The End of Order of Priority Clause for NEC Contract?

The NEC Engineering and Construction Contract (ECC) does not contain a hierarchy of contract documents. If the project manager or the contractor becomes aware of an ambiguity or inconsistency in the contract document, the project manager shall give an instruction to resolve the ambiguity or inconsistency (NEC3 ECC Cl. 17.1). Such instruction may become a compensation event under NEC3 ECC Clause 60.1.

The amended NEC3 ECC construction contract adopted an order of priority clause in Blackpool Borough Council v Volkerfitz Patrick Ltd & Ors [2020] EWHC 1523 (TCC) (15 June 2020), which provides that where the provisions of the main contract or any part of it are inconsistent they are construed in a hierarchy of documents.

The crux of a dispute was the “design life” of a building structure specified in the contract. In a document entitled the Functional Procurement Specification forming part of the Works Information provided by the employer (claimant), a provision of design life broadly stated that “The design life of the building structure shall be a minimum of 50 years”. The phrase “building structure” was not defined in the contract and a tender clarification was made by the employer that “The overall design life requirement is 50 years but there is a separate design life requirement specified in the Functional Procurement Specification in respect of certain items of equipment…”

In the Works Information provided by the contractor (defendant), there were a number of declarations forming part of the tender, which contained a document entitled the “technical design log tender development architectural civil & structure”. This document aimed to “optimize and integrate structural, civil and architectural solutions and clarify technical tender design assumptions and intent”. It contained a design issue in relation to “minimum design life”, which outlined the different requirements for different structures, for example structural frame and rail support structures (50 year), coating life to first maintenance (20 years), substructure and foundation (50 years), external shell (25 years) and floor finishes within offices (10 years).

A dispute had arisen when the employer complained about the tram depot, the building structure concerned, designed and constructed by the contractor did not meet the intended life of 50 years nor were they suitable for the exposed coastal marine environment where the tram depot was located and where it suffered from regular exposure to the structural elements, costing substantial maintenance and replacement works. It was an issue of inconsistency between two parts of Works Information provided by the employer and the contractor. On the basis that “The contract assumed, as would be expected, that the Works Information provided by the contractor were mutually consistent and should be read together” [141], the court made reference to the well-established principles of contract interpretation in O’Farrell J in Entertain Video Ltd v Sony DADC Europe Ltd [2020] EWHC 972 (TCC) [203].

The court found that reference to ordinary or common meaning of the phrase “building structure” cannot answer the matter of inconsistency, nor can reference to established legal precedent, whether statute, regulation, British Standard or case law. Considering the activity schedule only contained one lump sum item for the building structure and that this clearly included all of the components forming the dispute matter, the high level price breakdown was also considered by the court as highly unlikely to had been intended to assist in defining the term for the purposes of establishing the contractually required design life for a whole variety of individual components also included within the term.

The court considered that the design log provided the clearest guidance on the minimum design life of the various structural elements, for example “structural frame” and “external shell”, in the context of also making clear what was understood as being required as regards other items such as the substructure, the foundations and the floor finishes. Since the parties had expressly agreed in the contract that the design log was a contractual document, this must be given effect by the court. The court went on to decide the intended contractual design life for the various elements of the building structures and dismissed the claimant’s reliance on the order of priority clause to submit that the Functional Procurement Specification prevailed over the design log.

For design and build construction contracts in Hong Kong adopting the NEC ECC, conflicts between the employer’s requirements and the contractor’s tender proposals often unveils. Contract administrators must be conversant with the contract interpretation principles in finding the true meaning of the contract provisions and the reliance on an express order of priority clause is not always helpful.

By Albert Yeu, FCIArb MICE

Jurisdictions: 

Hong Kong Institute of Construction Adjudicators (HKICAdj)

Chartered civil engineer, chartered project management surveyor and construction arbitrator.  He is currently Honorary Secretary of the YMG of the Chartered Institute of Arbitrators (East Asia Branch).  He is also regularly appointed as construction adjudicator and mediator in the East Asia region.