Frequently Asked Questions

We are the service manager on an NEC3 Term Service Contract (TSC). Clause 11.2(9) second bullet (with clause 50.3) allows for payment to be calculated as a quantity multiplied by a rate from the price list. Clause 63.9 tells us that the price list is amended by compensation events. Finally, clause 63.6 and 63.10 tell us that the assessment of a compensation event is, in effect, final. Does this mean that compensation events are added to the price list only as lump sums and not as independent quantities and rates? Also, does it mean that, in assessing payments, an item in the original service information and included on the price list as quantity and rate is paid at quantity by rate, while work that is the subject of a compensation event is paid as lump sum when complete? 

By way of illustration, suppose the price list includes 10 m of an item at £10/m and suppose there is a compensation event that adds a further 10 m of the same item and this is priced at £10/m also. Suppose then that of the original scope, 9 m is completed and of the scope added by a compensation event only 9 m is completed. Would we, as service manager, (a) certify 9 m at £10 for the original service plus £100 for the compensation event, or (b) certify 9 m at £10 for the original service plus 9 m at £10 for the compensation event?
Entries in the price list can be in the form of either lump sums or quantities and rates – see clauses 11.2(10) and the notes in the price list on page 5 of the contract data. That will apply both to the original entries and any made subsequently because of a compensation event.

Clause 63.1 requires that if a compensation event only affects the quantities of work shown in the price list then the assessment will use the rates for those quantities. For all other compensation events (including those that affect any work that is the subject of a lump sum) defined cost plus fee is used – see clause 63.2.

Whichever way you calculate the assessment, the resultant figure or figures can be entered into the price list in any way you want, with you as service manager having the final say if it cannot be agreed – see clause 62.4. It can be inserted as one or more lump sums, or it can be inserted using quantities and rates. In practice usually this is done by adding one or more lines to the price list referring to the compensation event number, but it could be done in the case of quantities anrates by just increasing the relevant quantities in the price list.

If the entry in the price list uses quantities and rates, the contractor will be paid the actual quantity carried out (see clause 11.2(9)), and therefore the employer takes the risks and rewards of any error in the quantities used to assess the compensation event (but not, of course its rate).

If the entry in the price list uses lump sums, then the contractor will be paid that lump sum regardless of the quantities involved (again see clause 11.2(9)), and therefore it is the contractor that takes the risk and rewards for any errors in quantities used to assess the compensation event. However, in this case an allowance for that risk must be included when the assessment is made – see clause 63.6.

Therefore the answer to your example will depend upon the way that the value of the compensation event is inserted into the price list. It will be (a) if it is inserted as a lump sum, or (b) if it is inserted as quantities and rates.

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