NEC ECC: Management staff costs when assessing delays

NEC3 and NEC4 Contracts Compensation Events
1

How do you assess changes in management?

The contract has a site management team which changes during the project.

At the start ( 1xProject Manager, 1x Site Agent, 1xWorks Manager, 1xengineer) as per contract data part 2.

During the project there are a lot of delays and the original staff are not performing as anticipated and the Contractor brings in additional management resources

After six months ( 3xProject Managers, 3x Site Agents, 1x Works Manager, 2 x engineers)

Any delay costs that include the management team then increases significantly for the additional staff.

However the contractor has not submitted an early warning or notified a compensation event due to a change in price due to the extra staff.

So should the assessment be based on the original site team and what is in Contract data Part 2, until the Contractor notifies that the change in the site team may increase the price, or is the fact that it has been longer than eight weeks since the change in the management team that then they are not entitled to any change in prices?

Or does the fact the EW’s and PMI;s have been raised mean that any changes to the site team are included in a compensation event so should be assessed in the quotations?

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2

First of all, can I clear up a potential area of misunderstanding which arises from your words “However the contractor has not submitted an early warning or notified a compensation event due to a change in price due to the extra staff.”

i point out that :

  1. for it to be a compensation event, a compensation event has to occur in the first place i.e. typically an event in clause 60.1. Bringing in extra staff is not one of the listed compensation events. Consequently, the ‘Prices’ will not change.
  2. The Contractor is not obliged to give an early warning just because their own Defined Costs may increase.

So onto your question : under clause 63.1, you assess the change in the Prices (due to a CE) by calculating the change in Defined Costs + Fee. Not only does it sound abundantly obvious that there are additional management people on Site, but it is also hopefully recognised in the programme which is hopefully up to date and accepted as well.

Consequently, when a CE occurs and these people (and any offices etc.) are on Site longer, you calculate the change in Defined Costs + Fee that results.

3

Firstly, apologies for the long winded response, but this is not a straightforward subject !!

I am assuming that this question relates specifically to an assessment of prolongation and the associated People costs, rather than the question of PAYMENT for these resources, which is a different topic altogether, and depends upon the Main Option.

You state that PMIs have been instructed, which assumes that there have been notified compensation events. As a compensation event is not a risk that the Contractor has allowed for within his baseline programme, it will, consequently, have a disrupting influence upon the works, to a greater or lesser extent.

This disruption causes a ‘resource thickening’ issue whereby over time, supplementary resources are required to manage the works, although there is no delay to planned Completion, with the additional People required to deal with the consequent disrupting influences.

Clearly the cost of these additional People cannot reasonably, or contractually, be allocated to a single compensation event, so an ‘increasing’ cost assessment should be included in separate quotations to account for this. The Prices then includes allowances for an additional amount of People, beyond that at the contract date.

Where a ‘resource thickening’ assessment is made, it should, however, properly address the issues of; causation, remoteness, mitigation and contractual compliance, based on some considered and intelligent principles of how the amounts have been assessed. A common approach taken is a ‘global claim’ type assessment, which just assumes ALL additional resources are due to compensation events. Even though the calculation is a difficult one to assess, this approach is unacceptable. I note that some contracts now include a percentage addition, for this very assessment within Contract Data, to avoid the subsequent ‘frank discussions’ !!

This is not to say, however, that ALL of the additional resources on Site are specifically due to compensation events, although where there is a delay to planned Completion due to a compensation event, then ALL of the resources should be included in a prolongation assessment, where it is demonstrated that they are all required for activities which are critically linked to planned Completion.

Note that a quotation assessment should be based upon the following;

Total actual and forecast Defined Cost including the compensation event
less
Total actual and forecast Defined Cost NOT including the compensation event

I hope this helps.