NEC ECC: Is a PMI always a Compensation Event?

I am having a discussion with my commercial team.

Their view is that a PMI is not de facto a Compensation Event. The example they have given is if the PM instructs the Contractor to carry out an event in a certain way which is safer than the way they are currently doing it.

I say that any PMI results in a CE because this instructed change to working could equally result in a saving or a change to Defined Cost of zero value. But nonetheless if you instruct a Contractor to undertake work in a different way to that which they envisaged, then there is automatically an opportunity to look at whether that change incurs a cost or time implication (in either direction).

Their view is that it isn’t a CE as they should have been working safely in the first place.

Leading on from this, their policy is to issue a PMI and then wait for the Contractor to issue an NCE on everything they think might be a CE as a result of those instructions. This seems contrary to all the spirit of the contract, and in cases of issuing drawings, also contrary to the specific wording of the contract.

In the ‘Safety’ example above I suggested that a PMI would probably not be the best way of dealing with a safety issue.

Nonetheless we can’t agree - so is there ever a case where a PMI would legitimately not automatically result in a Compensation Event?

1 Like

Examples of PMIs which are not compensation events :

  • an instruction to attend an early warning meeting (clause 16.2 of NEC3 ECC)
  • an instruction to remove a person (clause 24.2 of NEC3 ECC)
  • an instruction to submit a programme for acceptance (clause 32.2)
  • an instruction for a quotation for acceleration (clause 36.1)

Further, just because it is a compensation event, does not mean it results in a change to the Prices if the reason for the CE arises from the fault of the Contractor. See clauses 61.1 and 61.4. whereby the Contractor does not proceed to supply a quotation.

No a PMI is not a compensation event in its own right.

If a Project Manager is instructing something that they know IS a compensation event, then at the time of giving the instruction they should state that this event is a compensation event and request a quotation under clause 61.1.

If a Contractor receives an instruction that they believe is a compensation event then they could notify under clause 61.3 that they believe it is a compensation event and await agreement (or otherwise) form the Project Manager that they agree it is, and then to invite the quotation.

There are numerous instructions that you could give that would not give rise to a compensation event. you instruct them to submit a revised programme - which clause 32.2 allows you to do. You could instruct for a person to be removed from site e.g for a reason that is safety related. You could be instructing them to do something that the Works Information already states is their liability. None of these will give rise to a compensation event. Clause 27.3 gives you the power to the Project manager to instruct anything in accordance with the contract. Elsewhere in the contract will sort out whose liability that is.

1 Like

When notifying Contractor of a CE (60.1), and requesting quotation we send a PDF documents. This is a clear Client design change, do we (the PM) still have to issue a separate PMI document under 14.3. Or does the notification of CE supersede this and cover this?