NEC4 Early Warnings: Purpose and Procedure

Early warning gives the Contractor and Project Manager a way to deal with a matter while there is still time to influence its effects. Under the NEC4 Engineering and Construction Contract (ECC), they notify each other promptly, consider what can be done and agree who will act. Used well, the process brings the people who understand a problem into the discussion before their choices become more limited.

The fictional Ironbark Recycled Water Scheme, used throughout these fundamentals articles and introduced in NEC4 Explained, shows how this works. A regional Australian water utility is procuring a pipeline, pumping station and balancing tank under ECC Option C. The scheme will supply recycled water from an existing treatment plant to an industrial estate, with the plant remaining operational during construction and connection.

Suppose the pump supplier advises that delivery may be three weeks later than planned. Installation and commissioning depend on those pumps, and the operator has arranged support around the planned sequence. Raising the matter now allows the team to examine alternative delivery and working arrangements before it commits to work that may need to change.

When an early warning is required

Clause 15.1 requires the Contractor and Project Manager to notify each other as soon as either becomes aware of a matter which could:

• increase the total of the Prices;
• delay Completion;
• delay meeting a Key Date; or
• impair the performance of the works in use.

These are the mandatory notification categories, broadly concerned with cost, time and quality. They do not limit what the team can use the process to manage. I would use it to capture all project issues that need joint attention, including environmental concerns, stakeholder difficulties and interfaces with other work, whether or not an effect listed in clause 15.1 is yet apparent. The contract singles out particular effects because notification is compulsory in those circumstances and failure to notify can have contractual consequences. That does not mean other issues should wait until they threaten the Prices or Completion before anyone raises them.

The Project Manager or Contractor may also notify other matters which could increase the Contractor’s total cost. The team can integrate early warning with project risk management by bringing wider issues into the same register and meetings, while keeping required contractual notices identifiable and continuing any separate safety or statutory reporting.

On Ironbark, the possibility of delayed Completion is enough to require notification of the pump problem. The Contractor need not wait for a confirmed delivery date or a completed delay analysis. The Project Manager has the same obligation to warn of the listed effects, for example if the operator advises that it may be unable to support commissioning when required. Neither party should wait for the other to discover a problem it already knows about.

The procedures described here are those of the June 2017 ECC incorporating the January 2023 amendments. Selected secondary options and project amendments may add requirements, so the signed contract needs to be checked.

Giving an early warning

A useful notice identifies the matter and explains its possible effect, with enough detail for the other person to understand what needs attention. For Ironbark, a notification could read:

The pump supplier has advised that delivery may be three weeks later than planned. The pumps are needed for the planned commissioning sequence, and later delivery could delay Completion. The supplier is checking whether partial delivery is possible. An early warning meeting is requested to consider delivery options and changes to the installation and commissioning sequence.

Unlike a general entry saying “procurement risk”, this tells the Project Manager which equipment is affected and why the delivery concern matters. A proposed response helps the discussion, but the Contractor should give the warning while it is still investigating its options.

Clause 13.7 requires a contractual notification to be communicated separately from other communications. Mentioning the concern in a progress report or programme narrative should not be assumed to give the required notice. It must follow the contractual communication arrangements. The Contractor can also speak to the Project Manager and operator straight away, particularly where an immediate decision is needed, while ensuring the notice is given through the contractual route.

The Early Warning Register

The Project Manager maintains the Early Warning Register, which includes matters identified in Contract Data and those subsequently notified. It records the matters and the actions to be taken to avoid or reduce their effects. Recording an issue does not decide who carries the risk or establish an entitlement to additional payment.

Under clause 15.2, the Project Manager issues the first register within one week of the starting date and instructs the Contractor to attend the first early warning meeting within two weeks of that date. The team can therefore begin with the risks already identified during procurement and consider what needs attention as work gets under way.

