NEC 3 or FIDIC?

Which is most effective in managing

the most commonly identified areas of dispute within
construction?

Paul Alexander Berry

081370685

MSc. Quantity Surveying

School of the Built Environment, Heriot-Watt University

March 2013

Statement of Authorship
______________________________________________________________________

I..., confirm that this work submitted for

assessment is my own and expressed in my own words. Any uses made within it of the
works of other authors in any form (e.g. ideas, equations, figures, text, tables,
programmes) are properly acknowledged at the point of their use. A full list of the
references employed has been included.
Signed
Date...........

Table of Contents
____________________________________________________________
Page
Statement of Authorshipi
List of Tables and Illustrations..iv
Acknowledgements...v
Abstract.vi
Glossary of Abbreviations.vii

1. Introduction
1.0 Introduction..1
1.1 Rationale...1
1.2 Research aim.....3
1.3 Research objectives...3
1.4 Outline research methods.....4
1.5 Dissertation structure....4
2. Literature Review The Construction Industry
2.0 Introduction..6
2.1 Data of industry and disputes...6
2.2 Main causes of disputes within the construction industry..10
2.3 Conclusion..14
3. Literature Review NEC 3 and FIDIC
3.0 Introduction16
3.1 Main areas of dispute.16
3.1.1 Contract choice16
3.1.2 Allocation of risk.20
3.1.3 Variations.22
ii

Page
3.1.4 Interpretation of the Contract. 24
3.2 Conclusion..26
4. Research Methodology
4.0 Introduction28
4.1Research aim and hypothesis reinstated..28
4.2 Quantitative and qualitative research..28
4.3 Research method/selection approach..31
4.4 Conclusion...33
5. Data Collection and Analysis
5.0 Introduction34
5.1 Contract choice...34
5.2 Allocation of risk36
5.3 Variations41
5.4 Interpretation of the contract..43
5.5 Conclusion..45
6. Conclusion and Recommendations
6.0 Introduction47
6.1Contract choice47
6.2 Allocation of risk48
6.3 Variations48
6.4 Interpretation of the contract..49
6.5 Recommendations..49
6.6 Further Study..50
References51

iii

List of Tables and Illustrations

____________________________________________________________
Tables

Page

Table 2.1.1

Summary of TCC cases between the period 2004-2010.7

Table 2.1.2

LCIA cases referred during 2000-2011...8

Table 4.3.1

Differences between research methods..30

Table 5.4.1

Summary of readability statistics of FIDIC and NEC43

Illustrations
Figure 2.1.3

UK Construction PMI by Category of Activity.9

iv

Acknowledgements
______________________________________________________________________
Firstly, I would like to thank my supervisor Dr. Roshani Palliyaguru for her support and
guidance throughout this research.
Next to my wife Laura, who has had to endure many hours of reading and reviewing my
work over the past four years.
To my mother and mother in law for their support during the study, with many
babysitting sessions.
Finally, to the people whom I interviewed and discussed the topics of the research in
depth.

Abstract
____________________________________________________________
Construction contracts are the main documents used to set out contractual relationships,
lines of communication, payment mechanisms and dispute resolution procedures on
construction projects. These projects often account for vast percentages of individual or
company capital resources and a large percentage of a construction companies turnover
can be based around one project, therefore exposing all parties to a great financial risk.
When the financial crisis hit the global economy in 2008/2009 and the credit markets
ceased much of its lending capital, the construction industry was one of the hardest hit
sectors.
This raised many questions. What impact did the financial crisis have on the
construction industry? How do construction contracts manage the industry in times of
crisis? These areas became the focus of the study. The first of the two questions is
addressed by examining the historical data available over the period before, during and
after the financial crisis. The second question was considered and found to be more
complex in nature. The answer was found in the study of the nature of disputes within
the industry and how these areas changed over time. Finally, how the disputed areas
were managed by the NEC 3 and FIDIC.
Due to the large number of types of construction contracts in use today, two of the most
commonly utilised forms are considered, NEC 3 and FIDIC. These contracts were
selected for their international coverage and widespread usage. When considering
certain clauses within NEC 3 and FIDIC, NEC 3 option B and FIDIC red book have
been considered. This is due to the traditional contract delivery method found in both
NEC 3 option B and FIDIC red book which has provided a suitable comparison basis
for the study.

vi

Glossary of Abbreviations
____________________________________________________________
ADR Alternative dispute resolution
CIPS Chartered Institute of Purchasing and Supply
FIDIC International Federation of Consulting Engineers
GDP Gross domestic product
LCIA London Court of International Arbitration
NEC New Engineering Contract
PMI Purchase Managers Index
TCC The Technology and Construction Court
UK United Kingdom

vii

Chapter 1: Introduction
____________________________________________________________

1.0 Introduction
It is well documented that the nature of the construction industry is such that it has
always been subject to disputes. There are often many factors which contribute to
disputes and which arguable became more evident when the financial crisis hit the
global economy in 2008- 2009. The devastating effects were endured throughout the
world, in all business sectors. Construction did not escape and indeed, the industry was
one of the hardest hit areas due to the inter relationship with the housing market and the
subsequent need for organisations to borrow capital in order to invest in its projects. On
a worldwide scale, construction projects were put on hold; and many ceased completely
while in progress. The number of companies going out of business was unprecedented
and the effects are still felt by the industry today.
1.1 Rationale
To examine and discuss the impact that the global financial crisis has had on the
construction industry, and in particular, to explore what the main areas of dispute are
within this industry. Furthermore to establish which, if any, of those have become more
prevalent as a result of the financial decline. Consideration shall be given to two of the
most commonly utilised contracts, namely NEC 3 and FIDIC and it shall be determined
which is most effective to potentially manage the identified disputed areas, by
examining the provisions contained therein. Finally, it will be determined whether the
said contracts contribute or indeed initiate such disputes; and specifically whether there
is one contract deemed more effective in the current commercial climate.
Many construction lawyers would say that the best way to avoid or prepare for a
potential dispute begins with the contract itself. The New Engineering Contract was
first published in March 1993 and the third edition was published in June 2005 (Gould
2008). NEC 3 is a suite of contracts with various options which are chosen depending
on the type of project and the desired outcome to be achieved. It is intended to have
sufficient flexibility in its terms to allow for any form of project delivery. It focuses on
simple, direct drafting and on project management principles. Similarly, FIDIC, also a
suite of contracts provides individual contracts for the most common forms of project
1

delivery; however each contract may need to be adapted to suit a particular project
delivery concept (Shnookel & Charrett 2010).
Construction projects can be complex and involve a team of individuals working
together, all with different backgrounds and agendas. Richmond and Coggan (2001)
define a construction project as,
...not merely a collection of inanimate tasks, they also include a mixture of
people issues, procedural issues that must also be resolved in order to ensure
that each project meets the clients requirements and supports the contractors
activities.
It is vital to the success of any project that a set of rules and guidelines is established to
determine how the documentation is most effectively utilised and how the
administration of these projects is undertaken. Contracts must be fair to both parties to
enable them to enter the agreement with confidence, and to allow any potential disputes
to be dealt with as quickly and cost effectively as possible. However, a prevalent view
in relation to construction contracts is that it is adversarial in nature, whereby the
contractor requires maximum profits with minimum expenditure whilst the client
expects high quality at the lowest cost (Dagenias 2007). A construction contract
attempts to lay down, inter alia, the rules on how the project is to be managed, the
responsibilities of each party, the payment terms, the allocation of risk between parties,
and how the contract is to be administrated.

FIDIC form of contracts is widely regarded as the most common form of contract in use
internationally. However, the NEC 3 suite of contracts are becoming more common
place and are being used by a number of major construction projects, both in the United
Kingdom and internationally, rivalling the FIDIC forms. The reasons for this and also
whether the global financial crisis contributed to the shift will be discussed further
within this research. Particular attention will be given to certain clauses contained
within the aforementioned contracts, which are often at the root of many disputes.
The global financial crisis and the subsequent lack of funding available to companies,
means that many have to endeavour to substantially reduce expenditure or face the
possibility that it may not be in a position to complete the works on a project. The
impact on the construction industry resulted in extreme measures being taken by many

companies in order to survive. Wilkes (2010) illustrates the desperate measures adopted
by some,
Unfortunately, when times get tough, tactics sometimes get dirty. It appears
that so-called guerrilla tactics in arbitration have been increasing. These
include, for example, attempts to derail proceedings, filing repeated
unmeritorious challenges, stalking, threatening and intimidating witnesses, and
filing litigation against arbitrators and even arbitral institutions.
One of the main aims of both FIDIC and NEC 3, is to avoid disputes arising between
the parties. This is particularly important to companies following the financial crisis.
However, a company itself is responsible and contributable (to an extent) for the
effectiveness and value of the chosen type of contract. This is another relevant area
which will be examined further within this research.

1.2 Research aim

The aim of the research is to examine the effects of the global financial crisis on
construction industry disputes and to determine whether FIDIC or NEC 3 suite of
contracts has the effective mechanisms in place to manage the disputed areas, post
financial crisis.

1.3 Research objectives

The research objectives are as follows:-

Identify the effects of the global financial crisis on the types of construction
industry disputes and determine what the main disputed areas are and whether
the nature of these disputes has changed or remained the same post financial
crisis;

Establish whether the number of disputes has increased following the crisis and
whether the cause of these disputes has changed post financial crisis;

Analyse FIDIC and the NEC 3 suite of contracts and the mechanisms contained
therein for managing the identified disputed areas;

Establish if one of said contracts manages the disputed areas more effectively
than the other.

