1) The Contractor is entitled to be paid for preparing the quotation. Remember though that in Option C he'll be paid the Defined Cost anyway, and all we're really talking about is the amount the target is increased / decreased. If the Defined Cost of people is already being recovered because the compensation event itself runs concurrently with the time he was preparing the quotation then he can't recover the Defined Cost of the same people for that time. If for example the impact on planned Completion was 1 week, the Contractor would be entitled to be paid for his preliminary costs for this week, e.g. the site QS for 40 hours, if the quotation was prepared during this week also then the Defined Cost of the site QS would have already been recovered. Compensation events should put the Contractor back in the position he was in before the event occurred, not improve his position. If however the quotation was prepared the week after this, he can include the site QS, this is because if it wasn't for the compensation event he would have been doing something else that week.
2) Presumably you agree with the principle that the Subcontractor wasn't being productive due to the compensation event? You need to understand the terms of the subcontract first to establish if the Subcontractor has an entitlement to be paid for this? What does the subcontract say about drugs testing and who's risk is it? The Contractor can only include real Defined Cost in the quotation so if he isn't paying the Subcontractor any more then there is no additional Defined Cost as a consequence of the event. If the testing would have resulted in non-productive time anyway and this has been allowed for in the Subcontractor's rates and prices then there should be no additional Defined Cost. If the Defined Cost can be proven however, then it can be included in the Contractor's quotation for the compensation event. It's important here to focus on the fact that the Contractor has done a good thing, he's attempting to mitigate the effects of the compensation event. If the tests would have needed to be done anyway hasn't the Contractor used the non-productive time wisely? Yes the target may be increased by 1 day more than you'd like, but has this avoided Defined Cost at a later stage which could contribute to a greater shared saving? Also look at the sequence of events, the first thing to happen was the compensation event, then the next thing was the Contractor re-programming as a consequence of the compensation event. Even if the compensation event and testing were viewed as truly concurrent it is likely that the Contractor would still have entitlement (see Henry Boot v Malmaison Hotel, 1999).