Frequently Asked Questions

We are a contractor engaged on a project using ECC Option C (target contract with activity schedule). We are seeking guidance on what is a reasonable degree of information to be included in a compensation event notification.

Under clause 61.3 the contractor is obliged to notify the project manager of an event which has happened or which the contractor expects to happen as a compensation event. It is our understanding that the contractor includes in the notification a description of the event and the relevant contract clause number. However, the project manager some times refuses to consider compensation event notifications unless the cause and effect are provided as part of the initial notification. The requirement to demonstrate causation at the notification stage has at times involved considerable human resources to fulfil this. If the project manager subsequently rejects the event notified as a valid compensation event under clause 61.4, the project manager may well disallow the cost of preparing the notification, referring to clause 11.2(25). Is this correct?
All that is required to notify a compensation event is a brief description as to what has happened and why you think it is a compensation event. It is common sense to include what clause(s) you think apply, but that is not strictly speaking necessary. There is no requirement for you to provide detailed information, nor are you required at that stage to state what effects you think the compensation event has.

Once notified, the project manager must reply within 1 week (see clause 61.4) and the only valid reasons the project manager can reject the notification are set out in the first four bullets of clause 61.4. If none of those applies, then the project manager must instruct you to provide a quotation (again clause 61.4).

You have 3 weeks then to provide a quotation (clause 62.3), and it is at that stage that you must set out your forecast of what effects the compensation event will have upon time and money – see clause 62.2, 63.1 and 63.3. Note when making your forecast you make allowances for matters which are at your risk and have a significant chance of occurring (clause 63.6) and you must assume that you acted and promptly to the event (clause 63.7).

Given that you are under Option C, we assume that your reference to disallowing costs is to the amount paid as price for work done to date. In that case the project manager is simply incorrect in suggesting that such costs will not be paid and can be disallowed.

The contract allows you to make such notifications and they are incidental work and/ or actions which the contract requires, and therefore they are part of the definition of providing the works (see clause 11.2(13)). Such costs therefore simply do not fall within the definition of disallowed cost in accordance with clause 11.2(25).

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