Recent UK court judgments shed light on the application and interpretation of some of the NEC3 ECC and PSC clauses. Hong Kong has adopted the NEC3 contract for almost a decade. Users should be aroused of their contractual rights and potential pitfalls to avoid disputes.

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Presented by: Albert YEU FCIArb MRICS MICE
20 November 2018
NEC Case Law Review
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• Asbestos survey case - Northern Ireland Housing Executive v Healthy
Buildings (Ireland) Limited [2017] NIQB 43, [2018] BLR 157
• Ground treatment case - Arcadis UK Ltd v May and Baker Limited (t/a
Sanofi) [2013] EWHC 87 (TCC), [2013] BLR 210
• Pothole case – Atkins Limited v Secretary of State for Transport [2013] EWHC
139 (TCC). [2013] BLR 193
• Requirement of completion – RWE NPower Renewables Ltd v J N
Bentley Ltd [2014] EWCA Civ 150, [2014] CILL 3488
• Lagging work case – Arbitration Application No. 2 of 2016 [2017] CSOH 23,
2017 GWD 6-79
• Hydroelectric scheme – SSE Generation Limited v Hochtief Solutions AG
[2016] CSOH 177, 2017 GWD 3-39
Cases
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Fact of the case (Asbestos Case)
Employer Northern Ireland Housing Executive (NIHE) (Claimant)
Consultant Healthy Building (Ireland) Limited (HB) (Respondent)
Contract type NEC3 Professional Services Contract
Work Asbestos surveying services
Background 1. Dec 2012 – NIHE awarded HB two asbestos surveying services
2. Jan 2013 – NIHE issued an instruction requiring more asbestos survey
3. Mar 2013 – HB notified NIHE under cl 61.3
4. Aug~Oct 2013 – NIHE requested HB to submit a quotation
5. Nov 2013 – NIHE rejected HB’s quotation
Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited [2014] & [2017]

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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
Issue 1
“Dividing Date”
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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
NEC3
Professional
Service
Contract
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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
NEC3
Professional
Service
Contract

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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
Issue
Is the assessment of the effect of the compensation event
calculated by reference to the forecast Time Charge or the
actual cost incurred by the consultant?
Adjudication
HB argued NIHE should have instructed HB to submit
quotation on 10 January 2013. Therefore, the “quotation”
after this dividing date is in the form of a “forecast”
Apart from Cl 63.1, HB also relied on the Cl 63.6, Cl 63.7
and Cl 65.2.
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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
“If one looks at 65.1 and 65.2 together it seems to me that what it means is
that if there is an employer’s assessment, and assessment is by the employer
not the consultant, which is based on a forecast from the consultant, the
employer cannot subsequently revise the assessment if it turns out that he
had accepted a forecast from the consultant which was unduly pessimistic,
even “wrong”; because it fact the consultant was put to less trouble and
expense than it had forecast. That is to achieve a meaning consistent with
business common sense…”
Court’s
view to
Cll 65.1
and 65.2
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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
“evidence, from time sheet and other material, of what HB actually did in that
period, particularly with reference to the change in instructions, was not only
relevant evidence but clearly the best evidence to assist the court in
calculating the “compensation” to which HB was entitled.”

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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
Issue 2
“Cl 61.3 Time Bar”
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Northern Ireland Housing Executive v Healthy
Buildings(Ireland)Limited
NEC3
Professional
Service
Contract
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- Fact:
- Employer: May and Baker
- Contractor: Arcadis
- Contract type: NEC3 ECC Contract
- Work: Remediation work on site
- Background: 1) Some work was required beyond the
northern and southern boundaries of the site on land
Arcadis UK Ltd v May and Baker Limited [2013]
Fact of the case (Ground Treatment Case)
Employer May and Baker (Respondent)
Contractor Arcadis UK Limited (Claimant)
Contract type NEC3 ECC Contract
Work Earthwork and soil improvement works (including soil washing, chemical treatment and off-site
disposal methods)
Background 1. End of 2011 – Additional work beyond the Northern and Southern
boundaries
2. PM issued the Claimant PM’s Instructions
3. Re Northern Boundary – PM made his own assessment of
compensation event. Part payment made.
4. PM purported to withdraw PM instructions in respect of Northern and
Southern Boundary works

