Under ECC clause 60.1(4) the project manager can instruct the contractor not to start any work and we have a situation where we have issued an instruction stopping part of the works. However, it could be argued it was an instruction changing the works information under clause 60.1(1) as it stops part of the works rather than not starting them.
There is no specific mention in the contract that any relevant prices shall determine the assessment of items omitted, other than the wording of clause 63.1 for assessing compensation events. This states the changes to prices are assessed as the effect the actual defined cost of work already done, the forecast defined cost of work not yet done and the resulting fee.
The change does no infer anything which could not have been contemplated by parties at the outset of the contract as the compensation event clause was always part of the conditions of contract. As the omission was a valid compensation event under the contract, the assessment has followed the contract using the fee as stated in the contract data, which is not subject to re-assessment for this. The fee includes the contractor’s profit, so assessment of the compensation event clearly includes an element of profit – albeit negative in this situation.
As none of the express provisions specifically mention loss of profit, and the contract has been applied consistently (for both positive and negative compensation events which have both had the fee percentage applied as per the contract data), does ECC support the contractor to claim for an entitlement of direct loss and expense incurred by reason of loss of profit?
Answer
The right to issue an instruction to stop or not start any work is under clause 34.1; clause 60.1(4) only deals with the consequence of that instruction. However, this facility coves only instructions for a temporary stop to the work. If you permanently remove this work, you must issue an instruction to delete it from the works information, otherwise the works will never achieve completion, or will have a permanent defect. The practical results of this are the same in that it is still a compensation event, this time under clause 60.1(1), and that compensation event is still valued in the same way.
As you have rightly pointed out, the compensation event is valued based upon an assessment of what the defined cost to carry out the omitted work would have been (see clause 63.1). To this is added the fee and the total is then deducted from the total of the prices. There is therefore no contract provision that entitles the contractor to recover loss of profit. Since the contract allows you to do this, and deals with its consequences that is the end of the matter legally, in the sense that you have not breached the contract. Even if you had done so, clause 63.4 makes it clear that the only rights the contractor has to a change in the prices are those in the contract. This is what is called a sole remedies provision, which prevents the contractor recovering by means other than the contract.
In summary, the contractor’s claim for loss of profit, for which there is no such provision in ECC or any other NEC3 contract, is doomed to failure.
There is just one final point. The assessment of the compensation event needs to take into account all of its effects upon defined cost for carrying out the work. If this meant that other works had to be carried out less efficiently, for example equipment was not being used that was still needed, but only part time, or the cost of material increased because the contractor was purchasing less, then all of that should be taken into account when assessing the compensation event.
