Question

1a) Explain the procedure for dealing with a compensation event under the NEC4 ECC, Option B.

1b) A Contractor is engaged under a contract incorporating NEC4 ECC Option B. All of the design of the works has been provided by the Client’s consultants. The works require 3000 cubic metres of concrete. The Contractor has noticed the following problem: whilst it is stated in the drawings in the Scope that the concrete must be Grade C30, it is stated in the specification section of the Scope that the concrete is to be Grade C40. The unit cost of Grade C30 is £70 per cubic metre whilst that of Grade C40 is £80 per cubic metre.Assuming that the drawings are wrong, advise the Contractor and the Project Manager on the actions to be taken.

Answer 1

Under the NEC4 forms, compensation events are events which are not the fault of the contractor or sub-contractor. The contractor has to notify a compensation event within eight weeks. Under NEC Contract if any fault or failure happened, it is highly recommended to resolve by a mutual trust and co-operation. The contractor’s right is to complete the event effectively as planned and shown on the accepted programme.

Compensation Event procedure:

- If a compensation event which arises from the Project Manager or the Supervisor giving a notification or an instruction to the contractor by issuing a certificate or altering earlier decision, the Project Manager communicate the contractor of the compensation event at that time of interaction.

- The project manager gives an instruction to the contractor to submit a quotation, unless the compensation event arises by the fault of the contractor or the event has no effect upon defined cost or meeting a key date. If the contractor not notified the compensation event within eight weeks, it is resolved that there is no change in the completion and prices are not changed.

- The project manager has to reply to the notification by the contractor within one week or a longer period which is agreed by the contractor.

- If the project manager fails to reply to the notification by the contractor within the time period, the contractor is treating this as acceptance by the Project Manager.

- If the project manager decides that the contractor not given early warning of the event (an experienced contractor will give such warning) the project manager can states this in the instruction to the contractor

- Assessment of the compensation event based on the assumption that if any of them is found later may have been wrong. The project manager can notify the correction.

- The contractor is submitting the quotations within three weeks.

- The project manager has to reply within two weeks after the receipt of the quotation.

- If any changes suggested the project manager instruct contractor to submit a revised quotation within three weeks.

- After these quotations, the project manager makes assessments.

- The compensation event is implemented as and when the project manager notifies the acceptance of the quotation by the contractor and based on the assessments made by the project manager.

- The compensation event is implemented the prices, the date of completion and other key dates are changed therefore.