1.4 Outline research methods

Deskwork: researching books, journals, newspapers, government papers,

statistics, case law and the specific forms of contracts. The aim to establish:o Trends in construction disputes;
o Trends in companies failing;
o Causes of construction disputes;
o Relevant clauses in the contracts to manage the disputed areas;
o Published views on the contracts in use and their management of these
disputed areas;
o Case law on past judgements on these disputed areas and examining the
contracts;
o Collate, decipher and present the information.

Field work:
o Interviews were arranged with a number of industry professionals who
have experience of both FIDIC and NEC 3. The questions were
established after the deskwork was completed in order to contribute to
the arguments contained within the research;
o Data will be examined and conclusions drawn from it.

1.5 Dissertation structure

Chapter one examines a general background to the topic and identifies the aims and
objectives of the research.

Chapter two is a literature review with a focus on the construction industry and the
impact of the financial crisis of 2008-2009. It shall then establish the main construction
disputes and how (if at all) the identified disputes have changed over the time period
prior to, during and after the financial crisis. Finally, the most common areas of dispute
shall be outlined.

Chapter three focuses the literature review on two of the most common suites of
contract in use within the construction industry, FIDIC and NEC 3, linking these to the
identified disputed areas.
4

Chapter four establishes and addresses the research methodology utilised in relation to
the study.

Chapter five shall discuss the findings of both areas of the literature review and
incorporate this with the feedback ascertained from the industry professionals.

Chapter six includes the conclusions derived from the study and provides
recommendations for future research.

Chapter 2: Literature Review- The Construction Industry

______________________________________________________________________
2.0 Introduction
This chapter will examine the effects of the financial crisis on the construction industry,
specifically, exploring the effects on the number of disputes within the industry. The
causes of the disputes will be established and it will then be determined whether the
disputes are linked to the wider economic environment. Thereafter, the chapter will
examine in more precise detail the main causes of the identified disputes.
During recent years construction, as with many other business sectors, has experienced
a challenging time. Primarily, this is attributable to the collapse of the financial markets
in 2008/2009. In 2013, the ripple effects of the crisis and road to recovery are still ongoing for many companies within the construction industry in the UK and throughout
the world. Arguably, the increase in insolvency and tightened control of the credit
markets together with the global financial crisis have all led to an increase in
construction disputes. As a direct result of this, there have been more disputed claims
for payments, with many contractors seeking recovery of payment from clients which
have limited funds. Variation, latent conditions and claims for delay are also disputed
areas in which there has been a rise (Frei 2010).
There is a common perception that the number of disputes will rise whenever there is a
downturn in general market conditions. This may be accurate to an extent, however as
the research will discuss further, simply the nature of the construction industry itself
means that disputes have always been an issue. That being said, the current market
conditions certainly provide an environment likely to bring underlying disputes to
fruition.

2.1 Data on industry and disputes

Within the UK, the figures released by the TCC do not provide a particularly positive
picture with regard to the number of claims during the peak time of the financial crisis
(2008 -2009) compared with previous years. The report for the year ending 2009 was
summarised as follows:The TCC (Technology and Construction Court) recorded in the period October
2008 till September 2009, 516 new claims brought in London alone. This was

compared to, 366 cases in 2007 2008, 407 cases 2006 2007, and 392
cases 2005 2006, which represents the highest case load in the courts
history(TCC Report 2009).
However, when examining disputes over the past 6 years, there has not been a
substantial rise, as was indicated in the TCC report. This is illustrated in table 2.1.1
below. As can be seen, the total number of claims indicates that the amount of new
actions raised over the regions covered by the TCC, does not differ substantially with
past figures. In particular, in 2006-2007 there was an increase in the amount of actions
raised.
Table 2.1.1 Summary of TCC cases between the period 2004 -2010

Source: Beale and Company Solicitors LLP

A firm of solicitors carried out a study in September 2011, on the work performed by
the TCC over several years and discovered that within two separate periods, 2008-2009
and 2009-2010, the number of claims issued remained largely the same; and there was
an increase in the numbers recorded in the two previous periods (2007-2008 and 20042005). It is evident, from this that claimants willingness to revert to court has not been
inhibited as a result of the economic recession (Vernon 2011). However, when
examining the slow-down in construction output within this period, one would expect
claims to rise, as the indicated by the TCC summary. It may be the case that this has
not occurred as sub-contractors, particularly, are often reluctant to pursue these matters
due to the cost and time involved. Indeed, another possibility may be that main
contractors do not want to jeopardise future work from larger clients, which may result
from raising an action against them. Evidently, it may be the case that ADR techniques
are working effectively and subsequently these cases are not reaching the TCC. Wilkes
(2010) recognised that the 12 month period prior to November 2009 had seen, the
steepest rise in casework referrals in the history of the institution
Table 2.1.2 below illustrates the number of disputes referred to the LCIA was
formulated over the past ten years.

Table 2.1.2 LCIA cases referred during 2000-2011

Period

200
0200
1
Disputes 158
referred

200
1200
2
159

200
2200
3
192

2003

2004

2004

2005

191

204

200
5200
6
251

2006
2007
270

200
7200
8
352

200
8200
9
506

200
9201
0
552

201
0201
1
504

Source: LCIA Annual Report 2011

Diligence must be taken in interpreting these figures as the LCIA does not deal
exclusively with construction issues but a wider range of areas. These include, inter
alia, the sale of aircraft, oil exploration, buying selling of commodities, IT and
insurance. The figures within the table 2.1.2 provide an idea of the volume of disputes
within the general business community, which construction plays a significant role. It
was reported that the construction industry accounts for 8 per cent of gross GDP in the
UK (OConner 2012).

Eight other arbitration institutions around the world have been identified, reporting the
same rise in referrals. These include the Arbitration Institute of the Stockholm Chamber
of Commerce; the Hong Kong International Arbitration Centre; and the International
Arbitral Centre of the Austrian Federal Economic Chamber (Wilske 2010)
If business in general is showing signs of an increase in disputes, it is important to
identify why this is not subsequently reflected in the cases referred to the TCC. It is
possible that many of the companies involved in disputes have, for example, simply
been liquidated or dissolved. Kollewe (2009) recognised during the height of the
recession in 2009 that, The property and construction sector is being hit hard, with
administrations up 73% compared with 2007, as house prices continue to fall and
mortgage approvals hit all-time lows.

In 2009, the Construction Index reported that:

429 companies entered into administration;

1059 companies entered into liquidation; and

245 companies entered into receivership.

These statistics demonstrate the number of businesses which collapsed during 2009
when the full force of the recession was felt. For a significant percentage of companies
who have folded, it is certain that at least one or more of its on-going disputes would be
dropped and therefore not reported; reducing the number of disputes which were
recorded.
Figure 2.1.3

Source: CIPS 2012

Figure 2.1.3 illustrates the construction industry workload increasing back to prerecession levels. Due to the increased workload, it would be expected that the disputes
would start to fall back to pre-recession levels. However, this this does not appear to be
the case. Construction Index reports that in 2010, 323 companies entered into
administration; 1307 companies entered into liquidation; and 181 companies entered
into receivership. The TCC are still reporting new case referrals, with 873 referrals in
2011 being one of the highest levels in the past seven years. The LCIA reported a
referral rate of 504, only 2 less than 2008/2009. The number of referrals is still high
and it is obvious that there will be a ripple effect for the next few years in terms of the
impacts of the recession. This contributes to the figures remaining higher for a further
period of time.

In reviewing recent data results, Harris (2012) concluded that current industry data
shows the cost of construction disputes rising from an average of 4.6 million in 2010
to 6.5 million in 2011. The time taken for disputes to be resolved is also increasing
from 6.7 months in 2010 to 8.7 months in 2011. Disputes within the construction
industry still appear to be occurring more frequently, be more costly and are take longer
to resolve. Therefore, although it would be expected, a direct result of the downturn in
the financial market conditions that the number of disputes would increase (which in
some cases they have), it must be borne in mind that the nature of the construction
industry means that even when the global economic climate is strong, there will always
be a large number of disputes. The construction industry appears to be coming through
the recession with workloads increasing and continuing to improve, reverting back to
levels similar to those pre-recession (CIPS 2012).

2.2 Main causes of disputes within the construction industry

It is evident from the previous sections that construction disputes may fluctuate with the
economic environment. That being said, regardless of whether the financial climate is
buoyant or whether there is a downturn, disputes within the industry will always be a
major issue. The main cause of these disputes will be examined below.
Harris (2011) has stated the top five causes of disputes in construction contracts, as:

Failure to properly administer the contract;

Ambiguities in the contract documents;

Failure to make interim awards of extension of time and monetary relief;

Unrealistic risk allocation between employers and contractors;

Change imposed by the employer.

Contractual issues such as incorrect contract selection and failure to administer a

contract correctly are among the most common failures which contribute to many of
these disputes.

Firstly, if we turn to examining risk allocation which is fundamental to the contract

choice, Smulian (2012) identified that sufficient risk allocation is required before the
type of contract is selected. Often a contract is taken off the shelf and the parties simply
fit the project to what the contract requires as opposed to meeting the clients

10

requirements. There are crucial decisions and issues that need to be addressed at the
very inception of a project such as:

How much responsibility will the client agree to, or, what are its capabilities in
having responsibility for the project?

How much influence does the client want to have over design and quality
issues? and

How critical is timescale and budget to the overall success of the project?

It appears to be more about understanding what the client needs in terms of the
procurement route and what contract will best ensure that the clients requirements are
met. Defining all contractual relationships clearly, establishing what is expected of all
parties to the agreement, and allocating the risk to the party best able to manage that
risk, are the basics of many construction contracts. By conforming to this criteria and
ensuring that the initial stages of the tendering process are carried out with these factors
borne in mind, the project will have more chance of a successful conclusion.

