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November 13, 2017

Assessing compensation events retrospectively

Assessing compensation events retrospectively
  A key feature of NEC contracts is prospective assessment of compensation events. A legal decision earlier this year in Northern Ireland Housing Executive v. Healthy Buildings (Ireland) Limited [2017] NIQB 43 considered what happens when quotations are prepared after work is carried out and to what extent it is possible to look at actual cost records. 

Background


The claim concerned asbestos surveying carried out under an NEC3 Professional Services Contract (PSC) 2005 edition. An earlier decision (reported in Issue 74) held that an instruction to change the scope of work was a compensation event and the issue therefore was the correct assessment of such a compensation event. 

The change was requested on 10 January 2013 but quotations were only requested in August and October 2013. These were provided within less than two weeks but were rejected by the client, who assessed the compensation events at zero. 

The client asked for disclosure of the consultant’s actual records and costs for the period following 10 January 2013. The consultant resisted disclosure and, following an adjudication, the parties took the issue to the Northern Ireland High Court. 

Decision


The judge considered the provisions of PSC core clause 6 in some detail, noting that while PSC contemplates quotations being provided shortly after an instruction is issued, this was not what had happened. The consultant argued that costs should be assessed prospectively for the period after 10 January 2013 and that the actual costs after that date were irrelevant.   

The judge noted that evidence from time sheets and other records would be the best evidence to help the court to determine the correct compensation. He also observed that a refusal to hand over time sheets and records would be antipathetic to the ‘spirit of mutual trust and co-operation’ obligation in clause 10.1.

Looking at the specific clauses relied upon by the consultant, the judge took the view that clause 63.6, dealing with risk allowances, was meant to apply when an assessment is made in advance but did not prevent the court from looking at actual costs. Similarly, clause 63.7, which expects the consultant to react competently and promptly and incur time and cost reasonably, also did not prevent a court from looking at actual costs and records when considering the competence and promptness of the consultant’s actions. 

In addition the judge considered clause 65.2, which provides that an assessment is not revised if a forecast is later shown to be wrong. The judge’s view was that this applied when a client makes an assessment but not where the consultant’s assessments are rejected and assessed at zero cost. 

Looking more widely at how the contract should be interpreted, the judge took the view that while clause 63 contemplates a forecast, this would be the case where the client complies with the contract and notifies the instruction. Where a quotation is prepared after the work is done, the judge’s view was that a commercial interpretation of the contract meant that this should be based on actual time and records. 

The judge observed that it would be a strained and unnatural interpretation to rely on the use of the word ‘forecast’ to prevent access to the actual records when the forecast was a claim for work that had been done by the time of the quotation. As he put it, ‘why should I shut my eyes and grope in the dark when the material is available to show what work they actually did and how much it cost them?’

Conclusions


This decision is based on the specific facts in the case, where although an instruction should have been notified at an early stage, the quotations and assessments were prepared after the work was undertaken. It should also be noted that the 2005 edition wording of PSC clause 63.1, which sets out the dividing line between actual and forecast costs based on when the client should have instructed the submission of a quotation, was changed in later editions. 

The situation that arose in this case could nevertheless have been avoided if NEC contractual procedures and time periods had been followed. Where that does not happen, this decision suggests that if a claim is pursued in court proceedings, a judge may look at actual cost records.
 
POSTED BY Shy Jackson, Pinsent Masons
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