Forecast Cost of the Work Not Done (Cl. 63.1)

NEC3 and NEC4 Contracts Payment
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Hi

I’ve looked at a couple of other topics such as here and here but haven’t quite seen my query answered.

Referring to ECC Cl. 63.1, I have a query about the “work not done” component of this clause. Just to recap:

Cl. 63.1 The change to the Prices is assessed as the effect of the compensation event upon

• the actual Defined Cost of the work done by the dividing date,
• the forecast Defined Cost of the work not done by the dividing date
• the resulting fee

For a simple variation say (and a dividing date being when the instruction for additional rebar was issued, say), additional rebar in a specific location where the rebar had already been fixed, the first component would (I believe) be the cost of abortive works associated with untying or amending rebar that was fixed already (effect of the compensation event on existing rebar work), the second compnent would be the cost of the “work not done”, being tying the additional rebar itself (correct me if this not the way it works) i.e. the Work (associated with the additional rebar is finite and a known quantity) and thus the work not done is equally well defined.

Alternatively if there are (say) adds and omits from the rebar instruction (CE) then would I be correct in saying these equate to work done and work not done?

However where I struggle is when it comes to CEs such as e.g. a severe rainfall weather event (the type and signal-severity of which is included as a CE e.g.). The effect of the weather event (CE) on the “work done” by the dividing date might be cleaning up, so you can then go back to work, would that be correct?

OK, so what then is the effect of this particular type of CE on the work not done and how do you forecast what is not done (i.e. how far does the forecast go), if any? Essentially for this type of CE all the work after the CE is “not done”, so you have to fall back on to the “effect of the compensation event” on the work “not done”. Would it be correct in this instance to state that there is no effect at all on the work not done as the CE can only impact the works you have done?

If it affects e.g. a Tower Crane operation, would its non-operation (until fixed) fall under “work not done”? I would see it as still being part of the first element “work done”, because setting up and commissioning the crane is work done that has to be redone; is that a correct interpretation?

Hopefully someone can understand my (probably rather poor) explanation of what I perceive to be the difference in the types of CE that are operated on by Cl. 63.1 and can expand on the examples I have given.

Thanks a lot!

Kind Regards
Kristian

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Hi Kristian,

If I have picked up your question correctly, you seem to be indicating that the “work done by the dividing date” relates to the original work required under the contract, and the “work not done” relates to the additional work associated with a CE. This is not correct.

The key to understanding this, is understanding the notion of the “dividing date”. The dividing date is a hypothetical line in the sand. For CE’s that arise from the Project Manager or Supervisor issuing an instruction or notification (e.g. a change in Scope) the dividing date is the date of that instruction or notification. For all other CE’s (e.g. weather) the dividing date is the date the Contractor notifies the CE under clause 61.3.

When it comes to assessing a CE, the assessment takes into account actual records of Defined Cost up to the dividing date i.e. costs for the “work done by the dividing date”. All of the other costs thereafter i,e. the costs for the “work not done” are assessed based on a forecast.

In terms of how you forecast the additional Defined Cost of work not done… use the Accepted Programme. It should provide a snapshot of what the Contractor planned to do before the CE had an impact. By impacting the programme for the CE, it should give you an indication of what the additional costs would be into the future.

For example, if your rebar or weather CE causes a critical delay to planned Completion of 2 weeks, this means you are going to have time related resources (people and equipment typically) on site for a further 2 weeks, and that would form part of your forecast of Defined Cost. If the delay was more like 2 months, and it pushes summer work in to winter, the forecast additional cost might include frost mats, additional lighting, lower productivity due to shorter days, the list is endless.

I hope this helps. I am happy to have another go at answering this if you wish to refine your question a bit.

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Hi William,

Thank you very much for taking the time to reply and for clarifying that work not done is not actually additional (previously unknown) work arising from the CE.

I still struggle with the wording as quoted however; whilst you suggest the cost is the impact of the CE arising from delay I,e, time impacts, in terms of costs the Clause refers to the effect of the CE on the work not done which could be either time or direct costs or both?

The Clause still suggests (based on the wording alone), that this is work that should have been done (i.e. known work) but couldn’t be done, due to the CE.