Once the client has decided how much risk it is prepared to accept, and how much risk
must to be passed on to the contractor, the appointed consultant and the client can then
start to explore procurement routes and decide on the most effective contract in order to
administer a project in the most efficient way.
Documentation required for the purposes of the contract, such as drawings,
specifications and possibly bills of quantities, must then be collated in order to satisfy
the requirements of the procurement route and chosen contract, before tenders are then
invited. However, the tender process can also be a cause of dispute in itself, with
contractors having to price work on incomplete contractual documents and scopes of
works that are not clearly defined. This can subsequently lead to disputes. In the
competitive tendering process, together with incomplete contractual documents, the
desire to submit the lowest price also brings problems. It is commonly identified as a
dispute area based on the fact that for many contractors it is deemed to be the primary
selection factor (Love 2010).

This method of tendering often leads to contractors cutting profit margins and
subsequently trying to claim variations and extensions of time under the contract, some
of which may not be warranted, in order to try and recover any shortfall or elements
11

which may have been overlooked. Typically, this may include items such as service
connections or permits for the works. When contractors are working under tight
margins, claims for variations, latent conditions and delay claims may arise more
frequently (Frei 2010). Although there are many different ways in which a project is
tendered, competitive tendering is still the most common way to tender construction
projects.

Prior to the commencement of a project, there are a number of obvious areas which
must be addressed and which, if not addressed correctly, can have potentially disastrous
consequences on any project. Examples of these include:

Poor allocation of risk;

Wrong procurement route choice;

Wrong contract choice;

Poor contract documentation;

Unfair tendering processes.

Many projects commence with the contractor attending on site, with all or some of the
aforementioned failings having occurred before the contractor has any direct input into
the project. Subsequently the contract cannot be administrated effectively. It is
important to understand the reasons as to why decisions are made on how the project is
to be managed and thereafter the part they play in contributing to the cause of disputes.
This highlights the importance of selecting the correct contract, procurement route and
tendering process.

Failure to properly administer a contract was the most common cause of dispute in
construction contracts in 2010 and 2011 according to statistics released by Harris
(2012). This can include a wide range of issues, and is primarily an issue in relation to
the type of contract chosen; the interpretation of that contract; and how this should be
effectively administered throughout the construction of the project from both parties
(i.e. the client and the contractor).

One reason highlighted as a cause which may lead to the failure to properly administer a
contract, is the use of new types of contracts and the lack of skills and understanding of
the necessary requirements for these contracts. Similarly, simply choosing the wrong
12

contract for a particular project can have very serious repercussions. Smulian (2012)
states, .problems are stemmed from clients spending too little while procuring the
contract on the technical and legal advice needed to deliver the job. Furthermore,
Enthusiasm for contracts such as NEC3 led to these being adopted without adequate
budgeting for the level of administration support needed.

Another common problem at the beginning of a project is the parties (i.e. the
consultants appointed to draft the contract) lack of understanding in terms of what the
client requires and therefore selecting the correct contract to achieve these objectives.
All parties must be aware of their own responsibilities before entering into a contractual
agreement. It is essential for the success of any project. However, this issue continues
into the management of the contract with those who are administering the contracts not
doing so in an effective manner. Once the contract has been established, undoubtedly
the correct people in the correct position who have the correct skills to carry their role
within the team are a vital part of getting the project to be administered effectively.
This is not a new problem as Smith and Waldron (2009) point out,
As far back as 1994 there was a problem with the industry using the wrong
people in the wrong position within a project and in the Latham report which a
common thread within his report was one of constructing a team based on
natural talent, and playing to the skills of team members.
In 2010, the skills of the workforce were still in question. Love et al (2010) stated that,
The client group suggested that the prevailing skills shortage was a
problematic issue for consultants and contractors, and this was affecting their
ability to deliver services within specified time frames.
This is still an issue in 2013. It is often thought that the main issue is that the
individuals who are responsible for carrying out certain tasks are not doing so
effectively. It is highly likely that due to the nature of the industry, mainly with ease of
entry, that problems such as this have been an issue for much longer than documented.
During times of high workloads and high margins it may be possible that there are
individuals in the wrong positions and this may be overlooked. There is opportunity to
make money elsewhere on the project and mistakes can be, and often are hidden.

13

This is deemed not only a problem for the client, but contractors have responsibility for
administering its part of the contract by providing information and applications in the
designated time frame set out. If this is not achieved, then problems may arise. Harris
(2012) highlights the problem in relation to interim extension of time and monetary
relief as,
.directly related to the failure to provide interim extensions of time and
monetary relief. This issue would appear to have a number of features directly
related to the quality and standard of substantiation provided to support the
application.
Under most construction contracts there is a mechanism for claims for extension of time
and the recovery of monies over and above the agreed price and timeframe. Not
surprisingly, this area is also highlighted as a main cause for disputes within the
industry. A client representative was quoted as saying,
Contractors dont seem to plan for changes; I mean even the smallest change.
There is no contingency and a slightest change means that they claim for an
extension of time and or disruption because they are reactive. We dont take this
nonsense from them Loval et al (2010).

The fact that confrontational attitudes are commonplace within the industry only makes
the opportunity for a dispute to arise more likely. Providing a contractor is attempting
to mitigate any delays, then within all construction contracts are provisions for the
contractor to claim for additional time or payment.
The reason these mechanisms are in place is so that they can be utilised when the need
arises. There are a number of reasons under which a contractor will be entitled to make
a claim under this section of the contract. These may include client changes; inclement
weather; delays by external parties; changes to the law.

2.3 Conclusion
It is clear that although the construction industry has been adversely affected by the
financial crisis, the amount of disputes has not been substantially affected, but remains
consistent with past figures. The main causes of disputes also remain consistent with
past years and were found to be:

Allocation of risk;
14

Contract choice;

Interpretation of the contract; and

Variations.

15

Chapter 3: Literature Review NEC 3 and FIDIC

______________________________________________________________________
3.0 Introduction
Having examined the background and causes of construction disputes, this chapter will
go on to describe and analysis (to an extent) two of the most commonly used contracts
within the construction industry, namely NEC 3 and FIDIC. Furthermore it will be
established which suite of contracts most effectively manages the construction industry
today. The previous chapter identified main causes of disputes within construction
contracts. The areas shall now be examined in further detail and in relation to NEC 3
and FIDIC.

3.1 Main areas of dispute

3.1.1 Contract choice
The choice of contract is critical to the successful outcome of a construction
project. If not chosen correctly there can be serious consequences for the
project. There are a number of standard forms of contract suites available and
most offer different options which can be chosen to suit the way in which the
project is being procured. FIDIC and NEC 3 suites will be examined in detail.
First, the options available will be highlighted then focus will be primarily on
FIDIC Red Book and NEC 3 Option B, whilst focusing on the actual content of
the contracts generally. Both the aforementioned contracts are for traditional
procured contracts, where the design is mainly the responsibility of the employer
and the project is thereafter tendered.
Whilst initially considering the contract to be utilised, the actual way in which
the contract is to be procured must also be determined, as the majority of
construction contracts are set up to deliver a project in a particular way. There
are various issues to consider at this stage such as:

Complexity of the works;

Type of project;

Level of risk that the client is willing to undertake during the project;

Determining the party responsible for the design works;

Financing the project;

16

Employers experience and expertise;

Method of determining final price.

Within the NEC 3 suite of contracts the following options are available for the
project delivery method:

Option A (priced contract with activity schedule);

Option B (priced contract with bill of quantities) provides that the

contractor will be paid at tender prices. Basically, a lump sum contract
approach;

Option C (target contract with activity schedule);

Option D (target contract with bill of quantities) provides that the

financial risks are shared between the contractor and the employer in
agreed proportions;

Option E (cost reimbursable contract); and

Option F (management contract) is a cost reimbursable contract, where

the risk is, therefore, largely taken by the employer. The contractor is
paid for his properly incurred expended costs together with a margin.

Within the FIDIC suite of contracts the options available for the project delivery
method are:

Red Book (traditional contract design completed by employer - the

accepted contract amount based on estimated quantities and remeasured);

Yellow Book (design by contractor, lump sum contract);

Silver Book (turnkey contract, lump sum most risk transferred to

contractor);

Green Book (for smaller contracts traditional contract);

Gold Book (design, build and operate contractor design builds and
operates).

