NEC 3 Option E Compensation Events

If a Compensation Event is notified under NEC3 option E and the subsequent quotation is accepted, then the CE is implemented.
If the work associated with this CE is carried out after the quotation has been accepted and the actual cost differs from the accepted quotation, what cost gets paid?

In Option E you are always paid Price for Work Done to Date, or its equivalent if this isn’t ECC. Contractually, the fact that you have provided a quotation doesn’t limit that. So, referring to the Question, that’s actual cost.

However, thinking a bit broader than the Contract, I was once told that if you write a price down then someone, somewhere believes that is an upper limit which cannot be breached. They may not be right, but its probably wise to act accordingly.


I’m still unclear.

Quotations for compensation events are Actual Cost incurred and forecast of Defined Cost to be incurred and if the quotation is accepted, the CE becomes implemented and cannot subsequently be changed.
So, if the forecast of Defined Cost element of the quotation turns out to be incorrect and the Actual Cost is either greater or less, how is this dealt with?

You are correct about the buildup of the CE. Once implemented, you are also right that it doesn’t change. At that point the CE is implemented, which is the end of that process. I’m not sure what we need to deal with.

If the concern is what you get paid, I’ll illustrate by example. Lets say your quote was for a total Defined Cost of £1,000. You actually incur Defined Cost of £1,050. In Option E your Price for Work Done to Date (and therefore your application for payment and your invoice), would be for £1,050 + fee.

Under NEC3 main Option E can be found in the ECC, ECS, PSC and TSC forms, although I presume you are referring to the ECC form.

As with other main options, a compensation event quotation is the proposed change to the Prices, assessed using Defined Cost (plus Fee).

The definition of Prices is ‘Option specific’, which in the case of NEC3 ECC Option E is defined as; ’ … the Defined Cost plus the Fee’, which is different to NEC4 ECC which defines Prices as; ’ … the forecast of the total Defined Cost for the whole of the works plus the Fee’.

Notwithstanding the above, however, the payment assessment (amount due) is based upon the Price for Work Done to Date, which is defined as; ’ … the total Defined Cost … paid … before the next assessment date plus the Fee.’

This definition is the same with both NEC3 and NEC4 and is the amount assessed for payment, regardless of the corresponding quotation value of the compensation event.

The simple answer to your question is that the ‘actual cost’ is the amount paid.

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