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NEC ECC: Uncertainties in a compensation event - better to go actual cost?.

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On a standard NEC3 ECC Option A contract, if a compensation event is too certain to accurately price the Project Manager  issued a set of assumptions to price to (PMA). Would it not be easier to adopt Cl 63.14, this would allow both parties to agree to actual costs incurred? At the end of the event the PM pays defined cost plus the fee to the contractor ? Both parties benefit in the instance.

Example might be importing a large amount of fill material for an earthwork project. It would be more beneficial to use actual costs incurred (Cl.63.14) rather than a forecast where one party will benefit more than the other if the amounts are not accurate.
asked Feb 13 in Compensation Events by engineering (300 points)  

1 Answer

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Clause 63.14 is not actually saying resort to actual cost. It is saying where both parties agree then you can use activity schedule rates to assess a compensation event - but that could still be on a forecast basis.

I understand why you might think/say surely it would be better to go actual cost, but I can assure you that has the potential to cause far more problems. Other events that start occurring can muddy the waters as to what the cost/impact of the original event should be.

Much better to do what the PM has done and state assumptions on which to base the quotation under clause 61.6. That allows the Contractor to asses the cost and time impacts of that event based on those assumptions. If the assumptions turn out to be incorrect, then just those elements can be revisited (as a new compensation event). This in practice is much better as both Parties know more where they stand along the way, with out leaving events un-assessed as they wait to see what the actual cost/time effects would be which could be a very long period (and compounded by other events).
answered Feb 13 by Glenn Hide Panel Member (81,330 points)