NEC ECC: Under an Option A, where there is X1 present, do you apply inflation to compensation events?

We are currently operating on a main option A with X1 in the options, the contractor has been applying for inflation within the completed activities but has not been applying inflation to agreed CE’s, We are now at a point when some completed activities that have been adjusted by a CE are due and they are applying inflation to the revised amount not the original.

Whether this is NEC3 or NEC4 the general principle remains the same, in that when secondary option X1 has been chosen, the assessed value of a compensation event is adjusted to the base date and a price adjustment for inflation calculation is applied to the ‘CE amount’ following inclusion in a payment assessment.

If compensation events have been assessed at ‘current prices’ then they should not be subject to an inflationary adjustment and so excluded from the calculation under X1.

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Hi Andrew. Can you please clarify what is meant by ‘current prices’ in this instance and under what circumstances would you price at ‘current rates’.
Is all new CE prices which can not be referred to the bill not current prices?
If the contract does allow for escalation, why would you price it at current prices?

Option X1 provides for 2 different scenarios when pricing a compensation event, either Defined Cost current at the time of assessing the compensation event (dividing date), or alternatively the use of Defined Cost at base date levels, such as rates and prices stated in Contract Data.

In practice a compensation event would usually be assessed using both of the above methods for separate cost component parts of the same quotation, for example People and Equipment rates in Contract Data and Subcontractor costs (under NEC4) at current prices.

Additionally, a base rate (from an Activity Schedule or BoQ) may not reflect the actual work undertaken, due to numerous factors, so would not provide adequate compensation.

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