Navigating weather conditions in Hong Kong SAR NEC4 contracts

If a contractor’s entitlement due to adverse weather is not covered in a contract, then the common law position is that weather risks are borne by the contractor, unless any other clauses, such as force majeure, can provide relief.  

In Hong Kong SAR, traditional contracts for public works have tended to place cost consequences of weather risks upon the contractor and allow only extensions of time, but not money, in the event of specified adverse weather events such as the hoisting of a typhoon of signal eight strength or above or a black rainstorm warning. 

In contrast, under the original NEC4 Engineering and Construction Contract (NEC4 ECC), extreme weather conditions may be a compensation event for which a contractor is entitled to both time and money. 

Risk allocation for adverse weather under the NEC4 ECC and under the Hong Kong edition of the form differ, and contractors should consider if they are entitled to claim additional payment or time for such weather conditions. 

The original NEC4 ECC, under Clause 60.1, provides that there is a compensation event if: 

• A weather measurement is recorded within a calendar month, before the completion date for the whole of the works and at the place stated in the contract data; and
• The weather measurement, by comparison with the weather data, is shown to occur on average less frequently than once in every ten years; 

Only the difference between the weather measurement and the weather which the weather data show to occur on average less frequently than once in ten years is taken into account in assessing a compensation event. 

On this basis, adverse weather will only be a compensation event under the NEC4 ECC if a weather measurement, such as rainfall, that is recorded during the contract period has a less than once in ten years chance of occurring based on monthly weather record data compiled by an independent authority. 

This reliance on an objective and measurable test of “less frequently than once in ten years” to determine whether the conditions constitute adverse weather is a distinctive and welcome feature of NEC4 ECC. It avoids the issues of subjectivity commonly found in many traditional forms, such as FIDIC, which simply refer to “exceptional adverse climatic conditions” without defining what "exceptional" is, which in turn leads to an increase in disputes.

As the threshold for a compensation event is “once in ten years”, this would suggest that the risk of a compensation event arising from weather conditions is much higher in long term contracts or projects, where it is more likely that the weather conditions would occur at least once; rather than short term, such as a six month contract, where it is very unlikely that the weather condition would occur at all. 

Additional costs can only be claimed to the extent that the actual weather conditions exceed expected historical data. The NEC user guide uses the example that if the number of days with rainfall more than 5mm in February is recorded as six days in the weather data, but a weather measurement of eight days was recorded, the contractor may claim compensation for the two ‘extra’ days of rainfall that exceed 5mm. 

The location of the weather data relied on is also important. Typically, the contract data of the NEC contract will designate the location where weather measurements are to be recorded for the purpose of determining cost entitlement and this location should be the same as where the historical weather data is collated for determining the historic frequency of such weather conditions, such as the local meteorological office. 

In contrast, under the NEC ECC Hong Kong Edition, whether a weather condition is a compensation event is not determined by how frequently it takes place. Instead, Clause 60.1(13) states that there is a compensation event only when specific weather warnings are hoisted by the Hong Kong Observatory, including: 

• a tropical cyclone warning signal number eight or above;
• a black rainstorm warning;
• a red rainstorm warning;
• an amber rainstorm warning; or
• an additional weather condition.

By assessing compensation based on the Hong Kong Observatory, the Hong Kong amendments provide an objectively verifiable and measurable basis of entitlement and, unlike the original NEC4 ECC, there is no need to assess any “extra” measurement above the threshold stated in the contract data. Contractors simply have an entitlement to claim when such warnings are hoisted, giving greater clarity. However, the NEC ECC Hong Kong Edition has removed the entitlement to claim for any “once in ten years” weather events, unless this is specified in the contract data as an “additional weather condition”. 

The Practice Notes for NEC ECC for Public Works Projects in Hong Kong suggests that under certain NEC4 ECC Options, weather events may be provided with time compensation only, or time and money for the more severe weather conditions including tropical cyclone warnings with a signal number eight or above, black rainstorm warnings and red rainstorm warnings. 

