NEC TSC: How is a compensation event assessed when the Employer gives an instruction to change the Service Information by removing a quantity of work from the Price List e.g. removing a building under an FM contract?

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The Price List, Service Information and Affected Property are all separate defined terms in the TSC and each one has a different function, refer to clause 11.2 for the definitions. This means if a building no longer requires FM services it would be a compensation event under either clause 60.1(1) or 60.1(10).

It’s an important distinction because if the total Defined Cost is reduced the Prices are reduced if it is a clause 60.1(1) compensation event but not if it’s a clause 60.1(10) compensation event. Clauses 63.4 and 63.10/11 state this.

In terms of the assessment it would be based on the effect on Defined Cost plus Fee (clause 63.2) or you could use rates and prices in the Price List if the Service Manager and Contractor agree (clause 63.3). Note that if there is no agreement on the use of rates and prices then the default will be Defined Cost plus Fee.

On a large multi-site contract the effect of removing one building may be minimal, as there may be little or no change in the resources required to provide services to the remaining buildings. For example if the contract was to clean 100 toilets once a week the contractor may use a cleaner, a van and various cleaning products, by removing 1 toilet from the contract the Contractor will still need to employ one cleaner and a van but will probably use 1% less cleaning products. If however 50 toilets were removed the Contractor may reduce the cleaner to part-time hours and save 50% of the people costs, he may be able to utilise the van elsewhere and save 50% of the cost of the van, and save 50% of the cleaning products.