Compensation Events in Option A applications for payment

Under an Option A contract and in assessing the amount due on an application for payment are Compensation Events subject to the same conditions as the activity schedule? I.E can a compensation event be 50% completed and paid

The correct answer is only when 100% completed and free of critical defects that would prevent follow on trades. In reality it’s often determined as a percentage completion at the assessment date.

Can you point to a clause in the contract that states “100% completed and free of critical defects”? I always thought it was when 100% completed, even if there is a defect but could be wrong. Just had a debate with a client on this the other day as they certified us at 95% and I had a fit because we’re complete save for a piece of touch up that they cited is a “defect” to which I stated that it doesn’t hinder use of the building.

A contractual ref would help me out greatly.


Hi LeroyS,

For activities, the Price for Work Done to Date is the total of the prices for each group of completed activities from the Activity Schedule (Option A NEC3 ECC, clause 11.2(27)). So if it was an activity its either complete in totality or not at all.

For a Compensation Event (CE), and in assessing its amount due on an interim payment it’s probably reasonable for the Client or Project Manager to make an assessment based on percentage complete, but there needs to be mutual agreement on this. I don’t believe it would be deemed or should be notified as a defect, this “touch up” could be ongoing as part of the overall programme (not delaying Completion), and by my understanding it does not impair the works in use. NEC3 Core Clause 11.2(2) defines completion with reference to correction of notified defects and Core Clause 11.2(5) in NEC3 defines a defect.

It’s my understanding an implemented CE changes, or becomes an addition to, the Works Information/Scope. But the contract is “silent” on how CE’s are assessed as part of the Payment process in activity schedule.

Implemented CE’s are reflected as new activities on the amended activity schedule. Therefore, the Contractor should only be paid when the activity is completed. Cl.11.2.(27) refers to the activity being defect free for follow on trades. This is generally taken as significant/critical defects which prevent other trades using the working area. The PM can approve the full payment of the activity if the defect is deemed minor e.g. If the wrong colour paint was applied to a wall, this is not a critical defect. In this example the PM should certify the payment and notify a Defect for correction.

An implemented CE gets added to the activity schedule and is due for payment when 100% complete.
If a CE is large, the contractor should be quoting on the basis of multiple activities, so the PM can accept and them make payments for each activity (materials onsite, installation, testing etc)