It also suggests time only compensation for less severe weather conditions like amber rainstorm warning and other inclement weather.

Contractors should carefully negotiate the contract data section of the contract and keep in mind the duration of the contract, particularly when construction activities may be significantly susceptible to weather conditions. 

If a project involves the use of cranes operating at a height which could be affected by strong wind conditions, it would be prudent to include specific weather measurement for wind in the contract data and to be aware of the distance between the location where the weather is measured and the construction site, as this can lead to discrepancies. 

Contractors should also exercise caution when completing the contract data to ensure that the weather measurements accurately reflect the conditions at the project site.

The amended version of the NEC form used by MTRC limits compensation events for adverse weather to tropical cyclone signal eight and black rainstorm warnings, and grants entitlement only to extension of time, not costs.

What happens when weather events fall outside the specified weather conditions? 

If a weather event does not fall within the scope of Clause 60.1(13) – for example if there is abnormal rainfall, which causes landslide and delays, but the weather measurement falls outside of the extent that it would constitute a compensation event under Clause 60.1(13) – a contractor may be able to turn to other compensation events for compensation. 

Clause 60.1(12) provides that if the contractor encounters physical conditions within the site that are not weather conditions, it may qualify as a compensation event if an experienced contractor would have judged those conditions, based on the contract data, to have such a small chance of occurring that it would have been unreasonable to have allowed for them.

The term “physical conditions”, whilst primarily focusing on the ground conditions beneath the construction site, can sometimes cover a wider context. For instance, sometimes it is not the physical condition itself, but how the physical condition behaves that is unforeseeable.

In Humber Oil Terminals Trustee Ltd v Harbour and General Works (Stevin) Ltd, the contractor successfully argued that it had encountered an unforeseeable physical condition when the soil behaved in an unforeseeable manner when put under ordinary stress, and was entitled to compensation notwithstanding that the soil specification itself was foreseeable. 

A contractor may therefore be able to claim the effects of weather conditions, rather than the weather conditions themselves, as compensation events. In the scenario with abnormal rainfall causing landslide, one may argue that the behaviour of the soil under the abnormal rainfall constitutes “physical conditions” that an experienced contractor would have judged at the contract date to have such a small chance of occurring that it would have been unreasonable to have allowed for them. For more on this, see our article on allocating the risk of physical conditions under NEC4 construction contracts. 

Alternatively, Clause 60.1(19) introduces a force majeure clause that may offer another avenue for addressing weather conditions not captured by the Clause 60.1(13) – however, the broad wording of this clause creates ambiguity. It may be arguable that a contractor can rely on Clause 60.1(19) even if an event is covered by other clauses but does not satisfy the criteria of the other compensation events.

Growing significance of weather-related risks 

As the global climate becomes more extreme and less predictable, it is more important for contractors and employers to carefully allocate weather related risks.

Although the NEC4 ECC form of contract provides a more objective approach to this issue, contractors and employers should consider amending the weather data which forms the benchmark for assessing whether a weather measurement constitutes a compensation event, especially in relation to the duration and susceptibility to weather risks of the specific project.

Contractors are urged to make due allowance during the tender stage for adverse weather which falls short of qualifying as a compensation event, under both the original NEC ECC or the NEC ECC Hong Kong Edition.

Under the original NEC4 ECC, contractors should keep a close eye on the weather measurements and ensure that any adverse weather qualifying as compensation event is identified and claimed.

This will be less of an issue for the Hong Kong edition, as the weather conditions that qualify as compensation events will be widely announced and broadcasted by the Hong Kong Observatory.

Co-written by Jane Ng of Pinsent Masons.

Read more on this topic

• Allocating the risk of physical conditions under NEC4 construction contracts
• Understanding Hong Kong SAR NEC compensation events ‘crucial’ to projects’ success
• Optional clauses in Hong Kong SAR NEC forms can boost construction project outcomes
• Impact of potential variations of scope in Hong Kong SAR NEC forms must be thoroughly assessed
• Using the NEC4 standard form contract for construction projects in Hong Kong SAR