If the works information changes through a project manager's instruction, which results in a compensation event does the work have to be carried out without the project manager agreeing to pay the costs?

As an M&E contractor we are constantly told that we have to undertake additional works without our costs for the work being agreed first. We believe that there is a clear process under the NEC3 contracts of instruction, quotation, acceptance of quotation, and then an undertaking of the works. Further, one of the options as a response to the quotation is to submit a further quotation for another option ie another way of solving the problem or perhaps an alternative to a highly specified product, therefore this would suggest costs have to be agreed first prior to the works.
If the works have to be carried out without prior cost agreement what mechanism is there to protect ourselves from a project manager making his own assesment which we feel unfairly undervalues our work? Is the only option then to take the matter to arbitration whereby we assume that the only way to fairly compensate is via invoices for material and timesheets that would have had to have been signed at the time the works were undertaken.

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Clause 27.3 tells you that as the Contractor you OBEY an instruction given by the Project Manager. So therefore yes, you have to proceed with that instruction before often knowing what you will get paid. However, under the contract and the compensation event you should get full entitlement as to the costs that you will now incur so should get full recovery. Unfortunately in practice though the Project Manager lower than you believe the costs will be or even if it took so long to agree less than you actually spent. The contract intends that the event will be a forecast as to what you should have spent rather than relying on actual cost (clause 63.1). You do not simply revert to “actual cost” if you cant agree with each other. The cut off between actual defined cost and forecast defined cost is when the Project Manager notified the event/requested the quotation.

Therefore after all of that if you have done the work and not happy with the assessment (i.e. that you do not believe that it is contractually correct) then yes your only official recourse is adjudication.

As you rightly say there is a very clear process to follow with a compensation event in terms of notify, quote, assess and then implementation. The bit that you did not have right was that once accepted/agreed, only then do you undertake the work. 63.7 assumes also that you have acted “competently and promptly” to a compensation event.