How do you reconcile the exact wording of the Clause with what you state is the way costs should be taken into account? Sorry I don’t mean to come across as obtuse but the exact wording seems to be something known to the drafter but less clear to the user.

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Hi Kristian,

No problem.

You are correct on the first point, the effect on work not done can be either time related or method related.

I’ll try to illustrate this with an example. Let’s say that a Contractor is constructing a new building, and discovers physical conditions which trigger a CE under clause 60.1(12). The rock on the site is a lot harder than the Site Information indicated. This CE will affect the programme and planned method of the Contractor’s planned rock excavation activity.

Scenario 1 - the Contractor notifies the CE on day 1 of the rock excavation activity

In this scenario, the dividing date is the day the Contractor notified the CE. As such, the entirety of this CE i.e. for the work not done, will be assessed on a forecast basis.

Let’s say that the Contractor thinks that the rock is so hard, that it needs to bring in heavier Equipment to break it out (a change in method). The Contractor is entitled to allow for this within its forecast.

Let’s also say that the Contractor thinks it will take an extra 6 weeks to complete the rock excavation activity, even with the heavier Equipment (a delaying effect). The Contractor is also entitled to allow for this. Assuming this is critical path delay, these 6 weeks would also attract the Contractor’s time related People and Equipment costs e.g. for management staff, welfare units etc.

Finally, the Contractor is also entitled to make an allowance for risks that have a significant chance of occurring. Depending on what physical conditions were actually discovered, the Contractor might allow for some time risk allowance by adding an extra 2 weeks on to its 6 week forecast. The Contractor might also allow for having some extra Equipment on standby in case there is a breakdown.

On the point above, if the Project Manager does not like the fact that the Contractor has made these risk allowances, the way to deal with this is via a Project Manager’s assumption. For example, the Project Manager could ask for a revised quotation and state some assumptions for the Contractor to base its revised quotation upon. In this example, this could be an assumption that the work will take 6 weeks, and that no breakdowns will occur. See clause 61.6 and 60.1(17) of the Contract for more on this rather useful mechanism.

Scenario 2 - the Contractor notifies the CE after the work is already complete

In this scenario, the dividing date is the day the Contractor notified the CE. As such, the entirety of this CE i.e. for the work done, is assessed based on actual costs.

This scenario is much more straightforward. It is a case of determining how long the rock excavation activity should have taken (by reference to the Accepted Programme) vs how long it actually took (by reference to actual as-built records).

So let’s say that the rock excavation activity took an additional 5 weeks and required an extra digger. The Defined Cost would be based on the actual costs incurred by the Contractor in this 5 week period i.e. 5 weeks of People costs, and 5 weeks of the additional Equipment. The Contractor would not be entitled to the 6 weeks it would have forecasted in scenario 1. Similarly, the Contractor would not be entitled to any risk allowances.

Scenario 3 - the Contractor notifies the CE half way through

In this scenario, the dividing date is the day the Contractor notified the CE. As such, there will be an element of determining actual costs (for the work done up to the dividing date), and an element of forecasting (for work not done at the dividing date).

This scenario is just a mixture of the two above.

The exact wording

In your response above, you mention that the clause uses the words “should have been done (i.e. known work)”. I have just had a look and the clause doesn’t actually use the word “should”. I think when you take this into account, and have a look at the scenarios above, it should resolve your issue!

Hopefully this helps, if you need anything else just shout.

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Hi William,

Wow, that’s an absolutely awesome response, I’m very appreciative you took the time not only to respond, but with incredibly detailed and illustrative examples. This is literally the first time I’ve seen it described like this and it explains the wording and processes extremely well.

Thank you once again, fabulous scenarios.

Actually it feels a bit churlish and trivial to note this after your amazing response above but I did write ‘suggests’ (clearly that is still incorrect!) not that it actually uses the words “should”. I’m still incorrect here though ;-). My original interpretation of the wording “effect of the CE” on the “work not done”, before your explanation, was as described above; hence my confusion as to how it should be assessed for time and cost.

Your examples show that I am incorrect in this orginal assumption and that it is actually (for your Scenario 1 and 3 at least) a forecast of how much longer it will take and a forecast of how much additional cost arises from the CE in people, plant, materials etc. above (in this example) the original work, to complete it.

Thank you!

Kind regards

Kristian

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