NEC 3 Compensation Events. - Option B


Under NEC Option B, if there is a line within the BoQ which at time of tender a rate was provided by the contractor but with no unit (i.e the contractor priced the work but at zero units), must the contractor use that rate instead of a CE?

The CE value for the work is nearly 4 times the BoQ rate.


1 Like

Welcome to the community.

In response to your query, it would depend on how the CE arose; by way of example, if there is a change in the Works Information (NB: information in the BoQ is not Works Information in accordance with cl. 55.1) and there is an item in the BoQ (as in your case), the change in the Prices in relation to the whole or part of the compensation event for work not yet done, could be i) a changed rate, ii) a changed quantity, or iii) a changed lump sum - see cl. 63.13. For work that has been done (based on the dividing date) the change would be a new lump sum item (unless otherwise agreed, assessed by the actual Defined Cost incurred plus the Fee).

If, on the other hand, the CE arises only because of the difference between the final total quantity of the work in question and the quantity stated in the BoQ (whereas there is no change in the Works Information) resulting in the Defined Cost per unit of quantity to change and the total sum of that item in the BoQ becoming more than 0.5% of the Total of the Prices at the Contract Date, then you could even end up with a reduced rate (if the Defined Cost per unit is reduced) - see cl. 60.4.

So, the first thing to consider is how did the CE arise and then, based on the dividing date, if the assessment is based on a forecast or on work that has been done (or on which part of both).

1 Like

Thanks you Peter, much appreciated.

On our scheme, it is quite common that additional work is discovered when on site, when the ITT and the subsequent BoQ was derived from site surveys completed by independent consultants some time ago.

We, as consultants, were only able to give the contractor as defined amount of information for them to return the tender. This now results in the contractor starting work on site and discovering work required not within the orignal scope or BoQ that was supplied under the ITT to the contractor.

This then raises a CE where sometimes (as my example) there is already a rate within the BoQ but not priced at time of tender.

In relation to this, other additional work which was entirely not in the BoQ or WI is submitted through a CE which although understandable (as there was no orignal measure) is ridiculously high compared to an agreed framework rate (which would include People, Plant & Material).

It just seems that sometimes raising a CE (which 8/10 is mostly People Costs) is a good way of increasing the contractors profit!

1 Like

No worries, I see where you’re coming from. However, following the contract provisions is the only way to ensure that you have kept your impartiality as the Project Manager (I assume you have that role).

Don’t forget that the Project Manager’s role is dual; it is the Employer’s agent but when it comes to certifying/assessing CEs etc. it is (or should act as) an independent certifier.

As long as the assessments are reasonable, it doesn’t matter if the Contractor is increasing its profit - don’t forget that it is a business like yours and it needs profits to survive. You should be more worried if they were losing money on the project - that would put everything and everyone at risk.

I probably said too much - I hope it works out.

1 Like

Thanks Peter. Fundamentally there is a change in the Works Info (or lack of it!).

Defined Cost + Fee through CE is fair enough.

1 Like

Peter, going off at a tangent. If there is no change in quantity, but information is provided late (for instance reinforcement schedules) would this be a CE in accordance with Clause 60.1 (3). If costs of purchase of reinforcement had increased by the time the schedules were issued would the value of the increased costs be claimable as a CE. (assuming no inflation clause) i.e the works are carried out later that envisaged by which time material prices were greater than those quoted on. Under an option B.

1 Like

Yes Paul, that is correct.

The assessment would follow the principles of cl. 63.1 (forecast or actual Defined Cost plus Fee, depending on the dividing date), whereas the Defined Cost would include the increased now cost of materials*.

You would then refer to clause 63.13 and if the work was not done at the time of the CE notification (dividing date) the rate would have to be changed in the BoQ to suit the change in the Prices; if the work was already done, the change in the Prices will be a new lump sum item in the BoQ.

*X1 is irrelevant in this case as you are not referring to price adjustment, but to amounts incurred to Provide the Works for the compensation event - by way of example the reinforcement cost would fall under cost component 31 (Plant and Materials).

1 Like