Early Warnings in Construction and How They’re Used

Early warnings in construction contracts are a core risk management tool. They’re meant to encourage contractors to raise potential issues with the employer as soon as possible. The idea is that sharing problems early encourages collaborative working. 

Using early warnings appropriately can help avoid time-consuming and costly holdups while problems are resolved. 

Early warnings were developed as part of the NEC construction management suite. Similar tools have been adopted by most other major contract providers, including JCT and FIDIC.

What are early warnings in construction

Early warnings are formal notices of an issue that could increase costs, delay progress or affect the delivery or performance of a project. They can be raised by any party involved with the project. 

Early warnings don’t necessarily need to be pre-specified like compensation events, although early warnings can lead to compensation events. They could be risks like unexpected ground conditions, changes to the law that affect a project or issues with resources. 

The process for notifying an early warning is specified in the contract, and requires both a description of the potential problem and the impact it’s likely to have. It’s then logged in an early warning directory (which is similar to a live risk register) which is regularly discussed in formal meetings. 

Contract management tools like Sypro manage the logging of early warning notices in a real-time, central platform so everyone who needs access can get it quickly and easily.

How to raise an early warning in Sypro

Why are the benefits of early warnings in construction contracts?

Early warnings in construction projects encourage the proactive identification and management of risks before they affect project outcomes. If used correctly, they can lead to significantly better performance and fewer delays. 

Improved risk mitigation

Early warnings encourage parties to discuss potential issues – like delays, cost overruns or technical setbacks – collaboratively. This allows them to make decisions that reduce or eliminate the impact of these risks. 

Better project performance

Projects run with good early warning systems are often delivered faster, more reliably and with fewer disputes. This is down to problems being dealt with before they escalate. 

Clear communication

Using formal early warnings requires detailed, transparent documentation of risk management actions. This is important for accountability and trust among project stakeholders. 

Protection of compensation event entitlement

In the NEC contract suite, if early warnings are not given, the contractor’s entitlement under a compensation event can be reduced or removed. This makes good use of the early warning system essential for protecting contractual rights. 

Shift in focus

Using early warnings shifts the focus from blame and crisis response to cooperation and risk reduction. This makes them vital for getting the best value and results, but also a good way to ensure continued good relations between parties. 

What are the dangers of not using early warnings properly?

There are some significant benefits to using early warnings, and if the process is used well there are few downsides. But if processes are not followed properly, or steps are skipped, early warnings can have some downsides. 

Project delays and cost overruns

If early warnings aren’t used properly, risks often go unnotified until they become major issues, and most of the damage is done. This can lead to avoidable delays, cost increases or drops in quality that could have been avoided or mitigated with earlier intervention. 

Loss of contractual entitlement

Under the NEC contract suite there’s a specific penalty for failing to issue an early warning. If a contractor doesn’t give the proper early warning about a risk that later becomes a compensation event, the project manager can reduce the time or cost awarded in the assessment. This directly affects the contractor’s entitlement, which can result in significant financial loss or the inability to claim for a time extension. 

Relationship damage

Early warnings are designed to encourage collaborative, no-blame working. Projects that ignore or underuse the process tend to veer towards more adversarial attitudes which makes disputes much more likely. 

Who should raise an early warning and when?

Either the contractor or the employer can raise an early warning, as soon as they become aware of anything that could potentially impact the project. This combined responsibility is key to the NEC contract site, and it’s essential for proactive risk management. 

Ideally, an early warning should be issued immediately when any risk with potential project impact is identified. The goal here is prevention rather than reaction, so early warnings should be raised when an issue might have an effect. Waiting until it has caused a delay or expense is too late. 

This preemptive timing is important, because it creates the opportunity for risk reduction meetings. This is where both parties discuss mitigation options like design changes, re-sequencing work or reallocating budget. 

This open collaboration helps to stop risks escalating into compensation events or disputes. 

How are early warnings applied?

There’s a specific process for raising early warnings detailed in NEC contracts. It’s important that all parties adhere to the timescale. 

Step 1: Identifying risk

Either party must raise an early warning as soon as they become aware of an issue that could affect the cost, time or performance of a project. This means projects need to be closely monitored to identify those risks early. 

Step 2: Notify in writing

The early warning must be made in writing, usually through the contractor’s communication system or contract management software like Sypro. It should include:

• A clear description of the potential issue
• Estimated impact on time, cost or quality
• Suggested actions and possible solutions
• The date the issue was discovered

Step 3: Add to the early warning register

Once the early warning is raised, the project manager records it in the early warning register (previously known as the risk register in NEC3). This log includes all the details from the notification, plus who is responsible and progress tracking.

Step 4: Hold a risk reduction meeting

Either party can request a risk reduction meeting, where representatives discuss ways to avoid or minimise the risk’s impact. These meetings can be scheduled regularly or held as required for urgent matters. Agreed actions are documented, assigned to people then updated in the register.

Step 5: Monitor and update

The early warning stays in the register until it’s resolved or is no longer relevant. Updates and changes to actions are reviewed at subsequent meetings, keeping the process transparent and dynamic.

How do early warnings link with compensation events?

The whole point of early warnings is to identify and manage potential risks before they escalate and affect the project. Compensation events deal with pre-existing potential risks, like changes to the project scope or unforeseen weather conditions. 

A risk specified as a compensation event can be raised as an early warning. In fact, if a compensation event becomes an issue and it hasn’t been raised as an early warning, the contractor’s right to cost or time adjustment can be reduced or even eliminated. 

NEC contracts are designed for the early warning and compensation events systems to work together. If compensation events are identified and raised early, the potential impact on the project can be reduced significantly.

Conclusion

The early warning system is a core part of the NEC contract suite. It’s vital that you understand how they work, and follow the procedures closely for your project to run as smoothly as possible.

Contract management software like Sypro helps to track and manage your early warnings and register. It lets you quickly and efficiently store and access all the data you need, at any point in your project and it has a built-in process for raising early warnings.