Losing the right to payment

Specialist contractors shouldn’t ignore problems created by the NEC/3

THIS month I wish to highlight something that should be a concern to all flooring contractors who work for main contractors and that 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’re delayed through no fault of your own, you’re entitled to be paid for that right?


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 which 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, you’ll 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 such as 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 on 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 doesn’t notify a compensation event within seven weeks of becoming aware of the event, he’s 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’ll lose the right to be paid.

Applying the strict application set out in WW Gear Construction v McGee Group and Education 4 Ayrshire 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.

Get it wrong and it stays wrong
Get it wrong in the NEC/3 contract and it stays wrong.

Subcontractors need to remember that, although all parties should follow non-confrontational procedures, every party will try to dump risk down the line, when it should remain with those best-suited to manage.
In simple terms, the responsibility for you, the specialist contractor, is to know what you have to do and when you have to do it.

Unlike other forms of contract, which tend to stay in the drawer, you should refer to the NEC/3 contract daily and know your exact position in regard to its provisions at any given time. And if that isn’t happening, you simply aren’t administering the contract properly.

It is so different it’s a real challenge
Please don’t ignore the problems the NEC/3 creates for you as a subcontractor and please get advice from the outset. Unfortunately, it’s so different from any other contract terms that you’ll have used previously it’s a real challenge.

But, when you understand and get it right, it can also be a massive opportunity to make money too.

Barry Ashmore
Barry is MD and co-founder of StreetwiseSubbie.com which provides business solutions for specialist contractors throughout the UK
01773 712116