Key Dates – their function in the NEC4 ECC contract and their limits.

Although we refer in everyday language to key dates, Key Dates are a defined term in NEC contracts that have a specific purpose.

Key Dates are inserted by the Client at the tender stage and consist of a date or dates and the drafting by the Client of the state or condition that the work to be done by the Contractor will have to meet by the relevant Key Date.

When programming its work the Contractor must take account of these Key Dates and the condition that their work must achieve by the Key Date.

Key Dates are not related to Completion but to some condition to be achieved before Completion.

The purpose of the Key Date is for the Contractor to take account of work that the Client or others are carrying out on the same project and to require the Contractor to programme its works to achieve these Key Dates. The Key Dates are driven not by the Contractor planning its own work content but the need to accommodate in its planning and the programme specific work the Client or others intend to do on the same project.

The guidance notes to NEC 4 ECC Vol 2 at page 8 state;

“The setting of a Key Date(s) identified in the Contract Data can be used to ensure that the Contractor completes a defined activity or part of the works (which is not itself a section) to a precise programmed timescale and to a stated Condition so that other contractors or the Client can proceed with their work in accordance with the overall project programme”

The Key Dates have a special status by reference to the consequences of failing to meet them.

Clause 25.3 states.

“ If the Project Manager decides that the work does not meet the condition stated for a Key Date by the date stated and, as a result, the Client incurs additional cost either in

  • Carrying out work or
  • by paying an additional amount to Others in carrying out work

on the same project, the additional cost which the client has paid or will incur is paid by the Contractor. The Project Manager assesses the additional cost within four weeks of the date when the Condition for the Key Date is met. The Client’s right to recover the additional cost is the only right in these circumstances.”

“Others” is a defined term and includes other contractors or consultants appointed by the Client or statutory bodies and excludes the Client and the Contractor and its supply chain.

Under clause 25.3 the Contractor has potential liability for additional cost. The question that has been discussed in a recent article published on Lexology[1] is what costs are recoverable?

Let us step back from the drafting and just look at a typical example

As a result of the Contractor’s failure to meet the condition for a Key Date a number of scenarios might follow.

  • The Client now has additional work of its own to that which it originally would have carried out if the Key Date had been met.
  • The Client has to pay Others more in carrying out their work than it would have had to pay them for their work had the Key Date been met.
  • The Client seeks to mitigate the impact of the Key Date not being met, by the Client itself carrying out work that the Contractor was to have done but which is needed to achieve the Key Date as quickly as possible or by asking Others to carry out such work.

[Note there is a more detailed case study in the Annex below}

In the Lexology article referred to (the article) it is suggested that in the third scenario although there are liability issues associated with a Client deciding to carry out work itself where that work was part of the Contractor’s work, such a course of action is perhaps permissible under the clause.

The article states;

Client getting work done

One problem is, how often will a Client actually “get work done” because the Contractor missed a Key Date? In the vast majority of cases, the Contractor will eventually meet the Key Date but just achieve it late. For the Client to get someone else to finish off the works, or more accurately bring them to the required standard, will very often not be any quicker than the Contractor would be able to achieve.

In addition, it adds a whole new area of potential liability where Others have carried out work on a Contractor installation. If it is an electrical system, for example, another party may need to check the whole installation before doing any work on it, and the Contractor may claim their warranties are not valid if someone else has done work on that system, or otherwise may deny liability if the system does not later work exactly as planned.

But is that permissible? There is a long standing fundamental principle that an employer may not remove work from the contractor to carry it out itself or have others carry it out. See the judicial explanation as stated in Abbey Developments Ltd v PB Brickwork Ltd[2]

I observe that the Arbitrator referred to the statement in Hudson as reflecting, in his view, “the generally accepted position in the industry”. However as the generally accepted position in the industry is a question of law and not of practice it derives from the assumed attitude of the courts.

The justification for these decisions is in my judgment to be found in fundamental principles. A contract for the execution of work confers on the contractor not only the duty to carry out the work but the corresponding right to be able to complete the work which it contracted to carry out. To take away or to vary the work is an intrusion into and an infringement of that right and is a breach of contract.

The usual route for an employer to take away work is to use the variation clause and such cluases are strictly construed as discussed below see note 3. But the Abbey case also considers another possibility.

It remains to be decided (but it is very doubtful) that work could be omitted simply because the owner is dissatisfied with the performance of the contractor, since the contract itself could and should, and in many cases does, make provision for what is to happen if the contractor’s performance is so poor that the employer, having lost confidence in the contractor’s ability to complete the work in accordance with the contract, is entitled then to take the whole or part of the work then outstanding away from the contractor in order that it can be done by others more satisfactorily. But such a provision for termination, or partial termination, is something which must be the subject of clear words, because otherwise it would be an intrusion into the contractor’s right to finish the work.

It is against that background that I suggest that the Client getting the work done that the Contractor was to do to meet the condition is not what clause 25.3 intends. I suggest that the clause is referring to the additional cost of the work that the Client or the Others are doing on the same project, not the cost of the Client carrying out work the Contractor has to do as part of its contract but has not done by the Key Date.

