NEC ECC: Who notifies a Compensation Event under Clause 60.4?

NEC3 and NEC4 Contracts Compensation Events
1

I have a situation where the final measured quantity of an earthworks item is significantly greater than the BOQ quantity for the same item.

According to Clause 60.4 there are 2 tests that need to be satisfied for this to be a Compensation Event, namely:

  1. the difference does not result from a change to the Works Information

  2. the difference causes the Defined Cost per unit of quantity to change

    and

the rate in the BOQ for the item multiplied by the final total quantity of work done is more than 0.5% of the total of the Prices at the Contract Date.

For the case in question test 1 and the second part of test 2 are satisfied.

However, given part 1 of test 2, I don’t see how the Project Manager can notify a Compensation Event under this Clause and, if the Defined Cost per unit of quantity were to be reduced, why would the Contractor do so?

2

You are correct, the PM does not have the right to notify this event.

CE notifications are dealt with under clauses 61.1 (PM) and 61.3 (Contractor), the significant change in quantity event at clause 60.4 is for the Contractor to notify.

3

For the case in question, if a Compensation Event were to be notified by the Contractor I am convinced that a the Defined Cost per unit of quantity would be reduced resulting in the affected rate to be reduced. For this reason the Contractor is not incentivised to notify and is unlikely to do so.

4

Unfortunately your original post was incorrect, there are 3 tests that need to be passed in order for it to be a compensation event, the purpose of the 3rd test is to ensure that only significant changes become compensation events. Otherwise the parties would argue that every single final quantity that was different from an original quantity would be a compensation event. Both parties have to live with the fact that the Contractor might make a bit more or a bit less profit on individual items of work. Also why was the final quantity so different from the original quantity sounds like either the BoQ was flawed or the Works Information changed, neither of which are Contractor’s risks.

5

There are 3 bullet points in this Clause but I believe there are 2 tests as the 2nd and 3rd bullet point are linked with “and”.
The Item in question was for the excavation of unacceptable material below embankment for which the actual quantity increased significantly from the quantity billed.
As previously stated, this has resulted in bullet points 1 & 3 being satisfied.
Only the Contractor can determine if bullet point 2 is satisfied and perhaps this is the reason why the PM has no right to notify a CE under this Clause.
Also as previously sated, I believe that the Defined Cost per unit of quantity would be reduced if a CE were to be notified by the Contractor. However, if the Contractor doesn’t do so then there seems to be no option other than to pay the increased quantity at the bill rate.