Frequently asked questions around section six of the contract which are compensation events.
What are compensation events?
What are compensation events?
These are events for which the Contractor need not make any allowance in their tender. If these events occur, then the Contractor is entitled to be compensated for their effects on time and cost.
Where can I find compensation events?
Where can I find compensation events?
The contract identifies the following as compensation events:
– clause 60.1(1) to 60.1(21)
– of which:
– clause 60.1(14) – Client’s additional liabilities, listed in 80.1
– clause 60.1(21) – additional compensation events, as stated in contract data
– main Options B and D clauses 60.4, 60.5 and 60.6
– Secondary options
– X2 changes in the law
– X10 Information modelling
– X12 Multi-party collaboration
– X14 Advanced payment
– X15 Correcting Defects for which it is not liable under the contract
– Z clauses – additional conditions of contract
Who should notify compensation events?
Who should notify compensation events?
Either the Project Manager or the Contractor should notify them. The Project Manager is required to notify compensation events caused by the Project Manager or the Supervisor (clause 61.1). The Contractor is required to notify other compensation events (clause 61.3)
How should compensation events be notified?
How should compensation events be notified?
Compensation events should be notified through the communication system stated in the Scope (clause 13.2) and they should be notified separately (clause 13.7).
Can I notify several compensation events on one communication?
Can I notify several compensation events on one communication?
No, each compensation event must be notified separately (clause 13.7).
When should the Project Manager notify a compensation event?
When should the Project Manager notify a compensation event?
The Project Manager should be pro-active and if giving an instruction that causes a compensation event, they are required to notify the compensation event at the time of that communication (clause 61.1).
What happens if a Project Manager gives an instruction but does not notify a compensation event and the Contractor believes that it is a compensation event?
What happens if a Project Manager gives an instruction but does not notify a compensation event and the Contractor believes that it is a compensation event?
The Contractor should notify the compensation event under clause 61.3
Does a Project Manager Instruction (PMI) need to be instructed for all compensation events?
Does a Project Manager Instruction (PMI) need to be instructed for all compensation events?
No, many compensation events do not need a Project Manager instruction.
What happens if a Client wants to get a price and programme for some proposed work that they may wish to instruct?
What happens if a Client wants to get a price and programme for some proposed work that they may wish to instruct?
The Project Manager can instruct a quotation for a proposed instruction which the Contractor does not put into effect (clause 65.1).
What happens if proposed instruction does not go ahead?
What happens if proposed instruction does not go ahead?
If, a proposed instruction does not go ahead, or the Project Manager notifies that it is not going ahead, or an instruction is not given by the date stated in the proposed instruction, then this is a compensation event. The Contractor is compensated for any costs incurred in preparing a quotation which does not go-ahead (clause 60.1(21)).
What happens if a quotation for a proposed instruction is not accepted. Can the Project Manager still issue an instruction?
What happens if a quotation for a proposed instruction is not accepted. Can the Project Manager still issue an instruction?
Yes- if a quotation is not accepted, the Project Manager may issue the instruction, notify the instruction as a compensation event and instruct the Contractor to submit a quotation.
How do you assess a quotation for a proposed instruction?
How do you assess a quotation for a proposed instruction?
In exactly the same way as for all other compensation events (clause 65.2).
What if the effects of a compensation event are too uncertain to be reasonably forecast?
What if the effects of a compensation event are too uncertain to be reasonably forecast?
The Project Manager can state assumptions on which the Contractor should base the compensation event quotation upon. If these assumptions are later to be found to be wrong then the difference in these can be assessed as a subsequent new compensation event (clause 60.1(17)).
What if the Contractor did not give an early warning before notifying a compensation event?
What if the Contractor did not give an early warning before notifying a compensation event?
Not all compensation events will have the opportunity of first notifying an early warning. For situations where the Project Manager decides the Contractor did not give an early warning of an event which the Contractor could have given then the Project Manager should state that fact in the instruction to the Contractor to submit a quotation (clause 61.5). They can then take this into account when assessing the compensation event quotation (clause 63.7).
Can a Project Manager ask for multiple quotations?
Can a Project Manager ask for multiple quotations?
