NEC ECC: Compensation events and time reduction

NEC3 and NEC4 Contracts General
1

My question is around protecting the Employer’s interests should he want to reduce scope in a Contract as he may wish to have his facility back earlier. I am talking about the effect(s) of issuing a comp event that reduces scope, reduces the Prices, both clauses 63.3 & 63.11, but does not allow the Employer to reduce time. One may quite rightly say “but why not”?
It is easier to provide an example which I do below and welcome comments as to the implications so here is a purely hypothetical scenario for illustrative purposes.

Employer: Heavy Handed Inc
Contractor: Lucky Prospects Ltd
Contract Value £10,000
Completion Date 10 weeks
Fee £1,000

Say the Employer wants his building, facility, whatever it is back early. He issues a CE stating a scope reduction and the following results:

Employer: Heavy Handed Inc
Contractor: Lucky Prospects Ltd (not anymore)
Contract Value £5,000
Completion Date 5 weeks
Fee £500

What has actually happened here? Well there was an expectation by the Contractor (you put yourself in his shoes) that he was going to do “x” amount of work for “y” amount of money and earn “z” amount of fee. He would have had to sell that to his board of directors, possibly, who have given him the green light as it made good business sense for them; it may have even made a good investment opportunity depending upon what we are talking about here in terms of work scope etc. Nevertheless there was an expectation.

So Heavy Handed Inc comes along and in one fell swoop reduces that expectation by half. I believe the Contract anticipates that by introducing the acceleration clause. This would allow, at least by its virtue, some recovery of that lost fee since the Contractor now has to ramp up and that will cost money; in turn it will yield, if he’s clever, some of the lost fee may be all of it. However the revised Completion date will represent 5 weeks not 10 but the Completion date will not change so the Contractor could drag the job out. This might not make sense under an Option C but it would under an Option E. If the latter the Employer could lose out as he wouldn’t receive his facility back early as was the intent.

Also I think this could be in response to the fact that it has probably been abused by Employers in the past just in order to change their minds, save a bit of money, all after the Contract let/commitment date – like a second thought/budget consideration issue etc. The issue described above probably prevents that to some degree. I’m not saying either that it is 100% equitable or that it properly addresses the time issue (because the Completion Date doesn’t change) but I can see how it could allow the Contractor to fulfil his expectation at least to some degree.

One other related issue is could this scenario introduce a loss of profit claim form the Contractor under NEC?

2

APW, this is an interesting issue you have raised for discussion. The best place for it is probably the BI LinkedIn discussion forum as it is more ‘discussion’.

3

Thank you however I am unable to access that site via LinkedIn because the Employer here prevents access. The one question I suppose I could ask relative to the points I’ve made is how do you protect an Employer when he reduces scope to get his building back earlier but the contractor slows down to use up his resulting terminal float. This assumes an Option E and not utilising the acceleration clause?

4

Add in additional constraints to the Works Information e.g. methodology, dates that must be met. This is a compensation event which raises the Prices, but they are only a forecasting estimate under option E. However, it then becomes a contractual obiligation to do it this way. Normally rules apply e.g. can’t ask them to do the impossible !