Frequently Asked Questions

We are a subcontractor on an NEC3 Engineering and Construction Subcontract (ECS) using option B (priced contract with bill of quantities).

First, where we have submitted compensation event quotations, the project manager has requested a level of detail and substantiation (in some cases) which is extremely time consuming and therefore costly to provide. As these costs cannot be recovered as part of the compensation event, we are faced with a commercial loss before the compensation event is implemented (and when the compensation event is not implemented). We are not aware of any mechanism in the contract to protect us from what we consider the unreasonable demands of a project manager to provide such a degree of substantiation. Can you offer any advice in these circumstances?

Next, the project manager has (in some cases) made their own assessment of our compensation event quotations, which again, leave us at a commercial loss. Our understanding of our subcontract (and the standard provisions of the NEC3 ECC is that we cannot refuse to undertake works that are a compensation event which has been (in our view) unreasonably and arbitrarily assessed by the project manager. We are not aware of any mechanism in the contract to protect our commercial position, apart from following the dispute procedures under the subcontract. Can you offer any advice in these circumstances?

Finally, are we able to decline to carry out an instruction issued by the project manager (or not submit a quotation for a compensation event quotation) if we do not believe we have the skills or resources to complete the work in the timescale indicated by the project manager?

If you are a subcontractor under the ECS, your contact is with the contractor and it, not the project manager, manages your contract. The contractor must satisfy itself as to your quotation. What the project manager does in the contractor’s contract with the client is, to a large extent, irrelevant.

The wording of clause 63.1 in the ECS makes it clear that nearly all compensation events will be assessed prospectively, that is based on forecast defined cost, not retrospectively, based on actual defined cost. Therefore there should not be a lot of ‘detail’ of past costs to go into.

The contractor is limited in the way it can deal with your quotation if it is not happy with it. The contractor can either not accept it and instruct you to provide a revised quotation, giving reasons, or it can tell you it will make its own assessment. The contractor cannot ask for more information and you are not required to provide it. This has to be carried out within a stated timescale (see clauses 62.3 and 61.4). If the contractor does not do so within that timescale, then you are able to force it to do so, see clauses 62.6 and 64.4. All of this also applies to the project manager in the main contract, though the timescales are different.

As with all other subcontracts (and contracts) in the construction industry, you are required to obey any instruction that the contractor is entitled to give you under the contract. You are required to put the instruction into effect immediately, that is before you provide quotations (see the last sentence of clause 61.1 and clause 27.3). The protection you have against an incorrect assessment being imposed on you is the dispute procedure set out in the contract. This is often successfully used by subcontractors against their contractor.

With regard to your last question, the procedures and timescales involved in assessing compensation events are set out in the subcontract and the contractor is not able to issue an instruction changing these: you are both bound by these timescales.

As for the timescales involved in carrying out the newly instructed work, the contractor cannot dictate those either. If the additional work leads to delays in the planned subcontract completion, as shown on your accepted programme, then the subcontract completion date is extended by that period of delay as part of the assessment of the compensation event, see clause 63.3.

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