After discussing with the Contractor different ways of dealing with a compensation event which are practicable, the Project Manager may instruct the Contractor to submit multiple quotations (clause 62.1).
Can a Contractor separate cost and time in separate quotations?
Can a Contractor separate cost and time in separate quotations?
No, any compensation event has to consider the effect upon the Prices and Completion Date in a single quotation.
What if the Project manager does not agree with a Contractor’s quotation?
What if the Project manager does not agree with a Contractor’s quotation?
They can instruct the Contractor to submit a revised quotation, or they can make their own assessment.
Can the Contractor be granted an extension in which to provide a quotation beyond the normal three weeks?
Can the Contractor be granted an extension in which to provide a quotation beyond the normal three weeks?
Yes, by agreement (clause 62.5).
What if a Project Manager does not respond to a quotation within two weeks?
What if a Project Manager does not respond to a quotation within two weeks?
The Contractor can notify this lack of response, and after a further two weeks of non-response the quotation would be treated as having been accepted (clause 62.6).
Should a compensation event be based upon actual or forecast cost?
Should a compensation event be based upon actual or forecast cost?
The “dividing date” between actual and forecast cost is when the Project Manager gave the instruction, or for all other events when the Contractor notified the compensation event (clause 63.1).
If the works are carried out before a quotation is agreed, should this simply revert to being assessed as actual cost?
If the works are carried out before a quotation is agreed, should this simply revert to being assessed as actual cost?
No it should still be assessed based on forecast cost from the point the works were instructed, or for all other events when the Contractor notified the compensation event.
Are existing activity schedule rates or bill of quantity rates used to assess compensation events?
Are existing activity schedule rates or bill of quantity rates used to assess compensation events?
No, unless by agreement (and on a case-by-case basis). They should otherwise be based upon Defined Cost using the relevant schedule of cost components.
What compensation events could lead to a reduction in the Prices?
What compensation events could lead to a reduction in the Prices?
: Only a change in Scope (that has not been proposed by the Contractor and accepted by the Project Manager) or a correction to an assumption stated by the Project Manager for assessing an earlier compensation event.
Will all compensation events lead to an entitlement to move the Completion Date?
Will all compensation events lead to an entitlement to move the Completion Date?
No, only those that impact the planned Completion will entitle a movement in the Completion Date (once the compensation event has been implemented).
Should a Contractor include risk in a compensation event quotation?
Should a Contractor include risk in a compensation event quotation?
Yes, they should allow for risk that has a significant chance of occurring and are the Contractor’s risk under the contract.
If a compensation event is triggered by an instruction to resolve an ambiguity, how should that be assessed?
If a compensation event is triggered by an instruction to resolve an ambiguity, how should that be assessed?
It should be assessed in favour of the party which did not create the ambiguity.
When should a Project Manager assess a compensation event quotation?
When should a Project Manager assess a compensation event quotation?
: When the Contractor has not submitted the quote within the time allowed, when the Project Manager decides the Contractor has not assessed the event correctly, when the contractor has not submitted a programme which the contract requires, or when the Contractor’s latest programme has not been accepted for one of the reasons stated in the contract.
When should a Contractor submit a programme as part of the compensation event quotation?
When should a Contractor submit a programme as part of the compensation event quotation?
If the programme for the remaining work is affected by the compensation event, the Contractor includes the alterations to the Accepted Programme in the quotation. This is not a programme to ever to become an accepted programme but just to help the quotation be understood and assessed.
How is a compensation event quotation finalised and agreed?
How is a compensation event quotation finalised and agreed?
A compensation event is implemented when the Project Manager accepts a Contractor’s quotation, the Project Manager makes their own assessment, or when the quotation is treated as having been accepted (when the Project Manager failed to respond to a reminder that they had not assessed the quotation).
Can an implemented compensation event ever be reopened/revisited?
Can an implemented compensation event ever be reopened/revisited?
No, once implemented the quotation is agreed full and final in terms of both cost and time. The only exception to this would be where the quotation had been based upon a Project Manager assumption which turned out to be incorrect. Even in this situation the change to the assumptions will be assessed as a new compensation event quotation rather than reopening the original one.