A Contractor has submitted a design to the Project Manager but 3 weeks later has received no response. If the period for reply is 2 weeks, what should the Contractor do?
- Proceed with the relevant work
- Issue an early warning
- Notify a compensation event
- Do nothing
My recent poll asked what a Contractor should do when a Project Manager has failed to respond to the Contractor's design submission after a period of 3 weeks, in a scenario where the contract stipulated that the period for reply was 2 weeks.
The starting point for this scenario is that the Contractor is not permitted to proceed with the relevant work until the Project manager has accepted its design (Clause 21.2 ) and where the Contractor is of the view that the delay in acceptance of the Contractor's design causes or is likely to cause them to incur additional cost, or where it could prevent the contractor providing the Works by the Completion Date, they should notify the Project Manager of a compensation event.
Indeed, Clause 60.1(6) of the contract provides that it is a compensation event if the Project Manager or the Supervisor does not reply to a communication from the Contractor within the period required by the contract. This applies to submissions made by the contractor in accordance with Clause 21.
The process for notifying a compensation event is governed by Clause 61.3 of the contract, and provides that the contractor must notify a Compensation Event, which has happened or which is expected to happen if: (1) the Contractor believes that the event is a compensation event; and (2) if the Project Manager has not already done so.
The deadline to notify compensation events is 8 weeks from the Contractor becoming aware that the event has happened. If 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 – none of which apply to this current scenario.
Importantly, as the deadline to notify a compensation event is "8 weeks from the Contractor becoming aware that the event has happened", the Contractor in this scenario has already lost 1-week of time in which it can notify the compensation event. A failure to notify in the following 7-weeks could see the Contractor losing its entitlement to additional time or money as a consequence of the event.
Early Warning?
Clause 15 stipulates that both the Contractor and the Project Manager are required to give early warning by notifying the other as soon as either becomes aware of any matter which could:
- Increase the total of the Prices
- Delay Completion
- Delay meeting a Key Date or
- Impair the performance of the works in use
It is a breach by either the Project Manager or Contractor to fail to give an early warning if it was or should have been aware of the matter concerned.
The scenario contained within the poll provided that the Project Manager was already 1-week late in issuing a response to the Contractor's Design. That being the case, the Contractor's opportunity to issue an early warning notice has arguably already passed.
Contractors should remain aware of the importance of giving an early warning whenever they become aware of any matter which could increase the Prices; delay Completion; delay meeting a Key Date; or impair the performance of the works in use. The failure to do so can have financial consequences for the Contractor as clause 63.7 states that the Project Manager is to assess compensations events as if an early warning notice had been given. This means that if any of the effects of the event could have been mitigated by the early warning procedure, the Contractor will not be entitled to be compensated for those effects by way of an increase in Prices, or time.
Please note that the aforementioned timescales for notifying and responding to compensation events are based on the unamended form of contract. It is crucial that Contractors understand the timescales involved where these have been subject to amendment. Failure to meet the deadline for notification of a compensation event will see Contractors being time-barred from their entitlement to additional time or money incurred as a consequence of the event.
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