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NEC ECC: Is delaying Contractor payments on their option A activity schedule recoverable as a compensation event?
Where under NEC3 Option A with milestone payments there are delays caused by others that impact on a subcontractor’s programme and cashflow what would be the correct way to seek compensation?
1. Is it a change to the programme and a revised activity schedule (and milestones) under clause 54,
2. a compensation event (clause 60.1(18) for prolongation (the period between the start and end of an event),
3. and/ or a forecast of the difference between the completion date and planned completion on the revised programme?
4. Do you have any suggestions?
NEC3 Main options
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You can’t particularly seek compensation for adverse cashflow – what could be done is to allow the Contractor to revise their activity schedule to at least be able to claim the bit they have done, and move out the bit that cant be done. The reason they are being held up may or may not be recoverable as a compensation event – but only if it is one within clause 60.1. Delaying an activity which might affect their cashflow is NOT a specific compensation event.
For example, a Contractor was due to remove existing tiles on a wall, apply a skim coat before then installing new tiles. Their activity schedule and programme item was “remove existing platform tiles and install new tiles” which was a three week activity for say £100,000. However, upon removing the tiles the wall was found to be in very poor condition and requiring major repair works before new tiles could be applied. This was an Employer design and they instructed the Contractor to stop works after removal of all tiles until they decided what they needed to do. After four weeks they instructed the remedial works, which would take three weeks to do and affect the overall planned Completion by two weeks.
In this situation we split out the activity schedule item to two items - £40k to remove platform tiles and £60k to install new tiles. This revised activity schedule was accepted. It meant the Contractor could claim the £40k, but it did mean that the remaining £60k would move later in their programme changing their future cost profile. There is no specific means of recovery for delaying an item and hence their cashflow. However, sandwiched in the middle of those two activities now was a compensation event to make the repairs to the wall, and that CE would also be where the Contractor can claim for two weeks of prelims within that quotation. Once implemented, that can be added to bottom of activity schedule (but does not need to be resubmitted for acceptance) and that CE item claimed for in the period that it is completed. Nothing to stop the Contractor breaking that CE down into separate activities so the CE itself can be paid in chunks in the same way they could on the main activity schedule.
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