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NEC ECC: Can One Event Result in Two Compensation Events?

+1 vote
A contractor is disrupted for approx. two weeks during the first quarter of a project, but still ahead  schedule. This results in direct field labour working inefficiently for the two week period. The client also agrees to compensate for the direct field labor for working inefficiently during the period that has already come into effect.

However, this event of disruption creates an assumption that the two week delay, automatically results in a two week extension of time, which seems impractical if the contractor is ahead of schedule. The contractor is asked to provided a quotation for the extended period, which only forecasted at the time of the disruption event.

In terms of NEC ECC can the above seen that one event caused two compensation events. Or is it one compensation event ? What if the compensation event is agreed but the extension of time has not yet come into effect. Does the client still compensate the contractor for the DFL and preliminary and general costs under one compensation event? What is the correct way to deal with such an event?
asked Jul 13 in NEC3 and NEC4 Contracts by Mark Pillay (130 points)  

2 Answers

+2 votes
Firstly, any assessment of time is made based on the affect on the planned Completion date (Contractor's forecast finish date) rather than the Completion Date (contract stated date). If the planned Completion date is before the Completion Date then the period of time between the two, known as 'terminal float', 'belongs' to the Contractor.

This above 'ownership' principle means that if some of the 'terminal float' time is 'used' by a compensation event, then the Contractor should be put back into their previous position when making a quotation assessment.  In practice this would mean extending the Completion Date by the same period of time that the planned Completion date is extended (except where accounting for a Bank Holiday, or possibly Christmas break etc, another subject !!)

For there to be a two week delay to planned Completion, this assumes that the activity in question was on the critical path (or has now moved onto it) and that the overall effect can be clearly demonstrated..  For which programme to use, see Glenn Hide's excellent article, referenced elsewhere on this site.  You take the last Accepted Programme and update it to when the compensation event occurred.  In doing so you remove the 'contaminating' effects of any other issues and isolate the effect of the compensation event.

The two week period of disruption and any consequential prolongation is assessed in the ONE compensation event as a single issue, not as TWO compensation events.  The affect from the point in time where the event occurred all the way through the contract are assessed and included in a quotation, unless the Project Manager makes an assumption, whereby that may lead to a further compensation event.

 I hope this helps.
answered Jul 14 by Andrew WI (2,290 points)  
+1 vote
For an event to be classed as a compensation event it has to be one of the events listed under clause 60.1, therefore your first step is to identify why the disruption occurred and which 60.1 event it relates to and notify it under clause 61.3.

When it comes to submitting a quotation for the event (under clause 62.3), the contract says at clause 62.2 that the quotation is for cost and time, i.e. proposed changes to the Prices and any delay to the Completion Date. How you assess this is dealt with under clause 63.1 (cost) and 63.3 (time).

Time is assessed as the length of time that planned Completion is later than planned Completion shown on the Accepted Programme. So in your example the Contractor was ahead of schedule before the compensation event, lets say 2 weeks, in NEC terms this means that planned Completion is 2 weeks before the Completion Date. If the Contractor can show that the event delays the critical path by 2 weeks then planned Completion after the event would coincide with the Completion Date and unless the Contractor is given an extension of time for 2 weeks then he has lost 2 weeks of terminal float due to an event that was not his fault which wouldn't seem fair. The general idea is that the compensation event should put the Contractor back in the position he was in immediately before the event occurred.

Remember in NEC there are no separate extension of time or loss and expense provisions so everything has to be dealt with in the quotation. For each event notified I would expect a single quotation to be submitted that deals with all cost (direct, prelims and general) and time caused by that event.
answered Jul 14 by Neil Earnshaw (6,620 points)