NEC ECC: Option A activity Schedule compared to value of the activity

NEC3 and NEC4 Contracts Payment
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Is it the case that the sum on the activity schedule must directly reflect the outturn cost or of the activity to which it relates? Our Employer thinks it should rather like a BOQ.

For example; we have an activity to build a blast wall and we put £50K against it. Further to design the blast wall isn’t required. The Employer is asking for a share of the saving, half of the £50K = £25K (note: our contract carries a cost saving commitment in the WI). In fact the activity was best placed to ensure we keep reasonable cash flow for the preceding work that wasn’t on the activity schedule, sharing the saving isn’t half of £50K.

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Have you been instructed not to do the blast wall or is this value engineering that you have proposed for an element that is your design? There is a difference. If this is value engineering then this is an exception to it being a compensation event (60.1(1)).

One easy test to see if it is a CE would be to ask if the blast wall needed to have been bigger than you allowed, would that be a compensation event? If the answer is no, then removing the blast wall equally would not be a compensation event and there should be no need under option A to offer a saving. If however you would be entitled to a CE if it was bigger it would follow that by making it smaller or removing it would equally be a (negative) CE.

If the Project Manager has instructed you not to do it then this is a compensation event. However, compensation events quotations do NOT use activity schedule rates unless by agreement (63.14). The activity schedule is merely a payment mechanism and not necessarily reflective of actual costs – which is why it is not the default for assessing compensation events. You now assess from first principles (using the Shorter Schedule of Cost Components) the forecast cost of not installing the blast wall. If you did have an activity schedule of £25k to install widget X, then if you can prove that the cost of installing X including risk and fee would have been £15k then that is the saving that would be assessed.