Under most formal contracts it is necessary for the Contractor to give notice of various matters as part of the process of seeking extensions of time and/or loss and expense.
Contracts increasingly contain notice clauses that are expressed as conditions precedent. This means a failure to comply with the requirements of the clause results in a party being prevented from making what might otherwise have been a valid claim.
The NEC suite of contracts include an 8-week period for the contractor to notify the employer of a Compensation Event and a 7-week period for sub-contractors to notify the contractor. (NB: these timescales are often shortened by way of amendments to the standard form.)
Core clause 61.3 of the NEC4 forms states:
“lf the Contractor does not notify a compensation event within eight weeks of becoming aware that the event has happened, the Prices, the Completion Date or a Key Date are not changed unless the event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision.”
If the time limits are not complied with the Prices, the Completion Date and Key Dates are not changed unless the event arises from an event that is directed by the Project Manager of Supervisor. This means the time bar does not apply to Compensation Events 1 (an instruction changing the Works Information), 4 (An instruction to stop or not start work or change a Key Date), 7 (An instruction to deal with an object of value or historical interest), 8 (A change of a decision previously made), 10 (A search for a Defect where no Defect is found), 15 (Taking over the work early) and 17 (the correction of an assumption). These are events which the employer is required to notify. This means that should the employer fail to notify one of these events, the contractor is not time barred.
In the case of Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2 Lloyd’s Rep. 113 the House of Lords held that a notice provision should be construed as a condition precedent, and so would be binding if:
(i) it states the precise time within which the notice is to be served; and
(ii) it makes plain by express language that unless the notice is served within that time the party making the claim will lose its rights under the clause.
Time bars are used to improve the administration of the contract. In Multiplex Construction v Honeywell Control Systems ([2007] EWHC 447 (TCC)), it was held:
“Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.”
They encourage the prompt notification of events so that steps can be taken to proactively manage and mitigate the delay. However, we are regularly seeing contracts that require notices to be issued within very short time scales. Sometimes just a few days or one or two weeks. The time limits are so short that it can be challenging to issue notices within the time limits. When the timescales are so impractical the requirement to give notice looks more like a trap to penalise, rather than a procedure to encourage cooperation and good management.
The importance of following the notice provisions to be found in any contract was reinforced in the 2017 case of Glen Water Ltd v Northern Ireland Water Ltd ([2017] NIQB 20) where there was a condition precedent requiring claims for compensation to be submitted within 21 days of the occurrence of the compensation event that had caused or was likely to cause delay and additional cost.
There had been discussions and communication about the compensation event. It was argued that a letter and the discussions regarding the event at a meeting were sufficient to satisfy the notice requirements. Before the letter and discussions took place there had also been frequent expressions of concern about the subject of the claim.
The Judge recognised the practical issues of the notification requirement being overlooked amid a mass of claims and in the midst of an ongoing process of discussions but concluded the notice had not been given within the time limits laid within the contract the claim was time barred.
“The contractual terms are clear and commercial certainty is an overarching consideration. The evidence as to the commercial context and surrounding circumstances has not remedied the defect in the letter”.
The communications that did take place were ambiguous. Any notification should be clear what it is.
The expressions of concern could have demonstrated that there was an awareness of the event which would set time running for a formal notice to be issued.
Core clause 61.3 of the NEC4 forms require notification within eight weeks of “becoming aware” of the event.
There is no clear law on what constitutes “awareness” in the NEC context. Parties will often attempt to argue that clock has not started running until the latest possible date.
The alleged timing of this awareness is often disputed. In WW Gear Construction Limited v McGee Group Limited [2010] where Mr Justice Akenhead considered the three points at which time may start running:
- The date on which it becomes apparent that the project will be affected.
- The date on which it should reasonably have become apparent that the project will be affected; or
- The date on which the project was first affected.
The answer to when time starts running depends on the facts. It’s sensible to ensure notices are issued as soon as possible and not risk losing entitlement.
There are several steps parties can take to avoid the adverse effects of time bars, they include but are not limited to the following:
- Be aware of the impacts of the time bars included in the contracts and manage them effectively.
- Be commercially prudent by stepping-down the time bar provisions.
- Be mindful that the courts see the benefits of time bar provisions and support their operation; if they are implemented correctly.
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