Acts of God

Is there any merit of including a Z clause in the NEC3 TSC for Force Majeure?

It was an interesting debate and after giving this some thought my response is "no". One chap thought that the NEC3 "ECC" guidance might lead you to the conclusion that a provision similar to the ECC "prevention" clause (19) is required in the Term Service Contract (TSC), refer to the NEC3 guidance on page 73. However the publishers will be quick to remind us all that the guidance has no legal standing and quite right too.

Force majeure are sometimes referred to as acts of God (which, if you ask me is a little harsh on God whatever your religious views may be). If there was a risk register for God is it really something that he is in full control of (if you happen to think that he exists) or does man as custodian of the earth have any responsibility to mitigate or prevent events? These sorts of event typically cover events such as earthquake and floods. Before we all get carried away lets think about the likelihood of the event occurring and the impact of the relevant risk. If you are dealing with services provided adjacent to the coast then flooding may be highly probable and present a high impact. It was mentioned to me that under the TSC the service is never complete. I am not sure that this is correct as it seems very likely that a Contractor could be prevented from providing the service in whole or in part by an event that is completely beyond his control such as a strike or civil commotion. I think the common law principle of frustration might apply but this is another debate and will leave this to a lawyer. It seems to me that force majeure events such as floods or earthquakes or strikes are beyond the control of the parties and likely to prevent the Contractor from providing the services to the Affected Property.

The listed Compensation Events may provide some form of cover for typical force majeure events i.e.: a strike on the underground may prevent the Employer from providing access to the Affected Property or the effects of a flood may lead to a change to the Affected Property but I do not think that the contract is contemplating this. I am more inclined to think that force majeure events should be identified in the contract and dealt with separately "if" it is decided that they are Employer risks.

It is fundamental to decide upon what the force majeure risk is, who is best placed to manage it (if anyone) and whose owns it and the contract needs to make it clear otherwise you may end up in a dispute. The NEC3 TSC provides the flexibility (to allocate risk in this way) and that is a good thing. The contract aims to be fair so that we do not ask a party to carry any risk that he can do nothing about.

A Network Rail contract (bespoke) that I have seen refers to vandalism and terrorism as force majeure events and it states the following:

"15.5. As soon as practicable following the notification described in paragraph 15.3, the Parties shall use all reasonable endeavours to agree appropriate terms or modifications to the Development Programme to mitigate the effects of the Force Majeure Event and to facilitate the continued performance of the Framework Agreement or any Services Contract."

Sounds like a bit of a bit of a muddle to me - its not very clear about the risk, who is best placed to own it (and insure for it), the events include risks such as terrorism and and how do the parties deal with any costs if they wish to resume providing the service?

"What is the point of asking a Contractor to hold the risk for terrorism attacks on the underground when he clearly has no control over it?"

The Employer will almost certainly end up paying a massive premium for it and in any event is more likely to end up in a dispute with the Contractor.

If you are not sure about this, it is possible to add an Employers risk event to the contract (clause 60.1.(12) provides for this) and for clarity you add the event to the Contract Data (Part 1). Note also the typical list of force majeure events that are already listed as Employer risk events provided in clause 80.1 such as "civil strikes riots and commotion" but there is nothing to stop you adding to this list. You will see that these are referred to as Employers risk. Note the event is then mentioned again in termination clause 80.1.

"It would simply be nonsense to pass this sort of risk to the Contractor - in my experience, it simply does not work"

It is also important to consider other ways that these types of risk might be dealt with. It is important to consider insurance availability for flooding, for example. Insurance should be left to the significant Employer risk events that the parties can do little or nothing to prevent? I do not think you would want to insure and pay premiums for events that it' possible for the Contractor to mitigate and or prevent? It is a good idea to think about the sorts of risk event that might occur and to ensure that it is clear in the contract who owns it and how it is dealt with if it materialises. Lets not rush to add any more Z clauses to the contract as most Employers already have far too many of them. In my view there is so much you can do with a well considered risk register. Its a good place to make clear how you are going to deal with risk.

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Frameworks 2011 "Back in Fashion"

It's official framework contracts are still in fashion, despite the impact of the recession. Clients recognise that in 2011 with tender prices on the floor frameworks deliver tangible benefits including added value.

"There is some sign of a rush to procure - surprising as it may seem"

Clients are aware that there are bargains to be had, they are in no doubt (as also indicated by BCIS end of 2010 statistics for construction) that the current tender prices are low. If you are a Client and have recently secured new framework Partners then you will know this from benchmarking.

The reality is that Contractors are desperate for work. There is not a lot of it around. The longer term commitment provides continuity and that may just be enough to see them through the tough times.

Frameworks v One-Off Tenders

Clients know when they are onto a good thing. I understand this as a client myself procuring a loft conversion for our 1950s bungalow. I have had 4 prices back and very competitive they seem. What is more, they say they will finish in just 3 weeks. Marvellous! Ahhh but you and I know that a risk with a one off tender is..... Will they deliver or is it all hot air? I am minded to not hold my breath, waiting for a claim for extras to materialise.

That's a risk you take with one-off tendering and when you have lowest price as the key driver.

Frameworks do not always work well as they could. There are some lessons to be learnt. They can preclude competition by aggregation and this squeezes out the smaller players. The UK construction industry seems to be good at this. It needs to work hard through its statutes and government procedures to ensure that we give the smaller players and start-ups the same opportunity. We must maximise the opportunities for fair competition. It cannot be correct that many smaller businesses are precluded from the competition on the basis of turnover, the number of employees or whether it has an environmental policy or not. Industry should work hard to provide genuine opportunities for new businesses and enterprise. If smaller providers can evidence capacity and the ability to deliver the works and or services, whether it is in part or in whole then they should be able to compete. Frameworks do not always provide for this. They need to be more inclusive and provide better opportunities for the smaller players to compete on a level playing field, the principles of equality must apply.

Frameworks Have Changed

If you are in a framework there can be too much at stake especially if its an alliance between 8 authorities. That's the way it should be. If the Contractor falls out with 1 it risks falling out with all. The continuity and opportunity for work provided by frameworks still trumps one-off tendering. Not least the commercial and relational benefits which can accrue. Frameworks in 2011 are tougher as there is no guarantee of getting any work. That's the way it should be, the Contractor should be made to work hard to secure opportunities.

"No more guarantees. He should be in it to win it".

Frameworks should not be a soft option and the rigour bought by competition should be harnessed to create a commercial tension. Frameworks in 2011 look very different. They have improved and that has to be a good thing.