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#WiseUpWednesday: Losing The Right to Payment

This week’s “Wise Up Wednesday” is about Specialist Contractors unwittingly losing the right to payment.

It’s hard enough to make a profit when things go well. But when things go wrong and you are delayed through no fault of your own, you are entitled to be paid for that right?

Wrong!

You can lose that right completely under the terms of the NEC/3 contract if you don’t do what you need to do and at the time you need to do it.

And that could cost you £thousands…

Losing The Right To Be Paid Under The NEC/3 Contract

Compensation events are events which are not your fault, and they change the cost of the work, or the time needed to complete it. As a result, the prices, key dates or the completion date may be reassessed, and in many cases the you will be entitled to more time or money.

Examples of compensation events

There is a list of specific compensation events at clause 60.1. The list includes:

  • Instructions
  • Access prevention
  • Failure to provide something e.g. information etc.
  • Actions by the Employer or the Contractor
  • Contractor not replying to a communication
  • Contractor withholds acceptance
  • Unexpected physical conditions

The list is fairly extensive, and you need to know how to ensure you take full advantage, and most importantly, avoid losing your entitlements altogether.

Notification of Compensation Events

The aim of the compensation event regime is for compensation events to be assessed as early as possible at the time they incur and not at the end of the project. For this reason, the NEC/3 form imposes strict notification provisions.

The mechanism for notification depends upon the type of compensation event but crucially, the notification of compensation events may be subject to a time bar at clause 61.3.

Clause 61.3 provides that if the Subcontractor does not notify a compensation event within seven weeks of becoming aware of the event, he is not entitled to a change in the prices, the completion date or a key date.

Depending on the facts and surrounding circumstances, any failure by the Subcontractor to notify a compensation event in accordance with clause 61.3 may operate as a time bar, and you will lose the right to be paid.

Applying the strict application set out in WW Gear Construction Ltd v McGee Group Ltd and Education 4 Ayrshire Ltd v South Ayrshire Council, to the NEC3 form, the wording of clause 61.3 leaves little doubt that a condition precedent is anticipated by the parties, and that means you won’t get paid.

It Is So Different It Is A Real Challenge

Unfortunately the NEC/3 is so different from any other contract terms that you will have used previously it is a real challenge. But it can be a massive opportunity to make money too. But, you have to know what to do.

Please don’t ignore the problems that the NEC/3 creates for you as a subcontractor, and please get advice from the outset, because it really will save you a fortune. And if you fancy learning more about what the NEC/3 is all about, and how it will morph into the NEC/4 please see the panel below.


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