Recession to increase NEC3 contract litigation

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    Liquidity issues in the construction sector are leading to an increase in legal problems with NEC3 contracts, warn lawyers from Hammonds LLP.

    Paul Giles, a construction partner at Hammonds, comments: "NEC3 contracts have been utilised successfully on a diverse range of projects for many years, including high profile projects such as Heathrow Terminal 5, the Channel Tunnel Rail Link and more recently on construction projects for the Olympics.

    "However, from a lawyer's perspective the NEC3 form of contract has always been ambiguous and uncertain. In times of economic growth and stability it may have been acceptable to compromise the risks and issues arising on NEC3 projects, but now the country has entered a recession we will see some of these ambiguities and uncertainties tested in the Courts for the very first time as cash flow pressure leads to the breakdown of collaborative working."

    As more and more public and private sector projects are procured on NEC3 terms and as cash-flow in the industry becomes ever more restricted, the experience of project managers in delivering projects on NEC3 terms will be severely tested. Couple this with increasingly stretched workforces struggling to deal with administratively burdensome contracts and Mr Giles says it is little wonder that problems are starting to arise.

    He warns: "It is important to understand and manage risks properly when using NEC3 contracts. With the necessary experience, skill and commitment NEC contracts provide flexibility and stimulate good management. The down side is that they can also magnify the failings of project teams, who at the moment face tremendous pressure to deliver projects on time and budget.

    "The lack of legal clarity in NEC3 may well explain why interpretation of some of the more legally ambiguous terms have not been tested in the Courts. However construction companies need to be prepared; this is now likely to change."

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    For further information contact:

    Nicola Woodmass, Head of Communications, Hammonds LLP, on 0121 222 3690 or email: nicola.woodmass@hammonds.com

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