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Arcadis UK Ltd v May and Baker Limited [2013]
Adjudication 1
- Is the PM entitled to reverse his decision of compensation event for
Northern Boundary work?
- Adjudicator found in favor of claimant
“prior to the implementation of the compensation event, the PM may reverse
his decision that the matter constituted a compensation event. However, after
the compensation event has been implemented, as defined in the Contract, the
PM may neither reverse his decision that the matter is a compensation event,
nor reassess the effects of the compensation event.”
- Cl. 65.1, if PM made his own assessment and notified it, a compensation
event is said to be implemented
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Atkins Limited v The Secretary of State for Transport [2013]
Fact of the case (Pothole Case)
Employer The Secretary of State for Transport (Respondent)
Contractor Atkins Limited (Claimant)
Contract type NEC3 ECC Contract – Lump Sum Contract
Work Maintenance of road surface, including repairing potholes, in a highway network
Background 1. Atkins was appointed as contractor to for maintain the roads, including
repairing potholes, in a highway network
2. Atkins claimed that the presence of potholes on the network was
significantly greater than it anticipated
3. Adjudicator held: Compensation Event
4. Arbitrator held: Not Compensation Event
5. Court held: Arbitrator was correct in his overall reasoning and
conclusion
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Bespoke Cl 60.1(11) stated that a compensation event
arose where:
“The Provider encounters a defect in the physical condition of the Area Network which:
• is not revealed by the Network Information or by any other publicly available
information referred to in the Network Information;
• was not evident from a visual inspection or routine survey of the Area
Network at the Contract Date;
• an experienced contractor or consultant acting with reasonable diligence
could not reasonably have discovered prior to the Contract Date; and
• an experienced contractor or consultant would have judged at the Contract
Date to have such a small chance of being present that it would have been
unreasonable for him to have allowed for it.”
Atkins Limited v The Secretary of State for Transport [2013]

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Atkins Limited v The Secretary of State for Transport [2013]
Argument made by Claimant
(Contractor) - it is a Compensation
Event
Argument made by Respondent
(PM) – it is not a Compensation
Event
Not reasonable for contractor to
allow excessive volume of defect . It
is CE under Cl 60.1(11)
The clause refer to the type of
defect. The parties could have used
“defects” here which would assist the
Contractor, but here the contract use
of singular words “a defect”
Not reasonable for contractor to
allow the defect present at the
Contract date
The word “being present” means the
any time up to the end of the
Contract date
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Arbitrator’s view
1. Cl. 60.1(11) only applies to defects which appear after the
contract date due to a cause which existed at the contract date
(being present) and which could not have been foreseen by the
contractor. (Latent/unknown defects)
2. A construction of cl.60.1(11) treating “defect” as meaning “volume
of defect” removes the point of a lump sum contract and makes
no commercial sense.
3. The correct test is “whether it would have been unreasonable to
have allowed for the defect at all” because there was “such a
small chance of [it] being present” which applies to type not
volume.
4. Practical problems with each defect in excess to be notified as a
CE.
Atkins Limited v The Secretary of State for Transport [2013]
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Atkins Limited v The Secretary of State for Transport [2013]
NEC3 ECC
Contract
Clause
- In NEC3 ECC Contract Clause 60.1(12)
- the word “physical conditions” is used, and
- “only the difference between the physical conditions encountered
and those for…” is in the content of the contract clause

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RWE N Power Renewables Ltd v J N Bentley Ltd [2013]
Fact of the case (Requirement of Completion)
Employer RWE N Power Renewables Ltd (Claimant)
Contractor J N Bentley Ltd (Respondent)
Contract type NEC3 ECC Contract
Work Civil engineering works on a hydroelectrical plant in Scotland, including the construction of
3.5km penstock pipeline for channelling water to the powerhouse and a tailrace to return the
water. The hydro plant equipment was to be provided and installed by others
Background 1. Bentley carried out civil engineering works for RWE N Power
Renewables Ltd on a hydroelectrical plant in Scotland
2. A dispute arose over the date for completion of hydroelectrical plant
3. The crux of the dispute was whether J N Benley’s obligation was
governed by Option X5 of Part 1 of the Contract Data or clause 6.2 of
the Works Information
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RWE N Power Renewables Ltd v J N Bentley Ltd [2013]
Option X5 in Part 1 of the Contract Data Clause 6.2 of Works Information
“Completion, including testing, of the intake,
penstock pipeline and tailrace and the power
house (including building services) to allow
Hydro Plant to be installed”
Completion, including testing, of the intakes,
penstock pipelines and tailrace, and the power
house (including building services) to be
completed to allow the hydro plant to be tested
and commissioned.
Completion of section 2 is defined as
completion of the following items of the works:
all of the intakes and associated facilities;
• All of the penstock pipelines and associated
facilities;
• All of the tailrace,
…
It requires completion of the penstock pipeline
only to the extent necessary to enable the
hydro plant to be installed
All the work described as forming part of
section 2 had to be finished before the section
as a whole could be regarded as complete. It
means the intake, penstock pipeline and
tailrace all had to have been completed and
tested
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RWE N Power Renewables Ltd v J N Bentley Ltd [2013]
Adjudication
Decision: Inconsistency between two clauses, and part 1 of
the contract data took precedence.
Court of Appeal
Held: The contract shall be read as a whole and construed
so far as possible to avoid inconsistencies. The case finally
go to the Court of Appeal. The court held that despite
difference in detail between two clauses, one would expect
the two provisions to complement each other, because it is
a single obligation towards completion. The correct
approach is to resolve discrepancies relating to individual
obligations rather than forcing a choice between one clause
and another.

