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EARLY WARNING SYSTEM AND JOINT RISK MANAGEMENT BUILT INTO THE CONTRACT

Some contracts direct the parties to warn each other of possible problems before they occur, so that they can be avoided or their effects mitigated. The NEC3 family of contracts[1] offers an example by providing for a scheme for the early identification of risks, risk reduction meetings, and a joint risk register.

For example, the NEC3 Supply Contract contains a system under which the supplier is to give an early warning of relevant matters that could increase the price, delay delivery, impair the performance of the goods in use, or impair the usefulness of the services to the purchaser. The supplier may give an early warning of any other matter that could increase its total cost. early warning matters are entered in the Risk Register:

a register of the risks which are listed in the Contract Data and the risks which the Supply Manager or the Supplier has notified as an early warning matter. It includes a description of the risk and a description of the actions to be taken to avoid or reduce the risk.[2]

The NEC3 Supply Contract further provides for a risk reduction meeting if requested by either party. the purpose of the meeting is for those in attendance to cooperate, make and consider proposals for how the effect of the registered risks can be avoided or reduced, seek solutions that will bring advantage to all those who will be affected, and decide on the actions that will be taken and who will take them.[3]

This approach provides an opportunity for the parties to discuss and resolve matters in an efficient manner as they seek to prevent or minimize problems. It is a clear departure from the usual approach where the supplier (or contractor) serves formal notices and the parties prepare for claims and disputes. the implementation of NEC3 contracts has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved quality.[4]

  • [1] the NEC family of contracts consists of several contracts designed for procuringa diverse range of works, services and goods. originally launched in 1993, and thenknown as the “New engineering Contract," the NEC has been praised for its collaborativeand integrated working approach to procurement. See NEC Products, available at http://www.neccontract.com/products/index.asp.
  • [2] See NEC3 Supply Contract Clause 11, Identified and defined terms.
  • [3] See NEC3 Supply Contract Clause 16, early warning.
  • [4] What is the NEC? Promoting best practice procurement. Achieving excellencein the procurement of Works, Services and Supply. NEC, available at http://www.neccontract.com/documents/WhatistheNEC.pdf.
 
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