ECC Section 15 – Early Warnings

The early warning process is a mechanism for both parties to identify potential problems to the project. The contract emphasises that both Parties are obliged to notify the other as soon as they become aware of a matter that could affect time, cost or quality.

Traditionally it is the Contractor that tends to raise more early warnings, largely because they are the ones doing the work and more likely to identify the issues first. However, the Project Manager should be equally motivated to notify early warnings in order to maximise the time available to consider the problem with the Contractor, to increase the likelihood of finding the best solution to meet the Client’s interests in a given situation. The Project Manager could for example notify an early warning if they feel the contractor is not resourced sufficiently to complete the works by the Completion Date.  Once notified, these are discussed at an “early warning” meeting, and the matters recorded onto an Early Warning Register. These matters are then subsequently discussed at each early warning meeting until they are closed out, with each meeting recording the current action/progress regarding each matter.

It is worth noting that NEC4 has introduced some subtle changes compared to that of NEC3. This simple table shows some of the key changes which is more about terminology change rather than process change:

NEC4                                                NEC3

Section 15 of contract                Section 16 of contract

Early warning meetings             Risk reduction meetings

Early Warning Register               Risk Register

NEC4 also specifically introduces an “early warning interval” into contract data 1. This is where the Client will be stating the interval that they are proposing to have early warning meetings for the duration of the project.  This is encouraging the regular occurrence of these meetings which should be beneficial to both Parties for the reasons explained below.

The early warning system is a very simple yet very important aspect of the contract. In simple terms it places a requirement on both parties to notify the other if they become aware of any matter that could affect time, cost or quality. Once formally notified, the Parties can review firstly if it is an issue or not, and if it is an issue then how it can be managed in order to avoid or minimise its effect on the project.

It is essential to understand that the early warning process is about issues that could affect the project but as a process does not concern itself whose fault those problems are. The main premise of the system is for the Parties to notify early warnings where there is a potential issue. The Parties can then talk about the problem and collectively minimise (or eradicate altogether) the effects that this event could have. Only when all that is done is it necessary to consider who is liable under the contract for this event. The NEC4 Early Warning Register (replacing the NEC3 Risk Register), is then a summary of all early warnings raised on the project. The definition of this register states that it only strictly speaking requires two pieces of information – a description of the risk, and the actions to be taken to avoid or reduce the risk. In practice there would be other administration columns such as EW number, date notified etc but specifically does NOT require any consideration as to who is liable for the event should it occur.

The Parties need to understand is that the early warning should NOT be considered as a commercial tool. These matters are things that MIGHT or COULD be an issue and are not yet a certainty. The Early Warning Register does not require to know how much this event might cost if it occurs. Occasionally this will be useful information on which to base a decision, but having cost on an early warning should be considered an exception rather than the rule. If you have a potential issue on a project then the Parties should be looking to make a decision that will minimise the effects, and should arrive at the optimum solution whether that will cost £10 or £100,000. Too many projects historically have seemed to think that the early warnings are a commercial process, or are really notifications of compensation events but under another name. This is one key area that we focus on when we run our NEC Project Workshop to both Parties at the start of a project to instill this process for their mutual benefit.

The contract makes it clear that the Early Warning Register is the responsibility of the Project Manager to maintain and distribute to the relevant parties. NEC4 confirms that the register should be issued within one week of the meeting being held. We have worked on some projects where Contractor has maintained and issued this register by agreement with the Project Manager. We actually find this works quite well, as firstly it is often the Contractor raising most of the early warnings, and secondly the Contractor will only close out issues when they know they are closed out. We have seen many instances where the Project Manager issues a response to an early warning and “closes” it on the Register. As far as the Contractor is concerned the response has prompted more questions than answers, which then means the matter has to be re-opened on the Register (messy) or a new early warning notified (cumbersome). The Parties need to manage this process as effectively and efficiently as possible, not making it more cumbersome or provocative than it needs to be. Whoever manages this process, it is just important that it is done and maintained effectively, but to emphasise the contract intends/expects this to be updates and maintained by the Project Manager.  Regular early warning meetings where the issues are discussed thoroughly and actions issued and recorded on a well maintained Early Warning Register will significantly increase the chance of that being a successful project to both Parties.

In some cases we have experienced a project where the Project Manager has been heard to say that they no longer wanted early warnings on their project. Unfortunately these people have rather missed the point and is certainly not what should happen on a project. They have not understood contractually what these are really intended for in the first place. The perception may be that are only a money making scheme, with the Contractor only raising issues that will cost the Client time or money (or both). However, better that they are raised as soon as possible so that the Parties have a chance to review and manage events rather than “stick their head in the sand” and hope the issues go away. It is very important to understand that no early warning process is not where the Contractor can claim any entitlement in terms of time/cost impact on a project. If the early warning leads to a change in the Prices or planned Completion and is not something the Contractor could/should have allowed for, then the mechanism to assess this change/entitlement will be assessed through the compensation event process.

A common question asked associated with managing ECC contracts is “what should be shown on the programme in terms of early warnings”.  Previously NEC2 and the first edition of NEC3 stated that as part of a revised programme the Contractor should show “the effects of notified early warning matters”. This was subsequently removed in the NEC3 June 2006 amendments. The reason that this was removed is that many Contractors were showing possible effects of matters that were not certain to happen, and in some cases changing planned Completion accordingly. The result was that planned Completion was moving in and out in time with events and durations that were potential effects rather than certain ones. The main premise of an early warning is that it is an event that could affect time or cost, not that it will.

The programme requirements under clause 31.2 are the minimum required on a programme issued for acceptance and you can always show more. The programme becomes a key tool to aid parties to make decisions, often as a result of notified early warnings. Whether the contract formally asks for them or not, it is practical to show early warnings that are yet to be resolved and could affect the remaining work on the programme. They should be linked into the item(s) that could be affected by the subject of the early warning. Once re-scheduled the programme will give an indication as to the amount of float that this early warning has at that point (float being the amount of time that any given activity can be delayed before affecting the critical path). This is however, purely dependant upon how the early warning may be dealt with, as the response to the early warning could be to change the specification of a material, which may or may not add additional procurement time to the programme. The float on an early warning does give at least some indication as to how urgent a response is. Should it have negative float, then this would suggest that by default this item is already impacting the project and now should be notified as a compensation event (if it is not something that was not at the Contractors risk under the contract).