The Client is not permitted to take the work out of the hands of the Contractor that the Contractor was contracted to do and then charge the Contractor the additional cost of doing the work.

There are forms of contract that have clauses permitting work to be removed from the Contractor to be carried out by others in some circumstances but there is no such drafting in the NEC contracts. The recent case of Van Oord UK Ltd v Dragados UK Ltd[3] confirmed that the law as stated in Abbey Developments Ltd v PB Brickwork Ltd[4] applied and that under the NEC 3 contract there was no right for the employer to remove scope from the contractor to give it to another contractor. The same reasoning applies to NEC4 and to clause 25.3.

The article then goes on to discuss, when considering the recovery of the additional cost of work done by the Client or Others, what will be recovered.

Again it is important to look at Clause 25.3. In Clause 25.3 the requirement is;

“If the Project Manager decides that the work does not meet the condition stated for a Key Date by the date stated and, as a result, the Client incurs additional cost either in

  • Carrying out work or
  • by paying an additional amount to Others in carrying out work

on the same project, the additional cost which the client has paid or will incur is paid by the Contractor.“

The clause has two different scenarios under the two bullet points but also some requirements that are common to the two.

Taking it in steps:

The first step common to both is that the Project Manager decides the work does not meet the condition stated for the Key Date. The reference to “work” here is to the work the Contractor is to do.

The second step is that as a result the Client incurs additional cost.

We then get the two bullet points but I have added in brackets the drafting that they have in common from the opening clause and the final passage.

(As a result the Client incurs additional cost)

“either in

  • Carrying out work ( on the same project) or

(As a result the Client incurs additional cost)

  • by paying an additional amount to Others in carrying out work ( on the same project)

The final passage states… “on the same project, the additional cost which the client has paid or will incur is paid by the Contractor.”

From this we can see the cost must relate to work on the same project and must be additional cost.

In the first bullet point the reference to “work” “on the same project” is to the work the Client is carrying out. It cannot be work that the Contractor was contracted to carry out. See discussion above.

Further the word “work” is not defined but is used across the NEC contracts in differing contexts. In the ECC “To Provide the Works” is a defined term that states “ 11.2(15) To Provide the Works means to do the work necessary to complete the works in accordance with the contract and all incidental work , services and actions which the contract requires.”

“Works” is a description provided by the Client in the Contract Data Part 1 and is usually a broad description of the permanent works. The contract also refers to temporary works under the concept of Equipment see clause 11.2.(9)

In broad terms there seem to be a number of uses of the word work. [5] So work may have a broad meaning especially when used in the context of “work on the same project”.

 The additional cost is the difference between what the cost of carrying out the work would have cost and the cost of carrying out the work as a result of the Contractor not meeting the condition for the Key Date by the Key Date.

In the second bullet point the cost must be incurred by paying additional amounts to Others for work carried out by Others. Again it must have been work that was not work the Contractor was to do.

The additional cost is the difference between what the cost of carrying out work by Others would have cost had the Key Date been met and the amount paid in addition as a result of the Contractor not meeting the condition for the Key Date by the Key Date.

So the second bullet point has a slightly different point of reference, looking at what it would have cost and the amounts paid.

There is some discussion in the article of whether a payment that relates purely to a time related cost is recoverable. The article states.

“The pure preliminary cost of the operation taking longer would not be recoverable because it is not work.”

But is that right?

In bullet point 1 the requirement is that the Client incurs additional cost carrying out work on the same project. The reference is not to the cost of the work but to the additional cost of carrying out work as result of the Key Date not being met. If we apply the test of what carrying out the work would have cost and the cost of carrying out the work as a result of the Contractor not meeting the key date then it is hard to draw such a distinction. If preliminary costs increase then are those not just part of the additional cost of carrying out the work?

Such a distinction clearly would not apply where we are dealing with the second bullet point. If the Client has to pay Others for their time related costs under the Client’s contract with them that would be recoverable, as the wording looks at amounts paid.

NEC contracts are drafted using a specific style and the use of bullet points is something that needs to be treated with care.

The test for whether additional cost is recoverable is not the same in the two bullet points. Further as is clear from the case law and the intention of clause 25.3, the clause does not provide a basis for the Client doing the Contractor’s work to meet a Key Date or instructing Others to do so.

Key Dates are used in the context of specific known interfaces with work that the Client or Others are to do and seek to compensate the Client when the costs of carrying out its works or the cost of Others carrying out their works is increased as a result of the Key Date not being met.

Key dates and their potential liability do not overlap with delay damages which compensate the Client for the delay to the Completion of the Contractor’s contract.

Key dates are to address the additional costs of the Client for the impact on the work it intends to do at the tender stage or the impact on work Others are intended to do where such impact is the result of the Contractor failing to meet a Key Date. Such liability will arise before the Completion Date and the potential delay liability for failing to meet the Completion Date or any Sectional Completion Date.