Ironbark’s pump entry should identify the delivery concern and the action being taken, with links to the supplier’s advice and affected programme activities where useful. That gives the team a record it can work from without reproducing every supporting document.

Early warning meetings

Either the Contractor or Project Manager can instruct the other to attend an early warning meeting. Meetings also take place at intervals no longer than those stated in Contract Data until Completion of the whole of the works. An urgent delivery problem needs attention while there is time to respond, rather than being left for the next scheduled meeting.

The Contractor and Project Manager can agree to involve other people, and a Subcontractor attends where its involvement would assist in deciding the actions. On Ironbark, the pump supplier and commissioning specialist may need to join the operator and the people planning the work. Between them, they can establish whether partial shipment is possible, installation can be resequenced or some testing can proceed before the pumps arrive. The operator can explain when its staff and the operating plant will be available.

Clause 15.3 requires those attending to cooperate in considering how to avoid or reduce the effects, seek solutions that benefit those affected and decide what action will be taken and by whom under the contract. They also review earlier actions and consider whether matters can be removed from the register or need a different response.

The discussion needs to stay connected to the project’s requirements. An earlier testing sequence must still be safe and compatible with the operating plant. If someone proposes different pumps, their performance and design need to be checked against Scope. The people at the meeting need enough knowledge of those requirements to judge which suggestions are worth pursuing.

Recording decisions and carrying out actions

After each meeting, clause 15.4 requires the Project Manager to revise the register to record the decisions and issue it to the Contractor within one week. Where a decision needs a change to Scope, the Project Manager instructs that change at the same time. Recording an action in the register does not replace the instruction.

Suppose the Ironbark team decides to investigate partial delivery and an earlier start on controls testing. The supplier needs to confirm which pumps could arrive first, while the commissioning specialist establishes which tests can proceed. The Contractor’s planner can then assess the effect on the remaining work. The record should identify who will obtain each answer and when it is needed, so that the team can decide whether to adopt the revised sequence and arrange any necessary instructions or submissions.

Following through takes more than leaving the action marked as outstanding. Earlier shipment needs confirmation, and the revised sequence needs to reach the people doing the work. If the supplier cannot deliver as hoped, the team needs to reconsider its response while alternatives remain available. The register should reflect that changing position.

Early warnings and compensation events

Early warning allows the team to manage a matter regardless of who carries its financial consequences. Ironbark’s Contractor should therefore notify the pump problem even if responsibility for its supplier’s delay remains with it. Using Option C does not turn that delay into a compensation event, and agreeing a response at a meeting does not itself adjust the target.

The compensation event procedure deals separately with entitlement to changes to the Prices, Completion Date or Key Dates. Where that procedure applies, an early warning does not replace the compensation event notification or suspend its time limit. Clause 15.1 does not require an early warning of a matter already notified as a compensation event, although its effects still need to be managed. The two procedures can apply to the same problem without either notice performing the function of the other.

The consequences of a missing warning

By the time Ironbark has a confirmed delivery delay, partial shipment may no longer be available or the operator may have committed its commissioning staff elsewhere. Failing to raise the issue has reduced the team’s choices, whether or not a compensation event is involved.

Where a compensation event is being assessed, clause 61.5 requires the Project Manager to state in the instruction to submit quotations if it decides that the Contractor failed to give an early warning which an experienced contractor could have given. Under clause 63.7, the event is then assessed as though the warning had been given. This can exclude effects that timely action could have avoided, rather than impose a fixed deduction or automatically reject the event.

Under cost-based options, including Ironbark’s Option C, cost incurred only because the Contractor failed to give an early warning which the contract required can also be Disallowed Cost. The connection between that failure and the cost must be established. Agreeing to use the process for wider project issues does not automatically extend these consequences to every issue the team might have raised.

I would want Ironbark’s commissioning team to know the current delivery position and be working to the response agreed with the operator, with unresolved points brought back for a decision. Our NEC4 ECC Contract Administration course examines how to manage that work alongside the other procedures used during delivery.