Clause 63.5 - Contractor does not give an early warning of a compensation event

Clause 63.5 states “If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an
experienced contractor could have given, the event is assessed as if the
Contractor had given early warning.”

Is this clause only applicable when the Contractor fails to issue an early warning prior to notiying a compensation event or can it also be applied to the late issue of the early warning albeit prior to issue of the notification of a compensation event. In the latter case, where due to the late issue of the early warning, the value of the compensation event increases?

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You have to read clause 63.5 in conjunction with 61.5.

Firstly, not all compensation events would have or could have had an early warning notified prior to becoming aware of a compensation event. The Contractor did not know you might hit bad ground, or experience very bad weather, or get access late given by the Employer etc. The last line of clause 16.1 emphasises that you do not need to raise an early warning for something that has already been notified as a compensation event.

For matters that could (or should) have been raised as a compensation event then there is a remedy in the contract to cover this. If the Project Manager agrees that a notified compensation event is one, but that he believes the Contractor COULD have raised an early warning about this several weeks ago, then they need to state this at the point of requesting a quotation (clause 61.5). Then under clause 63.5 they can assess the event as though the contractor HAD raised the early warning. If that means that they think the cost(and time) would have been less had the early warning been issued (i.e. they could have done something about it to lessen the cost) then they can assess accordingly. If they think half the cost could have been avoided they would assess accordingly, and if they believe they could have avoided all of the cost (and time) then again they could assess accordingly at zero. The most important aspect about this issue is that:

  1. The Project Manager HAS to have stated under clause 61.5 that the Contractor did not raise an early warning and that they will assess it as though they had. This stops Project Managers always saying when they get a quote that they do not like that “oh, I know, I will say you did not give an early warning. If you have not stated under 61.5 then you can not use 63.5 in isolation.
  2. If it was so obvious that the early warning could have been raised why had the Project Manager not raised it himself? Both Parties are equally obliged to raise matters when they become aware of them under clause 16.1 (of course certain events the PM would not have know about, but many they should or could).
  3. Taking into account points 1&2 above, then it is only if the Project Manager could have done anything differently (which could be subjective) that the event should be assessed any differently. If nothing could have been done differently anyway then the compensation event should not be assessed any differently.

This clause is simply to stop Contractors deliberately withholding an early warning that they can take commercial advantage of later, or more importantly the Employer has lost the chance to avoid commercial disadvantage at that later date. It should not be used by the Employer/Project Manager to try to wriggle out of paying a valid compensation event or part of.