NEC Guidance Notes
NEC ECC Section 61 Notifying Compensation Events NEC Guidance Note | Free NEC Guidance Notes

ECC Section 61 – Notifying Compensation Events

It was not uncommon for people to take a literal meaning of NEC3 clause 32.1, that a revised programme should show implemented compensation events. Their response has been that therefore that you do not show non-implemented compensation events. Is this actually the case? NEC3 June 2006 amendments also removed the clause that had previously stated that notified early warning matters should be included within the revised programmes. This could further cloud what, other than implemented compensation events, should be shown on the programme?

It is important to remember with the contract that you often need to read more than one clause to get the true picture. Indeed, the other clauses in 32.1 make it clear that the programme should be showing the revised effect of all programme activities. Indeed – the prime function of the programme is to show us the true picture of the remaining works to be executed and (if nothing else changes) the Contractor’s planned Completion date in relation to the Completion Date. It is clear under the contract that a compensation event only becomes implemented when you have agreed the cost or the Project Manager has made their final assessment. You may therefore have already completed the work whilst the cost has not yet been agreed, hence under a dictionary definition you may feel you have “implemented” the work but contractually you have not.

The programme should be a real management tool that reflects all programme activities and their relative effects upon each other. As soon as a compensation event is notified – it will more often than not be affecting the remaining works in some way and should therefore appear on the programme. Early on in the process it may not be clear the extent of the impact or duration that this additional activity will have – but each programme you produce you simply update that activity with the information you know at that point. The simple approach that could be taken is to show the minimum impact that you know that activity will have at this point in time. This way you are not putting in too many activities that would otherwise artificially be pushing out the planned Completion or any Key Dates, only to come back at a later date as the activity does not have as bad an impact as thought. For example, if planning approval for a compensation event will be a minimum three weeks but could be six weeks, the programme should show three weeks delay for now, as it will definitely have that effect, and show any further delay as and when that becomes apparent.

If a Contractor has been requested a quotation under clause 61.1, the Contractor puts the instruction into effect. This importantly confirms that whilst a quotation has been requested and will be produced, in the meantime the Contractor starts to arrange for and carry out those works. This will include carrying out design, procuring materials, producing documentation as well as doing the physical works on site. Too many Contractors think that if they have been asked for a quote even under 61.1 that they will not do anything in terms of starting anything to do with that work until the quote has been agreed.

NEC4 has deleted the requirement in 32.1 to show implemented compensation events on the programme. That should prevent the issue that existed under NEC3 where users took the line in 32.1 to show the effect of implemented compensation events that they could not show non-implemented ones. That was never the intent, and any compensation events that are affecting the programme in any way should be shown on the programme and on planned Completion. It is just Completion Date that can not move until the compensation event has been implemented.

NEC4 Clause 65.1 (formally 61.2 in NEC3) allows a Project Manager to ask for proposed quotations – for events that the Client does not yet know if they wants for sure or can afford. In many instances it will depend on the price that the Contractor comes up with or the programme effect that it will have as to whether it is something the Project Manager wishes to proceed with. NEC4 also now clarifies that when a quotation is requested for a proposed element of work, the date the instruction will be given by is to be included within that instruction. This then makes it clear how long the quotation is valid for – where as NEC3 had left the timescales open which did cause problems if the Employer at a later date stated they wanted to go ahead with the quote when clearly it was priced assuming an earlier decision.

Clause 61.3 makes it very clear that in the absence of the Project Manager notifying a compensation event then the Contractor can notify. This then triggers the shortest response time in the whole of the contract for the Project Manager, who has to respond with a “yes” or a “no” as to whether that they agree it is a compensation event. If they answer is a “no” then under clause 61.4 they advise the Contractor of their decision (together with reasons). It there is no response to the notification within the two weeks the Contractor can notify the non-response, and two weeks later if no further response it is deemed accepted that it is one.

Clause 61.5 clarifies that if the Project Manager feels that the Contractor did not give an early warning which an experienced Contractor could have given, then they clarify this at the point of requesting a quote. The significance of this is that the Project Manager can then assess the subsequent compensation event as though they had raised it, and possibly assess it at a lower value accordingly (see clause 63.7).