There are other options available for specific areas, such consultancy work and
dredging, however these are outside the scope of this paper.
Having decided the way in which a project has to be delivered and thereafter
considering what standard form to use, there may be a requirement to alter the contract
further in order to suit a specific project. There are different views when selecting the
appropriate standard form for a project in relation to amending a contract.
17

As observed by Allen (2010), The contract itself needs to be fitted around the project
constraints and characteristics and not the reverse. Furthermore, Griffiths (2011)
argues that, no contract should be changed at all under any circumstances.
In the event that a standard form is not presented in such a way, that all parties to the
contract understand and can interpret it correctly then this can result in substantial
problems. More often than not, professional legal advice is not sought and there is little
or no precedence to clarify legal points which have been raised in previous disputes. In
a bid to drive down time and costs at the tender stage it is imperative that the contractors
bidding for the work are familiar with the content of the contract and are comfortable
proceeding without the advice of legal advisors. Furthermore, even when the advice of
professionals is sought often it can be done so with a view to tilt the effects of the law
with the intention of favouring the parties position. The case of Bridgeway
Construction v Tolent Construction Ltd illustrates this point and also that the tendency
to skew the contract is not always confined to that of standard contracts.
Smulian (2012) observed that risk allocation,
you need to do proper risk allocation then choose the contract, instead
people take a contract of the shelf and say, oh it says design and build so we`d
better do it that way, rather than look at the clients requirements.
The point made by Griffith when considering the party who is making the contract, that
participants in the construction process to often seek to gain an advantage,
illustrates that meeting the clients requirements may mean giving them an unfair
advantage over the contractor who may not yet be involved with the project. Arguably
however, this should not be a problem. The Property Council of Australia has standard
form PC1-1998 which claims not to aim to balance the competing interest of the
employer and contractor and believes that, the people who initiate and pay for
buildings and construction projects are entitled to set the agenda and allocate the risks
(Shnookel and Charrett 2010). It is evident that standard contracts are essential for the
construction industry insofar as lowering cost and the time required constructing
contracts. Through frequent use, the parties to a contract become familiar with the
clauses and therefore more confident in its interpretation. It must be remembered,
however, that due care must be taken not to become complacent. The critical factor is
that the parties to the contract are aware of what their duties and responsibilities are
under that contract and the consequences of not adhering to these.
18

It has been determined that mechanisms must be included within a contract to allow the
standard form to be moulded to suit the particular project. We shall turn now
specifically, to the mechanisms incorporated within NEC 3 and FIDIC in order for the
contracts to be tailored to a specific project.
NEC 3 is set up in the following way:

Options A to F which provide different procurement routes and methods of

payment for a contract;

There are core clauses which are common to all options A to F;

There are specific clauses depending on the chosen option;

There are clauses for two alternative dispute resolutions, namely W1which can
be used when the Housing Grants and Regeneration Act 1996 does not apply
and gives a table of who can refer to adjudication together with timescales. W2
is usually used in the UK and gives the parties the right to refer any dispute to
adjudication at any time one of these options must be chosen;

Optional clauses can then be chosen for the secondary options available, if
required, for a particular contract.

The secondary options are crucially relevant to the argument of whether a standard form
should be altered to suit the client, or, whether it should be left in its standard form
regardless of the nature of the project. The secondary choices are optional for the
parties. There are another two choices not previously mentioned. The Y clause is
concerning the governing country of law of the contract. The Z clause is providing the
opportunity for a party to include additional clauses in order to shift the onus of risk to
the other party. The more contractual terms of a contact are amended, the higher the
risk of confusion and complexity.

Allen`s (2010) opinion, as previously stated, appears to be suggesting that a contract,

such as NEC3 should be used with the option of clause Z, allowing the party selecting
the contract to make choices that enable the contract to suit a specific project and not
simply in order to make a project fit a standard contract, as previously discussed.
FIDIC also allows for contract specific requirements. FIDIC contracts consist of
general conditions and particular conditions of the contract. The general conditions are
the clauses and sub clauses that are deemed to be applicable to the majority of projects
as a whole. If a clause is not relevant to a particular contract it should be removed or
19

not enforceable. To alter a general condition of a FIDIC contract, a license must be

granted by FIDIC itself. However, the particular conditions should be made up to suit a
specific contract. Within the conditions of contract options, it provides sample wording
on particular conditions. It is stipulated that if the said wording is not appropriate, then
care should be taken so there is no risk in introducing ambiguity by inserting additional
clauses, both general and particular.

Although FIDIC does allow for amendments to be made, it attempts to steer the drafter
in the direction of the parameters of the intended meanings of the clauses. It also
incorporates some 20 general condition clauses, compared to NEC 3 which only has 9
core clauses. Within FIDIC the option is available to amend a particular condition,
similarly to the Z clauses in NEC 3.

One of the most important decisions that must be considered when selecting a contract
is the amount of risk that the client is prepared to accept. Clients requirements are all
different. The consultant selected to procure a project must advise accordingly, having
analysed the clients requirements and capabilities thoroughly.

3.1.2

Allocation of risk

Risk is dealt with primarily at the contract selection stage. The chosen procurement
route determines the level of risk the client is prepared to accept before then entering
into a contract. When the contract is being executed, both FIDIC and NEC3 manage
this area in different ways.

Within the introduction to a FIDIC contract, there is a statement relating to the

distribution of risk, which states,
One of FIDIC`S aims has been to produce documents which offer a fair
balance of risk between contracting parties and to ensure that the risks incurred
by the parties to contract are clearly identifiable and understood.
The underlying philosophy of FIDIC is that the employer is best placed to manage the
risks that an experienced contractor could not reasonably be expected to anticipate
during the tender stage, find are beyond their control, or find are not readily insurable
(Roe and Ramzan 2011). Griffiths (2011) commented on NEC 3 that,
20

 it`s claimed superiority is based on replacing the more traditional forms

with Project Management practices and the partnering principle of mutual trust
and co-operation, expressed up front in core clause 10which highlights the
focus that NEC 3 has on strong project management principles.
Both NEC3 and FIDIC start with the post contract allocation of risk in the same way.
Within NEC3, clause 80.1 states, plus any additional risks accepted by the employer
named in contract data part 1. FIDIC, clause 17.3, provides, a list of risks to be
undertaken by the employer. Both contracts place all other risks with the contractor.
NEC 3 takes the management of risk further by introducing a management system of
risk register, early warning, and risk review meetings. This system works by a
predefined register of risks being identified by the employer and contractor and is built
upon throughout the course of the project by either party issuing an early warning.
After this time a risk review meeting is then held whereby the risk is discussed and
entered into the risk register. The project manager simultaneously advises on the course
of action to be taken. When managed by the parties in a collaborative manner, this can
be an effective tool (Sliwinski 2013). Often confusion can arise between risk
management and risk allocation. The distinction can be blurred as a result of clause
80.1 which allows additional risks to be adopted by the employer by adding them to the
contract, whereas both risk allocation and risk management are supposed to be
standalone provisions (Carrick 2010).

The risk register is included in NEC 3 contract data part 2, to be completed by the
contractor. This has no contractual relevance, however forms a part of the management
system incorporated to encourage the issue of risk to be discussed between the parties.
Blackburn (2012) observes, on the use of systems such as the NEC3 risk management
system that:

Risk management tools are often not used, or are operated in a cursory
way such they become ineffective with both parties losing the benefit that
would flow from the process if it was properly implemented;

Many people seem to approach risk management as a tool to enable them to

progress the works, rather than a complete management tool;

Some see risk management as a hurdle to be overcome rather than a tool to

be used to for the benefit of the project or to their advantage.
21

The provision within FIDIC to make each party aware of any impending risks, is
partially provided for under clause 8.3 programme. This clause only requires the
contractor to give notice of any, probable events and circumstances which may
adversely affect the work, increase the contract price, or delay the execution of the
works. It may be considered an implied term that the employer should do the same.
NEC3 has incorporated the management system in place to deal with post contract risk
allocation; however the actual wording of the clauses appears to have caused some
confusion in terms of its interpretation as to how these measures should be applied.
While FIDIC allocates the risk to the parties at the commencement of the contract and
then is dependent on the contractor advising the employer should a problem arise.

3.1.3

Variations

Both FIDIC, red book and NEC3, option A are based on a traditional procurement
method. They also follow both the new and old Royal Institute of British Architects
plan of work where the design should be essentially completed before the project is
tendered (Merlin & Mark 2012). The client carries all risk for design changes and
variations to the scope of works, unless this is caused by the fault of the contractor.
The impact of construction variations on a construction project can have a substantial
impact to the successful outcome of the project. Even the most successful projects can
account for 5-8% increase in cost (Cox et al 1999). It is therefore obvious why
variations are one of the main sources of dispute in construction projects. When a
substantial increase to the final cost is not allowed for in the clients forecast or the
contractor`s price, this undoubtedly causes problems. Not only are there direct costs of
the variations such as resources, materials and time of carrying out additional works, but
also indirect costs that are not easy to quantify. Bower (1999) provides examples of
indirect costs which include:

Rework and lost effort on work already undertaken;

Time lost in stopping and restarting current tasks in order to make the
variation;

Change in cash-flow, financing costs, loss of earning etc.;

Loss of productivity due to reprogramming, loss of rhythm and unbalanced

gangs;

Revision to project reports and documents;

22

Loss of float therefore increased sensitivity to delay.

Traditionally, the costs had been left until the end of the contract, when all disruptive
effects are rolled up and the parties are left to argue the impact and cost of such events.
However NEC3 does not allow for this, as the variation is named as a compensation
event and the contract encourages the parties to resolve time and cost implications as
and when they arise. Robinson (2012) stated that,
The idea is that the parties interests to agree a predication as to what time and
cost generated by a compensation event, rather than to become embroiled in a
dispute at a later point.
NEC3, although encouraging discussion and management of such events, imposes a
time bar on the contractor in terms of the timescale it has to inform the project manager
of a compensation event. FIDIC also enforces that the contractor must inform the
engineer of any issues that may cause it to make a claim within a certain time frame or
lose the right to that claim. Both NEC 3 and FIDIC have provisions which require the
contractor to give notice for any minor change or subsequently face losing the right to
claim at a later date. In relation to this issue a main difference between FIDIC and
NEC3 is highlighted by Champion (2008),
Under the NEC form the duty would be to notify within eight weeks of
becoming aware of the event. But under the FIDIC form, the duty to notify only
arises when it is perceived that he may be entitled to additional time or money,
which may be months or years later.
Within FIDIC the onus is on the engineer to prove that the contractor was aware that the
event would lead to additional time and/or cost to the project. Whereas NEC 3 requires
the contractor to notify as soon as it become aware of any change to the scope. This
may appear irrelevant when considering a variation to the contract, insofar as it may be
understood that the variation would take the format of a clear instruction. In reality,
however, this is not always the case. The instruction may be recorded in the minutes of
the site meeting, verbally given on a site visit, or noted on drawing comments. If
overlooked the contractor may be challenged to prove that it was not aware of the
variation, which could spiral subsequently into a dispute.

