Common reasons for disputes and how to avoid them

Melanie Blake and Sophie Drysdale examine the common reasons for disputes in construction projects and how Parties can use the NEC suite to avoid them.

What is the NEC “spirit of mutual trust and co-operation”?

NEC contracts are centered around the concept of continuous collaboration and mutual respect between the parties, which is captured in the obligation to “act in a spirit of mutual trust and co-operation”.

This obligation applies to the parties to the contract (i.e., the Contractor and the Employer/Client) and to all other people involved in the contract (i.e., the Project Manager, Supervisor, Service Manager, Supply Manager).

The theory is that acting in a spirit of mutual trust and co-operation should reduce risks and costs for a project, help avoid disputes, and help to resolve any disputes that cannot be avoided through greater transparency, and the proactive and collaborative management of risk. Although the obligation is applicable to the operation of the contract as a whole, it is considered particularly important in the context of compensation events, payment and early warnings.

How has the spirit of mutual trust and co-operation been interpreted by the courts?

There is limited case law to demonstrate how the courts will enforce this obligation, but it has been enforced by the courts and it has, generally, been interpreted widely. To summarise existing case law, this obligation:

“suggests that, whilst the parties can maintain their legitimate commercial interests, they must behave so that their words and deeds are… not attempts to improperly exploit the other party”

• has similarities with the obligation of “good faith” and, where it applies, if there is a misunderstanding between the parties, steps should be taken to correct such misunderstanding[1];
• cannot prevent a party from relying on any express terms of the contract[2]; and
• imposes an effective and enforceable good faith obligation that “interlocks” with other relevant contractual provisions and is not simply “an avowal of aspiration”[3].

Why do disputes arise under NEC contracts?

Some of the common reasons for disputes under NEC contracts include:

• Failure to follow contractual procedures

NEC contracts are procedure driven. The main component of these procedures is the requirement to issue certain notices. For example, the standard position is that compensation events that are not notified by the Project Manager are required to be notified by the Contractor within eight weeks of it becoming aware of the event having occurred. Failure to do so can lead to the Contractor losing its rights to a change to the prices, completion date, or a key date. This often leads to a dispute, particularly if there are potentially mitigating circumstances for the Contractor’s failure to notify the event.

• Lack of an accepted programme

The programme is at the heart of an NEC contract. The Contractor produces a programme for acceptance by the Project Manager. Disputes often arise when the programme has not been updated to include events which cause delays, and as a result the delay period is disputed.

• Poor drafting

The Works Information/Scope describes the work the Contractor is to provide and any associated constraints. Disputes arise where the Works Information/Scope is inaccurate, ambiguous, and/or conflicts with other contractual provisions.

A uniqueness of the NEC forms of contract is that they give the parties flexibility as to how particular risks are allocated. Risk can be allocated between the parties through the main option selected for the contract, secondary options, compensation events, and additional Z clauses. Disputes arise where the agreed risk position is not understood between the parties and is not clearly reflected in the drafting.

How can you best avoid disputes under NEC contracts?

• Ensure that the parties involved in administering the contract understand and follow the NEC processes and procedures. Contract management systems with NEC procedures built into the software are a useful tool in this regard.
• Where a party needs to issue a notice under an NEC contract, it should be mindful of the requisite timescales.
• Ensure that the Accepted Programme is updated at regular intervals and following any major events.
• Ensure that the contract is drafted with as much clarity and simplicity as possible.
• Ensure that the parties involved in drafting the contract understand the agreed risk position and ensure that this is clearly reflected in the drafting. The more clearly the contract specifies who retains each risk, the less scope there is for uncertainty and therefore dispute. In particular, consideration should be given to:
• Selection of the appropriate payment mechanism.
• The payment mechanism will determine how the risk in the Contractor’s estimating and pricing is allocated, as determined by the choice of ‘main option’ clauses. See our earlier article in this series discussing the main options.
• The secondary options.

[1] Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319 affirming part of the analysis in Keating on NEC3 (Sweet & Maxwell, first edition, 2012).

[2] Costain v Tarmac Holdings.

[3] Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC).

[4] Van Oord UK Ltd v Dragados UK Ltd [2021] CSIH 50.

For example:

• Option X1 (Price adjustment for inflation) can protect the Contractor from inflation; and
• Option X15 (Limitation of the Contractor’s liability for its design to reasonable skill and care) limits the Contractor’s liability for its design to a “reasonable skill and care”.
• Compensation events (“CEs”)

Compensation events are the only mechanism through which the Contractor can potentially claim an increase in the prices or a delay in the key dates and completion date. The CE principle therefore makes it very clear where certain risks lie, and the parties should take great care in negotiating and drafting them. If carried out properly, the CE procedure allows the parties to maintain a good ongoing forecast of costs and completion, thereby reducing the potential for disputes and increasing the chances of agreeing the final account. See our earlier article in this series discussing the use of compensation events.

Key takeaways

The NEC, if utilised to its full potential, gives the parties clarity and flexibility, and encourages collaborative management. The ability to allocate risk is a crucial factor in avoiding uncertainty and therefore disputes. Parties should spend time during the contract preparation phase making sure they understand the options open to them and the effect of certain optional clauses, before discussing where certain risks should lie and drafting the contract appropriately.

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This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.