Neutral citation: UK Grid Solutions & Amey Power Services v Scottish Hydro Electric Transmission plc [2024] CSOH 5

NEC contract topics: Set-off rights, project manager assessment of a compensation event

Form of contract: NEC3 Engineering and Construction Contract, Main Option A, Option W2

Main areas of law: enforcement of adjudicator decisions under the Housing Grants, Construction and Regeneration Act 1996, jurisdiction, natural justice, adequacy of adjudicator reasoning.

 

UK Grid Solutions and Amey Power Services, formed a joint venture known as GE Amey JV and entered into a contract with Scottish Hydro Electric Transmission for works at an electricity substation near Fort Augustus. The contract was based on the NEC3 Engineering and Construction Contract (June 2005), using Option A, along with dispute Option W2 and various secondary Options.

The works included the construction of a new substation building and related infrastructure. However, Scottish Hydro retained responsibility for the delivery and installation of two transformers, SGT5 and SGT6. The delayed delivery of these transformers gave rise to a compensation event, designated CE65518.

The Project Manager assessed CE65518 as having no effect on the defined cost, completion, or any key date. The joint venture rejected this assessment and submitted their own valuation. When this was rejected, they commenced adjudication proceedings seeking compensation for increased defined cost and associated interest.

 

Three primary arguments were raised by Scottish Hydro in opposing enforcement of the adjudicator’s decision. First, they claimed the adjudicator had failed to consider relevant and material defences, particularly those concerning liquidated damages and set-off. Second, they argued that if those defences were considered, the adjudicator failed to provide adequate reasoning. Third, they asserted that the adjudicator’s financial award was vague and unenforceable due to typographical errors in the relief section of the decision.

The pursuers responded by arguing that the adjudicator had considered all necessary defences and provided adequate reasoning in accordance with the requirements of the adjudication procedure under the contract.

 

Lord Richardson rejected all three arguments raised by Scottish Hydro. He found that the adjudicator had considered the set-off defence, which was first introduced in the Rejoinder, and had reached a decision consistent with the prospective assessment approach provided for under the NEC3 contract. According to the adjudicator’s reasoning, had the compensation events been assessed in line with the contract at the appropriate time, payment to the contractor would have predated any entitlement to liquidated damages. Thus, the set-off claim was not applicable in the context of that assessment.

In relation to the alleged failure to provide reasons, the judge found it was “reasonably clear” what the adjudicator had decided and why. The adjudicator was not required to address every submission but only those necessary to establish the route to his decision.

The judge also rejected the argument that the adjudicator’s financial award was unenforceable. While paragraph 12.14 of the adjudicator’s decision contained a clerical error referring to “such other sum as the Adjudicator may decide”, this did not affect the enforceability of the award. It was clear to a “reasonably informed reader” that the adjudicator intended to order payment of £1,834,573.43 within seven days, together with interest as calculated.

Lord Richardson therefore enforced the adjudicator’s decision in full, granting decree for the sum awarded and dismissing the defender’s arguments.

 

This case provides important clarification for parties operating under NEC3 contracts, especially regarding how compensation events are to be assessed. The court supported the principle that such events must be assessed prospectively, as the contract stipulates, even where actual events have since occurred. This approach preserves the NEC contract’s emphasis on timely decision-making and cash flow.

The judgment reinforces that adjudicators do not need to address every point raised but must address those essential to the outcome. Parties relying on set-off or liquidated damages as defences must clearly present those claims and recognise that timing matters and claims must be relevant at the time of the event being assessed. The court also confirmed that minor drafting or typographical errors in adjudication decisions will not undermine enforceability, so long as the adjudicator’s intent is reasonably clear.