23

3.1.4 Interpretation of the contract

Interpretation of the contract is a cause of dispute for various reasons. The main reason
being a lack of understanding from the parties administering the contracts, specifically,
failing to understand their roles and responsibilities; the correct timing for when tasks
are to be carried out and the consequences resulting from tasks not being undertaken.
Another school of thought on this area is that the parties administrating the contracts are
simply ignoring many of its terms. Broome and Hayes (1997) found that many industry
professionals commented that it is often said,
that on the best projects, the contract is left in the drawer and numerous
resident engineers, project managers and contractors employees have told these
authors that to run a project by the terms of the existing standard conditions
would mean that progress onsite would be at best slow and often impossible.
The opinion of Broome and Hayes was in a general context and not referring to any
particular form of contract. Timescales given within a contract are to be used as
guidelines and attempt to aid in keeping the project moving forward.
The terms of a contract should be clear, concise and laid out in a manner that is easily
understood. NEC advised that the main characteristics in relation to a contract are,
that it is a clear and simple document using language and a structure which is
straightforward and easily understood. This is a well-documented aim of the NEC
form of contracts, to ensure that contracts are clear, simple to use and written in plain
English. However, as will be evident later in this chapter, care must be taken when
administering the contract. It is important that careful consideration is given to the
actual words of a contract, so that those interpreting the contract do not get lulled into a
false sense of security by simple wording which may be too clever (Broome and Haye
1997).

FIDIC forms of contracts also claim to be written in a manner that utilise a style
and format that can be readily understood by construction professionals (Jaeger
and Hok 2009). The word professional implies that the individual utilising the contract
may have some form of formal training.
Jaeger and Hok (2009) have published information on the use of FIDIC in civil law
countries as opposed to common law countries such as the UK it examines the language
used within a contract. It describes the language used as being, aimed at users who
24

have knowledge of legal writing ...and furthermore that, It is critical that the English
language used by FIDIC involves the understanding of legal English. A more
sophisticated understanding of contractual terms, vocabulary and abbreviations is
sought, more often than not, in the use of FIDIC forms of contract (Jaeger and Hok
2009).
In relation to whether NEC has achieved a clear contract that is easily understood and
also whether FIDIC is more complex and difficult to understand compared with NEC,
two main studies have been explored. Broome and Haye (1997) focus directly on NEC
and whether a clear document has been produced. Rameezden and Rajapake (2007)
(considered later in the research) compare the readability of both FIDIC and NEC and
the understanding from industry practitioners. The findings of both shall be discussed
further within this research.

In 1996 a survey was carried out by Broome and Haye to try and establish whether the
NEC 2nd Edition contract had achieved what it had set out to do and also whether it
provided a clear and easily understood document. They interviewed 81 personnel, from
all aspects of the industry, involved with the use of NEC contracts. Relevant points of
their findings are as follows:

Easier to understand. However, it was noted that the plain English may be
too clever and as such result in people not giving the words full
consideration;

Clearer risk allocation. It was agreed, without exception, that the definitions
of employers risk, as compensation events are clearer than in any other
contract form;

Clearer roles. The roles and duties of the project manager and supervisor are
generally felt to be well defined in the NEC compared to the roles of the
resident engineer or architect in other forms;

Clearer procedures working at site level. After the initial learning curve is
over and the project is properly resourced to deal with the problems as they
occur then it is easier to make work because the procedures are logically laid
out and charted;

NEC procedures have been used on successful projects to help solve

problems rather than apportion blame after the event.
25

Although the findings were predominantly in relation to at NEC, the authors also stated
that FIDIC conditions are poorly laid out and contain long sentence lengths. They also
found that there were many redundant legal expressions (Broome and Haye 1997).
It is evident from the findings that NEC 2nd edition had already produced a clear and
easy to use form of contract which defines roles and responsibilities of the parties
tasked with administrating the contract. NEC has incorporated a number of changes to
the 3rd edition consisting of valuable feedback from the industry and 10 years use of the
2nd edition. However, it is arguable whether this makes it more understandable and
easier to use than the FIDIC forms.

3.2 Conclusion
FIDIC and NEC 3 both offer a wide selection of project delivery choices in relation to
the different options that are available. There is a difference however, in the way which
the particular contracts are moulded to suit the specific project. NEC 3, Z clause
appears clearer as the sole place to make an amendment is by adding a Z clause. This
enables the user to build confidence when regularly using the document. FIDIC is not
found to be as clear, as the particular conditions section forms a large part of the
document and this can be altered primarily with the recommended wording. However,
this does not always result in the opportunity to substantially change the meaning of
some core clauses.
When considering post contract risk management, NEC 3 incorporates a management
system in its terms which, if used correctly, can be of a great benefit to a project.
However this is not always the case. During these times of austerity, it may be thought
that the introduction of additional systems and resources to manage these systems is an
expense that is not warranted. The more traditional method, found within FIDIC, of
allocating risk at the start of the project and managing any future risk as they become
apparent, appears to be better suited to the current times and unless the project is highly
complex or larger scale, then FIDIC would be the better option.
By naming a variation as a compensation event, NEC 3 ensures that the variation is
dealt with as and when it arises. This should prevent any conflicting views at the final
account stage when the employer and contractor have long since moved on from early
events. However, it is argued that the full extent of the impact from the variation may
26

not initially be evident. This only affects a small number of cases however and therefore
does not prevent the opportunity to deal with events as and when they arise or make it
less appealing. The time bar clause included in both FIDIC and NEC 3 is found to be a
fair clause. In both cases if a party becomes aware of an issue and does not disclose it,
this would go against all moral standing.
NEC 3 is certainly clearer and easier to understand when comparing both contracts.
The argument that it may be too clear has been unfounded and it has been found that
NEC 3 achieves what it has set out to do and provides a clear and easily understood
document. The only confusion appears to come from the introduction of the contractors
register which has no contractual significance whereas the employers risk register does.
FIDC has been found to require professional training to understand its terms. This may
not be a detrimental requirement as those entering into contractual agreements in the
construction industry should be trained in the agreements they are entering in order to
fully understand its contents and implications.

27

Chapter 4: Research Methodology

____________________________________________________________
4.0 Introduction
The purpose of this chapter is to identify and explain the rationale behind the chosen
research methods.
The aim of this research is to establish what the impact on the global financial crisis had
on the construction industry and specifically to discover if the common areas from
which disputes arise within the area have changed. It shall then aim to consider two of
the most popular international construction contracts in use today and if either of these
is more suited to the construction industry after the financial crisis of 2008/ 2009 than
the other.
The research has been carried out in two stages. The first is a literature review. The
second was to conduct interviews with a number of industry practitioners from both
client facing and contracting backgrounds. The literature review was divided into two
sections. The first was to establish the impact of the financial crisis on industry disputes
and determine whether the nature of disputes had changed due to the crisis and then
establish the main areas of dispute at this time. The second part of the literature review
was to analyse two contracts, NEC 3 and FIDIC, in relation to the identified disputed
areas and determine which (if any) is most effective in managing the disputed areas.
4.1 Research aim and hypothesis reinstated
The aim of the research is to examine the effects of the global financial crisis on
construction industry disputes and determine what the main disputed areas are.
Thereafter to explore whether FIDIC or NEC 3 suite of contracts contain effective
mechanisms to in order to manage the established disputed areas in the aftermath of the
global financial crisis.
4.2 Quantitative and qualitative research
Quantitative research is a numerical study of data gathered. There are arguments that
this type of data gives solid evidence which is easily understood. The information
gathered can be presented in a tabular or graphical form giving clear answers to

28

questions asked. This method was utilised particularly at the beginning of the study to
establish trends in disputes which had been referred to the courts before, during and
after the financial crisis. Within the study, repeatability of the nature of case referrals
was studied over the years to establish trends in the courts. This was helpful in
establishing whether the cause of disputes changed over this period, and the nature of
any changes and causes. Amaratunga et al (2002) described a weakness of the
quantitative method research, that it only gives a snap shot of a situation. However, this
was effective for the first area of the study as this was what was required in order to
examine the impact of the financial crisis.
Qualitative research differs from quantitative as it considers questions such as how, why
and what. It attempts to understand why people act in a certain way and in real
situations. This method can take the form of observation, unstructured interviews,
archived writing journaling and photographs, all which allow the researcher to develop
an overall picture of the investigation. The interview was thought to be the best form of
establishing the general feeling of the selected construction contracts and their practical
application. This was also deemed as an opportunity to try and establish, for example,
if the selected professionals genuinely understood the contracts themselves, with this
being one of the identified disputed areas. If a questionnaire was issued instead, the
respondent would have had the opportunity to conceal the fact that they did not
understand the contracts in some way. It was anticipated that the relaxed atmosphere of
the interview would allow the researcher to decipher the interviewees answers based on
their response. Indeed Nuttalls (2011) view on qualitative research enforces this idea
as it was described as achieving a, deep, often contextual, emotional understanding
of peoples motivations and desires.

29

The table below highlights some of the differences between the two methods,
quantitative and qualitative.
Table 4.3.1 Differences between research methods
Quantitative
Inquiry from outside.

Qualitative
Inquiry from inside.

Underpinned by a
complete set of
epistemological from
those in qualitative
research.

An attempt to take account for the differences between

people.

Are simply different

to the same end.

Aimed at flexibility and lack of structure, in order to allow

theory and concepts to proceed in tandem.

Involves the following

of various states of the
scientific research.

The results are said to be through theoretical generalisation,

"deep rich and meaningful".

The results are said to

be the hard
generalisable data.

Inductive where propositions may develop not only from

practice, or literature review, but also from ideas
themselves.

