Frequently Asked Questions

We are the project manager on an NEC3 Engineering and Construction Contract (ECC) Option A (priced contract with activity schedule). Under the current regime the contractor was initially including its costs for preparing quotations for compensation events. Having notified the contractor that, under clause 11.2 (22), ‘Defined Cost is the cost of... excluding the cost of preparing quotations for compensation events’, it has now come back claiming additional costs for subcontract amendments, programme updates, document control, task management, risk assessment and method statements. I have excluded the risk assessment and method statements on the basis this is included elsewhere under the activity schedule. The resources these apply to are a planner, commercial manager, buyer and document controller.

My understanding is the project management costs identified above should have been included at time of tendering. Any additional agreed compensation events that have a time impact would automatically delay the programme.
The first important point is that only people working in the working areas are included in defined cost, see the preamble to item 1 in the shorter schedule of cost components. If any of these people are not doing so, their cost is not included and is deemed to be in the fee, see clause 52.1.

With regards to the rest, the answer lies in clause 63.1, which sets out how all compensation events are calculated. It is based upon a forecast (in most cases) of the effect a compensation event will have on the defined cost to complete the works. Therefore, this is not a ‘dayworks’ type calculation. If these people were and would have been on site anyway, the fact that they worked on the compensation event is irrelevant, because the contractor’s defined cost has not increased. That is because the defined cost of those people would have been incurred anyway.

Of course, if a compensation event meant that people had to be on site longer than they would normally have been, the additional defined cost of those people should be included in the assessment. For example, additional people may have been brought in specifically to manage a piece of work that was extended by the compensation event, or they had to work overtime for which they were paid.

In addition, if the effect of the compensation event was to delay the planned date for completion shown on the accepted programme, the completion date should be extended by the amount of that delay, see clause 63.3. In that case, the assessment of the compensation event will include the increased defined cost of the contractor’s team being on site longer.

Back to FAQs