I often get asked how a company can manage EHS compliance when they are in a contractual relationship with a supplier under NEC4’s Engineering & Construction contract. As one of the most adaptable forms of contract, the ECC provides adequately for the management of EHS compliance.
First and foremost, one needs to understand that the legal duty to comply with EHS laws in a country is not negotiable or something one can “contract out of”.
Some laws provide for an agreement between a principal and a contractor to segregate compliance, but this is based on the level of control exercised by each party. In South Africa for example, Section 37(2) of the Occupational Health & Safety Act provides for an agreement which could exculpate a principal from liability for the acts or omissions by its supply chain. This is however not as simple as merely drafting a form that tells the contractor to comply with the law. The law is already doing exactly that. Your NEC contract becomes such an agreement if it is correctly used. Let’s have a look…
The Core Clause
Clause 27.4 states that “the contractor acts in accordance with the health & safety requirements stated in the Scope (Works information in NEC3).
If these requirements are omitted from the Scope, no agreement actually exists on who is responsible for what, and each party is defaulted back to their legal duties individually. It is thus important to include a reference to the EHS requirements you need during the period of contract. This need not be a long list of requirements in the NEC contract itself, but can be a reference to an annexed Health & Safety Specification.
Using Z Clauses
NEC4 allows you to add additional requirements in the agreement under the Z clauses. There is no limit to these, but it would a condition that none of the Z clauses contradicts the Core clauses, as it will create unnecessary disputes. In drafting Z clauses, care needs to be taken not to create additional compensation events. One Compensation event is already created in Clause 27.3, which allows a contractor to claim compensation (cost and/or time) for acting on instruction of the Project Manager or Supervisor if such instruction is later rescinded, amended or declared void during arbitration.
Work stoppages for EHS violations
Clause 60.1(4) makes it a compensation event if the project manager issues an instruction to stop the work. The clause does not say under what circumstances and can thus include a stop instruction due to unsafe work methods or environmental impacts.
In SA, the Construction Regulations places a legal duty on a client agent, if mandated (under agreement) to do so, to stop any work that poses a risk to health and safety of employees, or where the work is not carried out according to the Health & Safety Specification. There are two aspects here that is important.
- The reason for issuing an instruction to stop work must be based on a substantial breach of the Health & Safety specification mentioned in the Scope that can be directly ascribed to the conduct of the contractor concerned, and
- the conduct must be such that it poses a threat to employees or public health and/or safety.
The failure of a contractor to perform an administrative task such as a toolbox talk, or an inspection of plant, which was inspected the day before, may not constitute a serious and direct threat and would not warrant an instruction to stop work. It is thus up to the project manager to make a risk-based decision and act in good faith and in the spirit of trust and mutual co-operation.
Likewise, an instruction to stop working on a ladder and to install a scaffold instead would be a compensation event if the EHS Requirements in the Scope did not specifically exclude the use of ladders for the task in question.
Should a valid instruction then be issued, the contractor would be entitled to compensation, even if they were in breach of an EHS requirement. It is the role of the project manager to discuss the possible remedies with the contractor and request a quotation for additional work if so required.
Preventing Compensation for EHS Breaches
One manner in which the effect of Clause 60.1(4) can be limited is to create a Z clause which specifically excludes an EHS violation which results in an instruction to stop work. Once again the extent of the violation should be clearly described and not left in open air.
The Quality Management Plan
Clause 40 deals extensively with Quality Management, although mostly focusing on the quality of worksmanship, materials used and correcting defects. However, clause 40.1 states that the requirements for a QMS is stated in the Scope. It is hence the client’s prerogative to determine the nature of the QMS and the contractor must comply with same if awarded the contract.
NEC4 has been evolving over three decades with its primary objective on good management practice. It is however important that the “elements” requiring good management, such as EHS, be incorporated in the contract. There is no reason why a project under NEC would require a parallel system to manage EHS compliance.