An approach to the study of the social world, which seeks

to describe and analyse the culture and behaviour of
humans and their groups from the point of view of those
being studied
(Amaratunga et al. 2002)

Venkatesh et al.(2013) stated that mixed methods of research have been termed the third
methodological movement, with quantitative being the first and qualitative representing
the second. Mixing different types of research can compensate for any weaknesses of
the other chosen method. Qualitative research can be used to reinforce or clarify any
issues proved by quantitative method and vice versa. Amaratunga et al. (2002) state
that qualitative and quantitative methodologies are not antithetic or divergent;
rather they focus on different dimensions of the same phenomenon. This illustrates the

30

point that there is a definite benefit in utilising both methods of research and
furthermore that they can complement each other in doing so.
4.3 Research method selection/approach
The aim of this research is to compare two standard forms of contract, namely NEC 3
and FIDIC, and compare the mechanisms contained in each to manage commonly
disputed areas within the construction industry. Before this can be done, however it
must be established what the common areas of dispute are within the construction
industry. It was also necessary to establish if the disputed areas had changed over the
course the financial crisis and if so the reasons for this and the nature of any changes.
The literature review provided a deep understanding of the industry today and how the
financial crisis has impacted the industry as a whole and in particular, the areas of
dispute. As this section was considering previous research and published data, a
quantitative study was carried out using published data and literature to establish court
referrals both in terms of numbers and causes of dispute. Reports were also analysed to
establish workloads over the past 10 years. These were then compared to the number
court referrals. Thereafter, the aim was to try to establish if there were any links
between these reports and case referrals in relation to any decline or increase in work
compared with the increase or decline in case referrals over the same period. This
section of the research was concluded within the first chapter and was the basis for the
remainder of the research. It has been established that the most common areas of
dispute within the construction industry today are:1. Allocation of risk;
2. Contract choice;
3. Interpretation of the contract;
4. Variations.
The second part of the research was to explore and analyse NEC 3 and FIDIC in relation
to the chosen topic and establish their use in todays market. Thereafter NEC 3 and
FIDIC are discussed in relation to the identified areas of dispute. A literature review
was then carried out on NEC 3 and FIDIC to determine how they each managed the
disputed areas. This allowed an understanding to be developed in terms of whether any
of the contracts contributed to any of the disputed areas coming to fruition, in terms of
any flaws they contained. The literature review uncovered some common issues.
31

These were analysed, and questions were compiled from the relevant issues which
formed the basis for a qualitative study to be undertaken.
Initially, a questionnaire was considered the most effective method; in an attempt
confirm the findings of the literature review. However, due to the nature of the disputed
areas, an informal structured interview was found to be a more effective option. As it
was established that the disputed areas were found to be linked to interpretation of the
contracts, evidence of some foul play with regards to allocation of risk and contract
choice, an interview appeared to be the best solution to allow the researcher the
opportunity to get a feel for the response of the interviewee.
Three interviews were conducted on industry professionals in a semi-formal setting and
the recorded in a transcript highlighting important and relevant issues. A number of
casual conversations took place on the subjects being researched, although the
conversations were not recorded, their content was noted and used to reinforce the
findings of other areas of the study. This subsequently assisted the writer in forming
opinions.

The industry professionals selected for the interviews had been exposed to

the aforementioned contracts, throughout their careers. Furthermore, the interviewees

were selected due to their position within their company and international experience
(as FIDIC was found to be more widely used abroad); demonstrating a level of seniority
in which to influence the management and/or selection of a contract used on a
construction project. The interviewees are described below:Interviewee A
Position: Managing Director
Sector: Consultancy/Construction
Number of years experience: 30 +
Interviewee B
Position: Senior Project Manager
Sector: Construction
Number of years experience: 25
Interviewee C
Position: Commercial Manager
32

Sector: Consultancy/Construction
Number of years experience: 25
4.4 Conclusion
Whilst considering the research methods available, it was considered that a quantitative
study would be utilised to establish the impact of the financial crisis on construction
industry disputes and published data and literature was analysed to draw conclusions.
This was also considered to be the most effective option when considering types of
disputes.
The second part of the study was more suited to qualitative research, specifically the
interview conducted. This gave the interviewer the opportunity to analyse the
interviewee as they were questioned on issues directly related to the study, such as
understanding the contract and allocation of risk.
Informal conversations were also utilised with industry practitioners as this was found
to be very helpful in developing an understanding of some issues found within the
research.

33

Chapter 5: Data Collection and Analysis

____________________________________________________________
5.0 Introduction
This chapter shall discuss data gathered from the findings of the literature review and
include the feedback gained from the interviews within the context of the identified
disputed areas. Relevant clauses in the contracts shall also be compared and discussed
throughout the chapter.
The data collected for the research, commenced with a literature review to establish the
general opinions of the industry on both NEC 3 and the FIDIC. Particularly, NEC 3
option A and FIDIC red book for specific clauses. Any differences discovered in the
management of predefined areas contained within the said contracts were explained.
The data gathered was studied and analysed and a set of general questions were
compiled for the purpose of the interviews.
5.1 Contract choice
Both NEC 3 and FIDIC were found to be similar in terms of the options available for
selection of project delivery. The interviewees were asked the following questions:Question 1
Have you ever found yourself working under the wrong type of contract for the project
you were working on?
Answer 1
A. It is not the contract selection that is the problem but the people working
with the contracts, not understanding the procurement route. I have had
people come from a design and build project phone the design team on a
traditional build and expect the design team to drop everything and
answer their queries.
B. Sometimes the client does not have the capability to provide his
obligations under the contract. The consultant could have looked at
different options, such as design and build.

34

C. No generally most clients employ a consultant to manage the process and

advice on contract type.
During the course of the research it was found that when a contract is amended by a
party, this proved to be more of an issue as opposed to when the wrong contract was
selected. NEC 3 and FIDIC both contain mechanisms for the contract to be amended by
the parties to the contract. NEC 3 contains clause Z option which allows a party to the
contract to insert additional clauses. FIDIC provides for amendments to the general
conditions within the particular conditions section. The purpose of the second question
was to ascertain whether each interviewee had come across this issue and if they
consider it to be acceptable to amend the contract. It is stated below:Question 2
Do you think that the standard construction contracts in their original form should be
altered in any circumstances?
Answer 2
A. Yes they need to be made to suit the situation.
B. Yes in some circumstances. We find ourselves taking more risk than we used
to, if you do not accept the terms you could find that you are not in the
running for the project.
C. Yes, you need to alter it to suit the country and any special requirements, but
not to put more risk onto the contractor. In this climate some clients like to
try and put more risk onto the contractor because they can. The time taken
for the quantity surveyor to read and understand the implications of the
additional clauses makes the use of a standard form pointless.
The feedback from the interviewees in question 2 corroborated what had been
concluded in the literature review. It is necessary that the contracts contain the
provision to alter certain aspects. For example to ensure that the contract adheres to the
applicable law of the country it applies and to and also so that it can be tailored to meet
certain exceptional circumstances. However, to amend the allocation of risk would not
be fair and just. One of the main advantages of using a standard form is that the parties
become familiar with the terms and conditions contained within the contract and as such
35

it becomes easier for the parties to use and interpret. For example, if contractors are
pricing a project which is covered by one of the standard forms, it should provide them
with confidence in its content in order to price a project without having to employ legal
experts to interpret and analyse the contract before doing so. In altering the meanings of
clauses, the allocation of risk and the general context and purpose of a standard form of
contract is futile in many ways.
In exploring the opposing argument, which is that the party financing the work should
have the opportunity to allocate risk as he sees fit, it was found that although a valid
point, should the client require such large changes then a specific contract should be
drafted. By taking a standard form and changing it to suit the needs of particular client,
will only cause suspicion and confusion within the industry. The advantage of a
standard form would then be lost.
5.2 Allocation of risk
Allocation of risk and indeed the management of risk, are areas which NEC 3 as a
contract, places a great deal of emphasis on. Arguably, it is different from other
standard forms insofar as it also incorporates good management practices and issues
together with contracts, flow charts and procedures to encourage effective and efficient
project management. The main tool incorporated into the contract which can be utilised
is that of early warning (clause 16). It is also included in the risk register in clause
11.2(14). The risk register is a register which is produced at tender stage, highlighting
risks to the project. It is then maintained throughout the project and when other risks
become apparent or highlighted as an early warning, it will be entered into the register.
NEC 3 clause 11.2(14), lists the information to be contained within the register as
description of risk and details of action to avoid or reduce the risk. Clause 16.4 requires
the project manager to update and re-issue the risk register along with any instructions
for the meeting in order to overcome the notified risk.
The early warning means that there is responsibility on both contractor and project
manager to make the other parties aware of any matter that could impact on the project,
as soon as they become aware of it. Under clause 16.3, a risk reduction meeting is
called. The risk is discussed and allocated to one or both parties to manage that risk.
The solution is entered into the risk register accordingly.

