In a situation where the final total quantity of work done is significantly less than the original quantity at tender stage, and the conditions set out in all three bullet points under Clause 60.4 are met, how should this CE be priced?
The general consensus online appears to be that the relevant item within the BoQ should be re-rated, as opposed to pricing the compensation event using the change to Defined Cost + fee. Can someone please confirm if this is correct and if so, where the contract stipulates this?
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In a situation where the final total quantity of work done is significantly less than the original quantity at tender stage, and the conditions set out in all three bullet points under Clause 60.4 are met, how should this CE be priced?
The general consensus online appears to be that the relevant item within the BoQ should be re-rated, as opposed to pricing the compensation event using the change to Defined Cost + fee. Can someone please confirm if this is correct and if so, where the contract stipulates this?
Under NEC4 ECC, when the final quantity of an item is significantly less than the tender quantity, and all the conditions in Clause 60.4 are met, this reduction is treated as a compensation event. However, the contract does not say that this compensation event must automatically be priced by adjusting the rate for the item in the Bill of Quantities.
Instead, Clause 63.1 states that compensation events are assessed based on the change to the Defined Cost plus the Fee. That means the assessment looks at the actual cost of work done, and the forecast of cost saved or avoided, rather than simply applying or amending tendered rates.
The Project Manager does have the option under Clause 63.13 to use rates and prices from the Bill of Quantities if they remain appropriate. But this is a matter of judgement and is not compulsory. If the original rate is no longer fair, for example, because it included fixed costs spread over a higher quantity then the assessment should reflect the true cost instead.
So, while rerating may happen in practice to keep things simple, it’s not a requirement under NEC4. The correct contractual approach is always to assess the compensation event based on the Defined Cost plus Fee, unless the original rates are still appropriate for the reduced quantity.
What if the tender quantity is found to be incorrect very early on into the project E.g. the tender quantity was incorrectly measured at 50,000 m2 (which is what the BoQ rate is based on) and after re-visiting the drawings, it’s established that the tender quantity should have actually been 15,000 m2?
In this scenario, I assume the CE would be assessed by forecasting the change to Defined Cost plus the Fee, but what happens when the final quantity changes if works are re-measurable under Option B?
Assuming NEC4 ECC, the assessment under a main option B or D is set out at clause 63.15, which essentially depends on whether the corresponding work is already done or not yet done.
For work not yet done the change is a changed rate or quantity.
For work already done it is a new lump sum item, based on the principles set out in clause 63.1.
If the final quantity is significantly less than the tendered quantity, and Clause 60.4 conditions are satisfied:
The compensation event is assessed as if it were a change (like an instruction to reduce scope).
Pricing is based on the Contractor’s Defined Cost saving (or additional cost, if unit costs increase) plus Fee.
The original tendered rate in the BoQ is disregarded because it no longer represents a reasonable forecast.
So in effect:
If unit costs increase because of the lower volume (e.g. economies of scale are lost), the Contractor is compensated for the extra Defined Cost.
If unit costs decrease (less likely in reductions, but possible), the saving is reflected in the Prices.
Step 4: Key points to check
The Project Manager’s assessment must be based on forecast Defined Cost at the time of the CE notification, not retrospectively on what was actually spent.
Importantly, NEC guidance warns against treating 60.4 as “re-rating” the BoQ — it is a full CE assessment under clause 63.
Other traditional methods (and QS’s) love a re rating exercise. However, that is often unfair and therefore against the principles of an unamended NEC contract.
For the quantities you have stated, you may even have a change to the completion date caused by the reduced scope, which only a defined cost assessment can measure.
Generally if 50,000m2 is reduced to 15,000m2 - depending on the activity, you should end up with and overall saving but a higher unit rate after pricing using defined cost.
So your price the full amount of work (including time related costs) and then price the reduce amount of work and deduct one from the other - that change (either positive or negative) in defined cost is then applied to the total rate in the BOQ - cost for 50,000m2.