NEC ECS: Option A Compensation Event Assessment

We are the Contractor and have a Subcontractor under NEC3 Option A Subcontract. We have instructed a quotation for additional works. The quotation has been received and it is apparent that the additional work will take 3 extra days but will not impact the Completion Date. They have claimed for:-

  • 3 days additional site labour.
  • ‘Elongation of hire equipment’ - they have based this on their tendered price for monthly hire equipment and divided it by days per month x3 days.
  • Additional day craneage.
  • Materials.

To make it clear in my head, as people on site have different opinions, my questions are:-

  • Should the Contractor have also attached a revised programme showing how the additional works have impacted it? Even though the Completion Date hasn’t changed.
  • If the additional works haven’t impacted the Completion Date then wouldn’t the hire equipment already be on site anyway so it isn’t extended and can’t be claimed?
  • I assume as it’s an extra 3 days work then the site labour would be ok.

In response to your last three points;

If the remaining work has altered due to the compensation event then the Subcontractor is required to provide details of the alterations to the Accepted Programme. This may not actually be a revised programme but certainly sufficient information to show how the Accepted Programme is changed.

Whether the hire Equipment would have been on Site anyway could be determined by the Accepted Programme and whether it is required for other programme operations. It looks like they have assessed it as requiring the Equipment for longer (using free float time).

If there is 3 days more work then presumably you will require 3 days additional labour to support this.

The compensation event assessment is essentially based upon the principle of;

  • how much it will cost to complete the work (including the compensation event)
  • how much it will cost to complete the work (not including the compensation event).

I also assume that other issues such as disruption and allocation of risks are not affected…

Firstly, the Contractor should show the effects of the compensation event and show its effects (if any) on the “planned Completion” milestone. If this effect is agreed, the amount that planned Completion has moved by will allow Completion Date to be moved by the same amount. This is why the contract calls for a separate planned Completion and Completion Date milestones to be able to reflect this. Total float is shared by both Parties so if this compensation event does not move planned Completion whilst there may be some direct costs to consider there will be no time effect and no associated prelims to be included.

No compensation event directly moves Completion date. A compensation event only ever moves planned Completion, and if it does then you would move Completion Date by the same amount that planned Completion moved by due to the effects of the compensation event.

The Contractor can only claim for additional hire costs for equipment that they will now incur. If the equipment was due to be on site anyway and does not need to be on site longer then there is no additional cost that should be recovered as part of the CE. Labour costs they will incur even if the overall planned Completion is not moving would obviously be recoverable.

The intent of a compensation event is to put them in a position where they are no worse off but no better off after the assessment of a CE than they were before the CE.