36

NEC 3, clause 11.2 (13), places the responsibility on the contractor to do whatever is
required to complete the works stated in the contract. This is reinforced in clause 20.1,
whereby the contractor has to provide the works in accordance with works information.
All responsibility for risk is passed to the contractor in clause 81.1, which states,
from starting date until the defects certificate is issued all risks that are not carried
by the employer are carried by the contractor. This clause provides that without the
contractor issuing an early warning, it shall be responsible for all risks. Therefore, the
contractor must allow for all risk which is not listed as a compensation event in its
prices and programme.
NEC 3, clause 80.1, lists the employers risks within the contract. Clause 60.1 (14) lists
these risks as a compensation event. A compensation event is an event listed where the
contractor has the right to increase the contract price or time for completion. It was
found during the literature review that some parties find the additional systems in NEC
time consuming and expensive to implement. It was therefore beneficial to ascertain
opinions on this area in question 3.
Question 3
Do you think that the risk management system included within the NEC 3 contract
assists in the efficient running of the project?
Answer 3
A. If used correctly then, yes it can make a difference but all parties must buy
into the ethos and see it as a means to help manage risk and not reallocate
risk.
B. The resources required to administer the contract can include additional
cost to both parties due to the increase in paperwork generated as a result of
the early warnings and risk registers. I do not know if the benefits are worth
the additional time and effort and feel that the time could be better spent
managing the project. FIDIC also requires you to inform of problems but
without the paperwork.
C. Yes, but it requires additional resources to implement the system.
The risk management system incorporated into NEC 3 is sold as one of the main
advantages of the contract, and the only major difference to that of other standard forms.
37

The question remains as to the value of the addition resource requirements to implement
the additional risk management system. If a project is of a significant size and/or
complicated nature in terms of execution of the project, there may be a requirement for
the additional risk management system and resources.
In the introduction to a FIDIC contract there is a statement relating to the distribution of
risk. FIDIC aims to ensure that the parties can clearly understand and identify the risks
and to produce a document which balances the risk fairly between the parties. The
general conditions which manage the allocation of risk are contained within the
following clauses:

Clause 17.2 essentially places all risks to a contractor for the works during the
time in which the site is under the control of the contractor, unless there is a risk
listed in the employers risk clause 17.3. This clause lists 8 reasons in which the
employer will be liable for any of these events causing delay and or disruption to
the project. These risks include war, terrorism etc.;

Clause 4.10 is in relation to site data. This states that an employer should make
available all data on subsurface and hydrological conditions at the site, including
environmental aspects that it has available or becomes available after the base
date. However, the risk is passed to the contractor, who under the contract will
be responsible for the interpretation of the data, deemed to have visited the site
and examined the site, including sub surface conditions before submitting the
tender;

The balance is addressed in clause 4.12 which deals with unforeseeable physical
conditions. Specifically, this clause deals with obstacles that may impact on the
works that are deemed to be unforeseeable to the contractor at tender stage,
having carried out the appropriate checks.

Using clause 4.12 as an example of how risk can be reallocated and the wider
implications, this clause passes the risk of these obstacles on to the employer who,
under the contract, must assess if the obstacle was unforeseeable and thereafter give
instruction on what to do. This may lead to a variation claim and also entitle the
contractor to additional time or monies under the contract. This is an obvious point
of contention and brings in to question the role of the engineer, who under the
contract is required to be impartial, although is paid by the employer. The employer
38

now carries the risk for this obstacle and any additional costs associated with this
obstacle and may be likely to argue that the obstacle should have been picked up
within the original surveys carried out by the contractor. This is an engineers
decision and consequently a commonly disputed area is that of the impartiality of
the engineer. On that basis, the writer raised this issue with the interviewees in
question 4.
Question 4
Do you feel that the engineer can act fairly when it comes to acting impartially?
Answer 4
A. The engineer should act professionally and impartially, however I have
heard of disputes arising from engineers not doing this and this does not
surprise me.
B. In my experience, this usually only becomes an issue when the engineer is
asked to decide on a dispute that he is involved in.
C. How can someone be expected to act impartially when he is likely to be a
party to the dispute? I do not think this is possible.
The engineers responsibilities in FIDIC, are similar to the traditional method of
procurement and the powers which the architect has in earlier standard forms. He acts
as the client representative and contract administrator. The architect is expected to
exercise his skill in a fair and unbiased manner this is also the case for the engineer
within the FIDIC contract. In relation to the impartiality of the architect, Lord Reid
stated in the case of Sutcliffe v Thackrah1 that the architect was bound to act on his
clients instructions whether he agreed with them or not, however there are many other
matter which require professional skill whereby he must form his own opinion and
indeed act on it. The project manager has similar powers under NEC 3. The project
manager is required to make decisions on compensation events and other matters, such
as deciding upon whether the contractor has given an early warning in time and
therefore if he is entitled to make a claim. Should the contractor feel that the engineer
has not made a fair decision, then it may be the case that the contractor must consider
entering into adjudication or some other type of dispute resolution to resolve the issue.

39

This is not the aim of any of the forms of contracts being considered; however there are
mechanisms contained within NEC 3 and FIDIC should a dispute arise.
Other clauses within the FIDIC red book that deal with the allocation and management
of risk are:

Clause 13.9 - provides for risk of legislation change after the base date (which
is 28 days before the tender submission date) with the employer;

The importance of making each party aware of any impending risks is partially
taken up by FIDIC under the clause 8.3 programme. This clause only requires
the contractor to give notice of any, probable events and circumstances
which may adversely affect the work, increase the contract price, or delay the
execution of the works.

In conducting research for this study in relation to FIDIC provisions, a seminar was
attended by the writer held by Professor Indrawansa Samaratunga where he commented
that FIDIC red book had two editions which are used today contemporaneously, the 4th
edition (1987) and the 1st edition (1999). It was noted within the seminar that the 4th
edition was said to favour the client in terms of risk allocation and powers under the
contract. The interviewees where asked their thoughts on this in question 5.
Question 5
It has been said that FIDIC is a more favorable to the client, do you agree with
this statement?
Answer 5
A. We always use the earlier version of the red book, 4th edition, where possible
as it is more favorable to the client, but the new red book is fairer in its
allocation of risk to all parties.
B. Yes.
C. It depends on the particular conditions and how they have been
incorporated, but the new red book is fairer.
FIDIC offer two versions of the same contract and is allocating the risks differently
therefore making the process complicated for all parties using the document.

40

5.3 Variations
Variations are a vast area in relation to contractual disputes and therefore to go into
detail is out-with the scope of this paper. The area of variations was examined,
generally, in relation to both NEC 3 and FIDIC.
NEC 3 does not incorporate a section on variations. However, NEC3 does contain
provisions which equip the project manager with the powers to change the work
information i.e. additions, reduction in scope or substitutions. Clause 14.3 gives the
project manager the power to issue an instruction to the contractor which changes the
works information or a key date. Clause 60.1 stipulates 19 compensation events which
are events in which the contractor may claim for additional time and/or monies under
the contract. The first compensation event recorded is 60.1.1 which states that the
project manager is able to issue an instruction changing the works information,
providing it is not attributable to the contractor. The following clauses set out how a
compensation event should be managed:

Clause 61 - Notifying compensation events. This clause deals with the way in
which compensation events are to be notified to each party and the importance
timing plays in notification;

Clause 62 - Quotations for compensation events. This sets out the process for
dealing with the compensation event.

Clause 63- Assessing compensation events. This clause deals with the
assessment of the impact of the compensation event;

Clause 64- Project managers assessment. This clause ensures that the project
manager assess the compensation event within designated time lines;

Clause 65- Implementing compensation events. This clause ensures that the
event is implemented properly and the additional costs and time is included in
the notification.

Clause 32.1 is in relation to revising the programme. This requires the contractor to
update the program showing the impact of any compensation events. Clause 63.1
If the Contractor does not notify a compensation event within eight weeks of
becoming aware of the event, he is not entitled to a change in the Prices, the
Completion Date or a Key Date unless the Project Manager should have notified the

41

event to the Contractor but did not. This is a time bar on the contractor to notify or
loose the right to any claim he may have.
The time bar is a frequent area for dispute and the interviewees where asked on their
thoughts.
Question 6
Do you find the time bar clause contained within NEC 3, of 8 weeks, fair on the
contractor?
Answer 6
A. Yes it is fair. If a party is buying into the ethos of NEC 3, then a risk meeting
should be held as soon as an issue is realised, by all parties.
B. 8 weeks is a good time, but sometimes the true impact of an event may not be
known until the project is nearing completion.
C. NEC 3 is all about managing risk and if someone is sitting on information
for 8 weeks then there is a definite problem.
FIDIC manages variations under clause 13 (variations and adjustments). This clause
gives the engineer the power to issue an instruction or request a proposal from the
contractor at any time before the taking over certificate is issued. Clause 3.3 sets out the
procedure on how an instruction should be given and how it should be dealt with by the
contractor. Sub clause 13.3 lays down a clear procedure for initiating the variation
including any modification required to alter the programme under sub clause 8.3 or
change in the costs of the works. If no agreement is made on additional time under
clause 13.3, clause 8.4 allows the contractor to claim for an extension of time.
Clause 12.4 deals with omissions under the contract and how the price shall be changed
due to any omission of any works. FIDIC sub clause 20.1 imposes a 28 day time bar on
the contractor giving notice of a claiming for additional time and or money, if missed it
can result in the contractor unable to make any claim.

