NEC ECC: Defined Cost - Plant - Held in wait for start

Background: main Contract is ECC Option C, each Project is a CE:

We have a project (CE) that had a critical start date which was delayed after the CE was accepted by the client. An EWN was raised stating this could effect time and cost.

Subsequently this project (CE) was then withdrawn under a PMI advising work no longer required.

During the delay plant was held by our sub contractor ready to meet the imminent start date.

Our client has refused this cost stating it is not defined cost as no work has been carried out and also that we did not advise them they were at risk.

My take is that the EWN raised advising it could have associated cost and time. No formal instruction came from the client to price this and in fairness neither party discussed this at various meetings as it was always felt the work would start the following week, (repeatedly) until the project (CE) was pulled.

In the spirit of the contract I approached our client before submitting these costs to agree them upfront once I became aware of them after the works were withdrawn.

They say that as we did not inform them at the time what the costs of delay might be (to allow mitigation) and the fact that we have not applied for them within our applications, they are not defined cost and they will not pay them.

Any thoughts on this, if positive what clauses should I quote.

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I think firstly, although you state that each Project is a compensation event, they are still just a part of the overall scheme of works under the main contract and as such can’t be treated any differently, although there may be discrete reporting requirements in terms of cost, budget and progress etc.

You correctly notified an early warning relating to the delay to the critical start date. You don’t state what ‘follow up’ actions were taken, although when the matter started to impact upon delivering the works then a compensation event should have been notified. You don’t state what the cause of the delay was, but I am assuming that it was for reasons beyond your control, hence the Subcontractor holding ‘plant’ (NEC Equipment).

The Project Manager then instructed a PMI removing this part of the works. This is a further compensation event, presumably under clause 60.1 (1).

I am not sure what the status of the initial compensation event is with regard to the quotation etc, but the subsequent compensation event (PMI) would allow you to include any such ‘abortive’ costs within a quotation, where they are incurred as Defined Cost. As it was incurred via a Subcontractor, then they also don’t need to be incurred in the Working Areas for it to be treated as a Defined Cost.

Technically speaking, ANY compensation event under Main Option C could incur an element of Defined Cost, even if it was simply for the preparation of a quotation, where applicable, and no actual works were undertaken.

I would advise preparing and submitting a quotation, consequent to the PMI, and include costs which you believe are appropriate. This allows the quotation procedure to be followed. It is possible that the Project Manager may make his own assessment under clause 64, but you have the right to refer the matter to dispute resolution where you formally disagree for valid reasons.


Your points raised

Follow up meetings were held but neither party discussed the cost risk. The client caused delay but not providing survey details

The original CE was agreed and our sub contractor was informed to start the works

Reading your reply I think you are saying this Equipment costs due to the CE being removed are conceded abortive and are a defined cost.

Again many thanks

The principles upon which compensation events are based is that it is an Employer’s risk so the Contractor is compensated for the ‘loss and expense’. This is subject, of course, to the terms and conditions within the contract and at common law, that is; taking steps to mitigate, issue of causation and remoteness and that cost incurred is Defined Cost.

Technically you would have 3 compensation events here, one for the original works, one for the Employer not providing something and one for the last PMI instruction.

One of the problems in administering any form of contract is trying not to be distracted by the smokescreen of arguments and statements by one or more parties and trying to remain focussed on what the contract actually requires you to do.

In response to your comment, yes I am saying that the costs of Equipment hire are a valid and legitimate cost incurred due to the compensation event and could be included within the quotation.

The principle of any compensation event quotation assessment is essentially as follows;

Total actual and forecast Defined Cost including the compensation event,
Total actual and forecast Defined Cost NOT including the compensation event
Quotation assessment