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Taking the high road — what next for the AWPR contract?

It’s been the subject of much discussion, anticipation and more than a little frustration. And it’s even had its own festival. What is it?

Why it’s the £745million AWPR of course (or the AWPR B-T project to be precise).

The major infrastructure road project has been the subject lately of many a news headline in the north east. There have been calls to open a completed stretch of the road from Stonehaven to Craibstone while remedial works continue on the River Don crossing, which is part of the same phase of work under the construction contract.

The project contract is based on the NEC form, which basically means the pricing and scheduling for both parts — the completed section and the bridge — are interlinked, and opening them at different times would mean a significant change to the original contract.

But how easy would that be? Wouldn’t it just make sense to allow drivers to use a section of road that’s finished? And, as probably one of the largest infrastructure projects in Europe, are there lessons to be learned when it comes to the form of contract used? Is it fit for purpose?

One thing’s for sure, and aside from what you think of the moral and political arguments, what the contract allows isn’t straightforward.

What is the NEC?

Seen often in large construction projects, and increasingly in other sectors such as oil and gas, under the umbrella New Engineering Contract (NEC) structure, contracts, short contracts and subcontracts are broadly grouped into work, services and supply.

These groups cover all aspects of a project from construction, decommissioning and professional services procurement to the supply of high-value goods and personal protective equipment. NEC has pretty robust contractual mechanisms in place, and its tried and tested terms are generally seen as offering a great deal of flexibility to “make the contract fit the project,” not the other way round; however, once settled, these terms are locked in, like any other agreement.

The NEC culture is also different: it favours a much more collaborative approach towards the project as a whole, and indeed to solving any issues that crop up.

What next for the AWPR?

First of all, we could argue that it was wrong to link the Don crossing works into the same phase as the Craibstone to Stonehaven leg, but that’s a subject very much for discussion after completion and, as we know, hindsight is an exact science.

Furthermore, the short answer to whether the contractor could be forced to vary the contract to open the finished stretch and ringfence the ongoing issues to complete the Don crossing is no.

But it’s probably not unreasonable for the contractor — in the spirit of collaboration — to agree to such a variation on commercial terms it's comfortable with, after all pricing and programming of this phase will be interlinked.

So what mechanism could be used under the contract to bring this about?

In other standard forms of construction and engineering contracts, the contracting authority may have the right to simply impose a change, and the effect of that change is argued out later; however, as we know, the NEC form calls for a different way of working, and if parties approach issues in the same way as they would in more traditional forms, the NEC culture will fail.

As such, in principle, it’s open to the contracting authority to propose a change: the contractor can then consider and provide its estimate of what the impact of that would be in terms of pricing and programming.

But there are limitations — the contracting authority can’t propose a change that would, for example, materially and adversely affect the contractor’s ability to deliver the operations or the health and safety of any person.

Then the parties would review together and mitigate the effects of the change, all the while ensuring the contractor is in a “no better, no worse” position. If no agreement can be reached, then it’s off to dispute resolution.

As such, in this case, it’s fair to say it’s not the fault of the NEC form that there’s no practical flexibility to allow part of the road to open: the contract is simply reflecting what parties negotiated and agreed at the outset. Plus, any solution is likely to come from collaboration and negotiation.

So, while we wait for a definitive completion date, it’s fair to say that whatever the outcome, it would be a pity if the perception and use of this particularly flexible form of contract suffers as a result.

Jennifer Young

Firm chairman and partner Jennifer is ranked as a leader in the field of construction law, having been accredited by the Law Society of Scotland as a construction law specialist for over 15 years.

Posted, 08 November 2018 by Jennifer Young
Categories: Commercial contracts | Construction