Frequently Asked Questions

We are the project manager on an NEC4 Engineering and Construction Contract (ECC) Option A (priced contract with activity schedule) and have amended the scope to remove the supply of an item of equipment covered in the scope. The client is now supplying the item, but the contract had been awarded with this item noted as a contractor-supplied item. We are confused over how this compensation event is to be assessed. Both parties have a material invoice cost for the item from the supplier of the same amount. Under clause 63.3 we read that if the compensation event is to reduce the total defined cost, the prices are not reduced unless stated in the conditions of contract. Under clauses 63.4 and 63.12, the contractor can propose a change to the scope and a reduction be made to the defined cost. But under Option A, we will need to apply the value engineering percentage to the quotation.

Please advise.

To deal with this you should issue an instruction changing the scope making the client responsible for this item. This will be a compensation event under clause 60.1(1). This compensation event will have the effect of reducing the defined cost. The effect of clause 63.3 is ameliorated because of other clauses that appear in the contract − and the one that deals with this situation can be found in the very next clause, 63.4. The first bullet of that clause allows a change to the scope to reduce the defined cost. You will find other examples in the main and secondary options that change the rule in 63.3, for example see clause 63.12 in options A and B.

If the client wants to supply the item, that will increase its risks. If the client does not supply the item when shown on the accepted programme, that will be a compensation event. And if the item is faulty, the client will have to sort that out, and the contactor will be paid additional costs, for example for removing and replacing the faulty item. Splitting risks in this way is not recommended.

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