42

To compare contracts, the interviewees were asked about the shorter time bar contained
within FIDIC.
Question 7
Do you find the time bar clause, contained within FIDIC of 28 days fair on the
contractor?
Answer 7
A. Yes, if the contractor does not realise that there is an issue within 28 days
then he may not be managing the project correctly.
B. 28 days is quite a short time scale when you are trying to determine the
impact of a variation or issue to the contracted price or timescale.
C. This should not be a problem as this is only a notice and does not require
any information at this stage.
The time bar clause appeared to be an area that both NEC 3 and FIDIC have
incorporated, however it is widely considered to be an area of contention within the
industry. When considering the timescale and ethos of the both NEC 3 and FIDIC this
does not appear to be an unfair clause.
5.4 Interpretation of the contract
It was established that interpretation a contract was one of the main disputed areas. One
cause of not understanding a contract may be a result of a party dismissing or ignoring
the terms of a contract and subsequently not adhering to the provisions contained
therein. Often this is because the meanings and effect of the actual wording is not
understood. Within NEC 3 it claims that, it is a clear and simple document using
language and a structure which is straightforward and easily understood
A survey was carried by Rameezden and Rajapake on FIDIC 1999 and NEC 3 in order
to assess the readability of the contracts on a clause by clause basis. After establishing
which contract was more easily deciphered, examination of the association with
readability and interpretation of the contract was then undertaken. Table 5.4.1 below
illustrates the findings on the readability. The higher the Flesch Reading Ease Score
(FRES) the more readable the clauses contained within the contracts. Clauses were
selected that had the same meaning but were laid out in a different manner.
43

Table 5.4.1

Source: Rameezden and Rajapake (2007)

NEC is more readable in terms of the FRES scores. Whether this relates to
interpretation, was assessed by industry professionals having to read certain clauses and
place where the risk lay on a chart. The data was then analysed and the study revealed
that the relationship between readability and contract interpretation was strong. This in
turn means that the interpretation by the readers has a higher degree of unity
(Rameezden & Rajapake 2007).
A question was put to the interviewees on their thoughts in relation to understanding a
contract and whether there should be professional advice and training in interpreting and
understanding the contracts.
Question 8
Do you feel that the parties utilising FIDIC forms of contract should be professionally
trained in understanding contractual terms?
Answer 8
A. Yes, everyone who is dealing with contracts require to be trained to
understand what they are signing up to.
B. Yes, FIDIC can be quite intense and some of the clauses refer to other
clauses, this can confuse those who are not used to dealing with them.
C. Yes, anyone dealing with contracts should be trained to deal with them.

44

Question 9
Do you feel that those using NEC 3 forms of contract should be professionally trained
in understanding contractual terms and their application?
Answer 9
A. Same answer as with FIDIC, if you are dealing with a contract you must be
trained to understand it.
B. NEC 3 is easier to read but there are a lot more administration duties that
need to be dealt with that training is required, if you have not used the form
before.
C. Training should be required for anyone dealing with contracts.

From interview questions 8 and 9, it is evident and agreed that those using contracts
should be trained to understand the content and implications of their actions under the
contract. During the course of the research it was found that the problems have been
arising from matters such as failures in notifying on issues within the correct timescale;
failure to highlight a change in a drawing or understanding the role to be performed.
These are not tasks to be dealt with by senior management as those questioned.
These issues are site issues, to be identified by the site manager, who may have come
from a trade background with little or no formal training in contract administration.
Therefore NEC 3 may be laid out clearly, however if the parties utilising it have no
interest in the correct interpretation and application but simply focus on getting the job
done this will undoubtedly cause major problems to the project as a whole.
5.5 Conclusion
It is evident that both NEC 3 and FIDIC contracts are capable of delivering successful
projects providing they are interpreted properly by those administering the contract.
Both contracts differ in their approach in certain areas, with the main difference being
the risk management system incorporated within the terms of NEC 3 this has been
found to be a good system if used correctly, however comes at a cost of additional
resources to implement the system.
FIDIC offers a more traditional style of contract that has been proven successful in
delivering projects of all sizes throughout the world. However some confusion lies in

45

the fact that there are currently two red books in circulation and which contain
substantial differences in their content.
The next chapter shall draw conclusions and give recommendations based on the
finding from this research.

46

Chapter 6: Conclusion and Recommendations

______________________________________________________________________
6.0 Introduction
The first part of this study was to establish the impact of the global financial crisis on
the UK construction industry. The findings were clear, that a major downturn in
workloads had occurred. This in turn had led to an unprecedented number of businesses
going into administration. This was a well-documented issue.
The research then turned to disputes within the industry and established what the main
causes of disputes were. These were found to be:

Contract choice;

Allocation of risk;

Interpretation of a contract; and

Variations.

Having established the main causes of disputes, the impact of the financial crisis was
considered and studied over a period of time and remarkable it was found the disputed
areas had remained the same over the said period. The financial crisis had no direct
impact on the areas disputed within the construction industry.
The second part of the research was to consider if either NEC 3 or FIDIC was more
effective than the other at managing the areas of dispute throughout the aftermath of the
financial crisis. Having compared and explored the disputed areas, a number of similar
key factors were identified which were either: - common issues disputed under the
heading of one of the disputed areas; or a major difference in the way the contracts
managed the area. The conclusions on these are set out below.
6.1 Contract choice
Provisions to change contracts are required particularly if the contracts is aimed at an
international market place in order to accommodate both common and civil legal
systems. If the standard forms were to issue a country specific version then the need to
alter the standard form would be greatly reduced.

47

Clients hoping to allocate risk differently to that specified within the contract should not
have the ability to do so, and should be required to have specific contracts drafted for
their project. The meaning of standard form be should just that.
6.2 Allocation of risk
NEC 3 has incorporated a risk management system into the contract. This system has
been found to be advantageous. However, this comes at a cost to a project. With the
financial crisis restricting the level of finances available to fund projects, the additional
resources required to manage the additional management systems constrained within
NEC 3, appears to be a cost that is not necessary. For this reason, NEC 3 appears to be
suited to larger scale, more complex projects. Smaller scale, more standard projects
should be procured under an alternative form, such as FIDIC.
FIDIC distributes the risk at the start of the process, and has provisions in place should a
new risk become apparent during the course of the project. Notwithstanding this, it may
require the parties to consider the costs of these risks contractually. However, this is a
legally binding document that requires to be dealt with by the law of the land.
One area of concern is that FIDIC has two red books in circulation simultaneously. To
resolve the issue, FIDIC needs to standardise the document to avoid confusion.
The impartiality of the engineer may be questioned when considering a decision under
FIDIC, or project manager under NEC 3. However, there must be a party who has the
authority to make decisions throughout the course of a project. Should his decision be
called into question then the contractor must utilise the contractual methods available to
resolve the issue.
6.3 Variations
NEC 3 manages the variations as a compensation event. This gives the parties the
confidence to discuss and provide a proposal to incorporate the change. In comparison
to FIDIC, an instruction can be issued by the engineer to provide a proposal for the
instruction, which is issued formally. Similarly, the project manager can notify of a
compensation event. Therefore, the difference is slight in the actual implementation of
a variation appears between both contracts.

48

Both NEC 3 and FIDIC imposes a time bar on the contractor to notify of an event that
may include additional time and/or cost to the project including a variation. This
appears unfair however, considering that FIDIC only requires a notification of an event
that may subsequently have an impact on the project which can be substantiated at a
later date. This is found to be a fair provision.
NEC 3 also incorporates a time bar and gives a longer period to notify of an issue.
However, whilst working under NEC 3 this also requires the parties to buy into the risk
management system and partnering ethos. Therefore, a party who fails to disclose
information on an issue for eight weeks (as stipulated in the time bar clause) is not
working within the spirit of the contract.
6.4 Interpretation of the contract
It is clear by the FRES scores (found in table 5.4.2) that NEC 3 aims to be easily
interpreted and achieves this in terms of clear sentences and uncomplicated English.
However, parties who enter into the contract should be trained, or have access to trained
personnel, to review the contract. All parties that are involved in the administration
and management of a contract should be trained in their role in relation to the contract.
6.5 Recommendations
Due to the issues found with amending a standard form, together with the arguments
highlighted, the requirement for this provision is necessary in order to suit the country
of application and legal system in which it is being operated. Both FIDIC and NEC 3
should consider drafting contracts for each country of use to minimise the need to alter
clauses and eradicate the opportunity for parties to reallocate risk to the weaker party in
the contract.
Furthermore, both FIDIC and NEC 3 must attempt to and enforce the use of the
unaltered standard form and make efforts to eradicate users altering their standard
forms. Users should be encouraged not to amend contracts in their standard form. Any
requirement to do so should be done with the assistance of a legal advisor. This is
unlikely however, as sales for each contract would drop considerably, and both FIDIC
and NEC 3 would no longer be the basis for a number of specific contracts.

49

FIDIC needs to combine the two red books in circulation as this only causes confusion
to the users. If this not be possible, an alternative title should be given to one contract
to enable users clarity in terms of what they are entering into.
The importance of training the users at all levels appears to be the most significant
factor uncovered. This includes site level managers, who make the day to day decisions
on what action is to be taken when an issue arises.
When answering the main question of the research on which contract currently suits the
industry best following the financial crisis, the answer lies with the consultant who is
advising the client considering all aspects of the project and selecting the correct
contract. Murdoch and Hughes (2008) stated that in certain circumstances the different
contracts have a role to play and that the consultant recommending a specific contract
must exercise a degree of skill required to identify and analyse the risk, as is expected
form the client.
A contract must be clear and concise. This requires an understanding and knowledge by
the parties of the legal meanings and implications contained. Effective contract
administration is of benefit to both employer and the contractor and indeed all parties
involved. There is a common perception that the number of disputes will rise whenever
there is a downturn in general market conditions. This may be accurate to an extent,
however as the research has demonstrated, in this instance, it is not case. That being
said, as discussed previously, the current market conditions certainly provide an
environment which may bring any underlying disputes to fruition.
6.6 Further study
Further study is required into the mechanisms for variations and the subsequent claims
for additional time and money. Claims in general must be considered during the
analysis of this area.

It would also be advantageous to consider and compare other forms of contract, in

particular JCT and NEC 3 within the UK market.

50

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Case Law
Bridgeway Construction v Tolent Construction Ltd (TCC Liverpool) (unreported,
except at [2000]CILL 1662
Costain Ltd v Bechtel Ltd [2005] EWHC 1018 (TCC); [2005] T.C.L.R 6 (QBD) (TCC)
Sutcliffe v Thackrah [1974] A.C 727 (HL)

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