A Contractor’s quotation for a Compensation Event includes for the cost of People as associated with doing the work resulting from a Project Managers Instruction changing the Works Information. For example, an instruction requires additional procurement, measurement, valuation and payment as well as preparation of the quotation, site management, assessment of risk assessments and method statements etc. Does the contract intend, or even go on to state, time for People for all these items be included?
Is the Project Manager correct to state that they must only pay for the time involved in preparing the quotation? In a typical view this is seen by the PM as some time for the Surveyor (a few hours only) and actually excludes all other document management, site management and engineering setting out time and the like.
If Contractor states when submitting the quotation that there is no effect on the Completion Date, then accordingly he cannot include extended prelims and effectively "prolongation " costs as they do not apply, and this makes sense. But can the PM remove such costs and resources in their assessment of a CE on the basis that “those people are here anyway”.
It is thought not, as the actual costs borne by the Employer are not the basis for his entitlement under CE’s under the contract.
Guidance is appreciated ! Surely they need to argue why it is Disallowed?
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The answer can be found in:
1). Core Clause 63.1 which explains how compensation events are assessed,
2). Option C Clause 11.2(23) which gives a definition of Defined Cost, and
3). the Schedule of Cost Components.
If the people described meet the requirements of the Schedule of Cost Components then they are included in the Defined Cost.
Clause 63.1 confirms that the changes to the Prices are assessed as the effect of the compensation event on the Defined Cost. To calculate the effect on Defined Cost you need to calculate the Defined Cost of the original works, and the Defined Cost of the revised works. The difference between the two is the effect of the compensation event on the Defined Cost. Add the Fee to this figure to calculate the change to the Prices.
If the People are full time (100%) on your project now, and they have spare time to do this extra work then the PM is correct. However if the People are say 70% on your project now and the CE will increase their time to say 75% then the PM is not correct.
The Guidance Notes for clause 63.1 are very informative in relation to this topic.
I hope this answer is clear, but if not please do come back.
Whilst I agree with Dave’s comment, there is also the issue of ‘staff thickening’ to consider. A single compensation event probably won’t have too great an impact on existing People, although if you had, say, 30 compensation events which increase the scope of works by a significant measure, then the existing People will reach a ‘saturation point’ whereby additional People are required to manage the works. Additional People, by themselves, are unlikely to be a compensation event, so any quotation should consider such a scenario, even if it is included as an assessed Risk Allowance.