Back to Basics #2 - Valuing Change under NEC 3/4

Valuing Change under NEC 3/4

 

Under the NEC 3/4 a compensation event arises under one of the subclauses of core clause 60.1 either for an event which the Project Manager should notify or one which the Contractor should. The former may be for a change in the Works Information/Scope, whereas the latter may be for unexpected physical conditions, for example. The Contractor may lose his right to additional time and money if he doesn’t notify the event within 8 weeks of becoming aware of the event unless the notification was the Project Manager’s to give (clause 61.3).

Compensation events are assessed as the effect on Defined Cost and the adjustment to the Completion Date due to the compensation event.

Depending on the Main Option Clause chosen, the Defined Cost will be assessed according to the Schedule of Cost Components (and subcontract costs) or the Shorter Schedule of Cost Components. It is possible to agree a compensation event using rates or lump sums, if both parties agree (clause 63.13/63.14 -NEC3 or 63.2 - NEC4).

Two common Questions are:-

“If I submitted a quotation with my notification, is this compliant with the contract?”

Answer – Potentially not, as the contract doesn’t entertain the question of the effect of a compensation event until it has materialised as one. In this circumstance, the best action is to simply resubmit the quote.

 

“Which parts of the quotation should be based on actual costs and which on a forecast?

Answer - The contract envisages that the date that divides the cost of the work done from the forecast cost of work to be done is the date the compensation event was notified, or should have been notified if it arises from an instruction (core clause 63.1 NEC 3 and 4).

This is not a problem in principle but in Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd ([2018] C.L.Y. 2552) the courts dealt with the construing of a contract in a way that defeated efficacy or business common-sense.

The case could mean that where a Project Manager does not notify a compensation event at the time of instruction and the Contractor does so instead, if by the time the Contractor submits his quotation some of the works have been carried out, then these should be assessed on an actual and not a forecast basis.

If you are struggling to get paid your entitlement to change / variation, Ramskill Martin’s Team of Consultants can assist you and ensure that you recover your entitlement under JCT D&B 2016 or any other Form of Contract.

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