Contractors need to be aware of the liabilities attaching to Key Dates and it is important in negotiations to understand their potential impact and for Clients and Project Managers to understand their proper application.[i]

I have included in the Annex to this blog an example case study for you to consider. See what you think and if you want to comment then do contact me at tim@willis.consultancy.co.uk.

[1] NEC4 contracts: Key Dates and the liability incurred by missing them
Osborne Clarke

[2][2003] EWHC 1987

[3][2021] CSIH 50  

[4][2003] EWHC 1987

[5] The drafting in the Professional Services contract assumes work is part of the Service see 11.2(12)

[i] The Key Dates concept is also used in the Professional Service Contract the drafting is largely the same with different clause numbering but with some changes to account for a professional service context. See 11.2 (12)

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Annex Case Study 

Key Dates example

The Client is a large manufacturer of cars and is updating an existing site for the construction of a new model.

The new production facility will be housed in an existing structure that is to be upgraded and extended. A new floor finish will be placed over the existing slab and the area of the floor increased.

The production line is being manufactured and supplied by a specialist German contractor “AGF”

The Client has an existing site works team who will be responsible for other modifications to the existing factory site to allow for new access routes to the production facility.

The Client is project managing the works as one project with a completion date for the work of Sept ember 2023. The Client appoints a general contractor Midlands Build to carry out the work for the upgraded building and floor slab work. The Contract is an NEC4 Engineering and Construction Contract (ECC).

The Client has appointed a Project Manager as required by the ECC.

The site team will prepare the necessary access routes and make the arrangements for offloading of the plant being delivered by AGF. AGF will install and test the production plant.

To shorten the programme the Client has set the delivery date for the production line to the earliest point in the project master programme.  The plant will also be delivered into the building

Midland Build are given a Key Date in their contract that the floor slab and building are to be ready to receive the plant and for the production plant installation to commence on 1 September 2022. This date is one week before the planned delivery date for the plant from AGF.

Delays to delivery and costs associated with delay to delivery are at the risk of the Client under the contract with AGF.

Works commence and in August 2022 concern is raised in an Early Warning Meeting that the programme for Midland Build shows the contractor is in delay and there is a risk that the Key Date will not be met. There could be two weeks delay according to the programme of Midland Build but it could be longer. It appears they have resourcing problems with sub-contractors.

The view of the Project Manager is that the delay is due to delay by the Contractor and there is no adjustment to the Key Date (as there is no compensation event).

The Client reviews the position and the contract with AGF with its team and has three options

1)         delay delivery and incur costs for late delivery and storage under the contract with AGF. Due to shipping constraints the delay to delivery could be considerable or

2)         allow the delivery to proceed and incur lower costs / time risk of the site team making arrangements to store the plant on site. This will involve creation of a temporary storage facility for the AGF plant, unloading the delivery and movement to storage and then re-loading and movement to the upgraded building.

3)         carry out work that is part of the contract with Midlands Build by supplementing their resources to try to achieve the Key Date either unilaterally or with the agreement of the Contractor. The Client could use its staff and the Project Manager could take charge of directing the work.

Under each Option consider would the Client be able to charge the Contractor or recover money that it has paid out.

In each case must the Client wait until the Key Date has not been met before incurring cost ?

Due to the risk of the shipping delay option 1 is not attractive the Client has to decide between option 2 or 3.

Option 3 was considered but it was thought by the lawyers that it could be problematic to unilaterally carry out work as there is no clear right to carry out work when the Contractor is in default and that directing the Contractor would have to be done by the Project Manager issuing instructions which might also be compensation events unless it was viewed that the Contractor was at fault under the contract.

The Contractor would only agree to the Client intervening if it was not liable for the works done by the Client and there were no costs recoverable by the Client.

There was also a concern that carrying out work could be construed as taking over the works under clause 35 which would have a series of consequences that are not what the Client wishes.

The decision is made to take Option 2 and the plant is shipped and the work is done to store it on site. Four weeks after the Key Date the building is ready to accept the plant and for installation to begin.

As the Project Manger you subsequently receive from the Client information as to the costs it has incurred itself and costs it has paid as a result of the delay to meeting the Key Date.

These include

Time for its staff who have been involved in managing the process of the delivery storage and transport / loading of the Plant

The labour and materials cost of creating the temporary storage facility

Security for the storage facility

Power

Hire costs of the crane for loading and unloading

The site team had been programmed to carry out and complete its activities in 6 weeks up to the unloading and will now have been committed over a period of 10 weeks

A percentage uplift of 15% has been added on the costs to cover the use of the area of the storage facility and general overhead for the extended period for the site team.

Are these recoverable?

Consider clause 25.3

Are all the costs “additional costs of carrying out the work” under bullet point 1 or bullet point 2 as a result of not meeting the Key Date?

Do all the items meet the requirements for recovery?

If there was originally no intention to use the site team and all work around delivery and unloading had been part of the contract with AGF – could the Client have adopted Option 2 and still recover its cost?

If there was no Key Date would the Client be able to recover any cost from the Contractor?