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Scottish Arbitration No. 2 of 2016
Fact of the case (Lagging Work Case)
Contract type NEC3 ECC, Option C Contract
Work Lagging work amongst others
Background 1. The Employer and main contractor entered into a construction
contract to provide some lagging work.
2. The main contractor sub-contracted the lagging work for a fixed
price which was accepted by the employer.
3. For some reasons, the subcontractor did not carry out all of the
work it had contracted to do and the main contractor carried out the
remainder of lagging work, resulting in a total price exceeding the
fixed price in the sub-contract
4. The dispute related to the lagging work was how the main
contractor should be paid for the lagging work
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Scottish Arbitration No. 2 of 2016
Lagging work
Subcontracted to
Subcontractor
Remainder
carried out by
Main Contractor
itself
Fixed price in
sub-
contractor,
agreed by
Employer
How this
amount of
money should
be paid?
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Scottish Arbitration No. 2 of 2016
- The employer argued that any amount in excess of the fixed price
of the subcontract shall not be recoverable as Defined Cost
- In arbitration, it was held it shall also be Defined Cost, and that
the contract was a target cost contract, and this risk of works
costing more than parties expected would have been shared
between the parties. The arbitrator ruled that the amount of
payment shall not be deducted
- The court upheld the arbitrator’s decision, saying the main
contractor were not bound to use sub-contractor or carry out the
lagging work themselves

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Scottish Arbitration No. 2 of 2016
Note:
- For work carried out by sub-contractor, the profit gained from sub
contractor will be from the subcontracted percentage, while the work
carried out by contractor, the profit gained will be the direct fee
percentage
- In NEC3 contract, the direct fee percentage and sub-contracted
percentage can be different, while in NEC4 contract, single fee
percentage was adopted
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SSE Generation Limited v Hochitef Solutions AG &Another
Fact of the case (Hydroelectric Scheme)
Employer SSE Generation Limited (Claimant)
Contractor Hochitef Solutions AG & Another (Respondent)
Contract type NEC2 ECC Contract
Work Tunnel construction
Background 1. Glendoe hydroelectric scheme was constructed between 2006 and 2008 in Scotland.
It failed eight months after take over. A collapse occurred in the main tunnel.
2. The owner was anxious to recover its asset as soon as possible, but they failed to
reach agreement with contractor. In consequence, the owner instructed another
engineering firm to undertake the remedial work
3. The litigation arises out of the collapse. The owner seeks to recover about £130
million
4. It was found that the cause of the tunnel collapse was because there was not
enough support: poor rock conditions coincided with insufficient shortcrete and rockbolts
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- The owner argued the cause of the tunnel collapse was because
the Contractor did not conform with the accepted design. There
was not enough support provided by the Contractor, as well as
insufficient shortcrete and rockbolts.
- The contractor relied on an Option Clause M, which states, “The
Contractor is not liable for Defects in the works due to his design
so far as he proves that he used reasonable skill and care to
ensure that it complied with the Works Information.”
- The court held that Option M placed an important brake on liability.
The contractor’s assumption of a more limited degree of risk would
have been reflected in the contract price and the level of its
insurance premiums
SSE Generation Limited v Hochitef Solutions AG &Another

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- The Contractor further argued that they had agreed the rock mass
classification by 4 types with Employer, by reference to ground
condition report. There was no concerns in relation to the tunnel
during its construction
- The court held the contractor did exercise reasonable skill and care
with respect to design and construction
- The Contractor counterclaimed they shall have made the profit if
they made the remedial work
- The court held that the contractor was in breach of Clause 82.1,
which states, “Until the Defects Certificate has been issued and
unless otherwise instructed by the Project Manager, the Contractor
promptly replaces loss of and repairs damages to the works, Plant
and Materials”
- Implication: Importance of clause of restricting design liability (i.e.
Option M in NEC2 or Option X15 in NEC3)
SSE Generation Limited v Hochitef Solutions AG &Another
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Thank you!
Q & A