) - So that might be reference to your early quotation or your subcontract some and pro-rata of existing prices. Again, this is always preference number one, to start with the original prices and work from there. And make sure you're giving that good level of detail. Now if you want to hear more about valuing changes, I've done a few episodes on that subject and one which was purely about compensation event. I'll post those in the show notes for you to have a look at. Well, that wraps up my 12 items, so thanks for tuning into today's show. If you like what you've heard and you want to learn more, please do find us at QS.Zone where you can subscribe to our training and support system for like minded subcontractors. And there you'll find templates how to videos in. Interviews and more, and it's less than the price of a cup of coffee per day. And you can cancel a time or also on all your favourite socials at @QS.Zone. Thanks again. I've been Jacob Austin and you've been awesome.
