NEC Contracts & Covid-19 – the importance of EWNs & CENs
This blog considers the importance of issuing Early Warning Notices (EWNs) and/or Compensation Event Notices (CENs) under NEC Contracts, in response to the impact of Covid-19 (including the associated Government measures and ‘Lockdown Period’).
Good communication between the parties has always been a good starting point for ensuring the success of a construction project and should issues arise (perhaps due to the impact of Covid-19), reasonable attempts should be made to resolve these issues by agreement.
However, there is still the over-arching and fundamental NEC requirement to “act as stated in the contract” (clause 10.1).
With this in mind, and noting the impact of Covid-19 on the construction industry, it would be good to review how standard NEC contracts make provision for Covid-19 type events to be notified as an early warning matter, and then as a compensation event (please note that the standard NEC provisions in respect of EWNs and CENs may be affected by any contract amendments).
In respect of EWNs:
NEC3 and NEC4 contracts require that (clause 16.1 / 15.1):
“The Contractor and the Project Manager give an early warning by notifying the other as soon as either becomes aware of any matter which could
· increase the total of the Prices,
· delay Completion,
· delay meeting a Key date or
· Impair the performance of the works in use…”
Noting the arrival of Covid-19 in the UK earlier this year (with the first fatality being reported in late February), it would appear that the time for giving an early warning in connection with Covid-19 has now long since passed…
However, as a second wave has been predicted for this Autumn, it has been suggested that now would be an appropriate time to provide a further EWN in respect of the potential impact of the second wave. Some have also considered it appropriate to issue EWNs in anticipation of the issue of any further Government Guidance in respect of Covid-19. I am sure that the extent of what should be notified, and how often, is quite likely to trigger some debate. However, the maxim that it is better to be safe than sorry certainly may be appropriate and therefore, if in doubt, Notify!
It is worth remembering that an EWN is only issued in respect of something that ‘could’ happen. In other words, the event has not happened yet and may not even do so. However, the event is significant enough that NEC requires for it to be notified and put into the Risk Register (Early Warning Register – NEC4).
In respect of CENs:
If the event is later ‘expected’ to happen, or indeed ‘has happened’, it then becomes subject to the NEC requirement that it be notified as a Compensation Event.
For compensation events that arise due to the issue of a Project Manager’s instruction, the PM is required to notify the event. However, for some of the compensation events that may arise due to the impact of Covid-19, it will likely be down to the Contractor to notify the event.
In this situation, clause 61.3 states (NEC4 wording):
“The Contractor notifies the Project Manager of an event which has happened, or which is expected to happen as a compensation event if
· The Contractor believes that the event is a compensation event and
· The Project Manager has not notified the event to the Contractor…”
Please note that, in respect of Covid-19 (where your contract allows this to be treated as a compensation event), the ‘event’ may have already happened or may simply be expected to happen. This goes beyond the EWN requirement for something that could happen. In this situation, there is a greater certainty that the event is now going to become a compensation event.
It is particularly important for the contractor to notify such an event, as clause 61.3 goes on to specify an 8-week time limitation period within which the Contractor is required to notify. Failure to do so will mean that the Contractor will not then be able to claim any time or money associated with the event.
With all this in mind, and noting the ongoing nature of the impact of Covid-19, it is necessary for contractors to ensure that they “act as stated in the contract” and provide EWNs and CENs to ensure that they may have the opportunity to recover any lost time and money associated with Covid-19.
Any notifications should make it clear exactly what the Contractor considers to be the compensation event – e.g. is it something specific, such as the Employer denying access to a part of the Site (see clause 60.1(2))?
Also, contractors should be careful not to treat Covid-19 as a global claim, whereby they claim that all lost time and additional costs are due to Covid-19. Care will be needed to evidence that any lost time / additional costs have arisen as a direct consequence of the Covid-19 related event, and not something else (such as contractor delay).
So, in conclusion, we all know the age-old maxim relating to Records, Records, Records (which will be needed to evidence any claims arising from the effect of Covid-19), but perhaps a new maxim of Notify, Notify, Notify should be borne in mind to ensure that you recover all your entitlements under the contract.
I hope that you have found this blog on EWNs and CENs to be of some assistance. Should you have any concerns about your entitlements (or are concerned about the possible effect of any contract amendments), please feel free to send me a message (email@example.com), or give me a call (07958 102334). I would be pleased to hear from you.