Frequently Asked Questions

We are the project manager on an NEC3 Engineering and Construction Contract (ECC) Option A (priced contract with activity schedule). Preliminaries have been spread as a monthly activities and named management costs for month 1, 2, 3 and so on. A number of compensation events have delayed the progress of the works and these have been implemented in accordance with the contract. However, the activity schedule has not been updated by the contractor when requested to do so. As a result, the monthly management costs no longer correlate with the other listed activities as originally planned. Also, we have no detail of what is included within each of these activities. For assessing the price for work done to date, how do we assess these activities?
Preliminaries derive from the rules associated with compiling a bill of quantities, but that is not so relevant when using an activity schedule. We usually advise that an activity schedule should be a list of physical work activities, such as building a wall or testing a drain, and all the costs associated with preliminaries should be spread within these activities. However, since this is the contract entered into by both parties, you and the contractor will just have to deal with it.

It is important to note that each compensation event is assessed based upon the effect it is forecast to have upon the defined cost of the works plus fee (clause 63.1) and upon the date for planned completion shown on the accepted programme (clause 63.3). Therefore, if a compensation event is forecast to cause delay, the defined cost of that delay, including any increase of the defined cost of preliminaries, will be included in the assessment for that compensation event. That will be how the contractor will recover the increased costs of managing the works for a longer period. How that is put into the activity schedule is up to the contractor in the first place, but subject either to your agreement or decision on the value of that compensation event as arrived at using the processes and rules set out in clauses 62 to 65. We are not sure what updating you expect the contractor to carry out to the activity schedule.

In reality, such updating will occur mainly when compensation events are implemented (see clauses 63.12, 65.1 and 65.4). But that will not effect the existing activities, including those you have for monthly preliminaries. Therefore, our view is that each preliminaries activity is paid each month as an activity which is complete and that will carry on until the original number of months have been paid for. At that point no further payments should be made under that activity. Instead, the contractor will recover its increased preliminaries through the changes in the activity schedule. If a new activity is inserted by simply saying ‘compensation event number xyz’, the contractor will be paid when the work of that compensation event is completed. That will be acceptable for minor compensation events, but major ones will usually have a mini activity schedule to themselves. How that is done is usually decided by you and the contractor discussing and agreeing such matters, as part of the assessment of each compensation event.

It is also important to note that the assessing of compensation events is not something that is left to the end of the work. Both you and the contractor are obliged to assess these within the timescales set out in clauses 61 to 65, which are set in terms of weeks, not months or years. If these assessments happen late without any payment being made on account during the period, the employer will have to pay a large amount of interest for these compensation events, see clause 51.3.

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