Background

In this appeal, the High Court of Justice in Northern Ireland considered the position of compensation events under the NEC3 Professional Services contract. The key question before the court was whether an instruction amounted to a change to the scope of the services and whether this was a compensation event. This gave rise to the related issue of whether the compensation event (if found to be so) was time barred.

The subject of the litigation was a contract for the ‘provision of asbestos surveying services’ which had been to adjudication prior to coming before the court. The Northern Ireland Executive (the “Executive”) appointed Healthy Buildings Ireland Limited (“HBL”) to carry out the asbestos surveying services at its housing stock. As a large housing authority and a provider of social housing, the Executive had a responsibility to make sure that there was no risk of asbestos in its housing stock. HBL’s tender was accepted and covered two areas: Belfast with an approximate contract value of £590,457.70 and the north east region with an approximate contract value of £530,712.50.

The parties took some time to formally enter into the contract but the court held that the parties were in contract on the basis of a letter of appointment. The letter listed various documents and the NEC3 Professional Services Contract (“NEC 3 PSC”) terms and conditions, all of which were deemed to form part of a binding contract. The court looked at some key provisions of the NEC3 PSC including the compensation event mechanism and the timescales involved in notifying a compensation event.

Users of NEC suite will be aware that the notification of compensation events is one of the key provisions of these contracts. In particular, under clause 61.3, the Consultant can be time-barred from obtaining a change in the Prices or to the Completion Date if it fails to notify a compensation event within eight weeks of becoming aware of the event, unless the event arises from the Employer giving an instruction, changing an earlier decision or correcting an assumption.

When HBL tendered for the work, its understanding was that it would be expected to carry out the asbestos surveys in accordance with industry standard health and safety guidance, HSG264 geared towards asbestos removal surveyors. In its tender submission, HBL appeared to be accustomed to complying with the 3 main functions of HSG264: (i) to ‘locate and record the location, extent and product type of any presumed or known ACMs[1]’; (ii) ‘inspect and record any relevant information’; and (c) ‘determine and record the type of asbestos concerned’. This methodology would apply to all ACMs.

The surveys that HBL envisaged that they would be carrying out were ‘management surveys’, the purpose of which was to check rooms for the potential presence of asbestos. If any trace of ACMs was found, HGS264 indicates that there is a presumption of asbestos unless there is strong evidence to suggest otherwise. When HBL and the Executive met prior to HBL starting the works, the Executive specified that the management surveys would include sampling. This was at odds with HBL’s expectation that the standard to be met was as per HGS264.

In HBL’s view, the instruction altered the balance of the surveys from presumption based to sample based and amounted to a considerable change in the scope of the surveys which would require additional resourcing. HBL alleged that ‘the instructed variation had a significant detrimental effect on productivity by significantly increasing the amount of time to undertake each survey’. This had cost implications for HBL who notified this to the Executive as a compensation event on 23 May 2013. This notification did not happen until several months after HBL had started to carry out the asbestos removal surveying. The Executive questioned the validity of the notification.

When the issue of the alleged change of scope went to adjudication, it became clear that the Executive had decided that presumptive testing was not sufficient and this led to the instruction to HBL to carry out sampling. The Executive argued that its instruction was merely a clarification but the adjudicator (and the judge at first instance) decided that this instruction was a change in scope and had cost implications for HBL as the additional sampling was not included in the tendered prices.

Decision

From an examination of the contract documents, the court held that the contract required HBL to follow HSG264 and that this was reflected in the pricing that HBL submitted in its tender. On the facts, the Executive had instructed HBL to carry out additional sampling. In the court’s view, the instruction from the Executive required HBL to ‘go beyond the mechanisms set out in HSG264’ and this did amount to a change in scope. The instruction was a valid compensation event.

On the question of whether HBL was time barred from claiming that the Executive’s instruction was a compensation event, the court held that it was not. When the Executive issued the instruction which changed the scope of the works, it should have recognised that this was a compensation event and it should have notified HBL of the same. As it was the Executive who was at fault, it was not entitled to claim that HBL was time barred from notifying it that the change in scope was a compensation event.

Implications

Employers frequently seek to invoke the time-bar in clause 61, as a means of preventing the Consultant from claiming the effects of a compensation event. However, this case highlights the importance of the Employer complying with its own responsibility to notify a compensation event. Best practice remains to notify and deal with compensation events promptly, so as to avoid any time-bar or limitation issues.

[1] ACM – asbestos containing materials