NEC3 ECC: Can the contractor be penalised under a "negative" compensation event

We are to provide a quotation for a negative compensation event. The Project Manager is assessing this at a value far in excess of what our assessment is and also in excess of what is in our Activity Schedule (the contract is NEC3 Option A with Activity Schedule). In theory we are going to have to pay the Client a sum of money for not doing work? Is this allowed under the Contract?

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Yes - potentially. Like any compensation event (positive or negative) it is assessed on its own merits using Defined Cost. If both Parties agree, for any one single issue you can use activity schedule rates to assess a compensation event - otherwise it will be Defined Cost i.e. schedule of cost components. What you allowed for is irrelevant. It will be good news if the cost is less than you allowed, and bad news if it is more than you had allowed.

If however they assess it at a figure that is in excess of what it would have cost then you can challenge this, but (unfortunately) only officially through adjudication. I say unfortunately as unless this is for a big sum of money you are unlikely to push it that far.

‘Penalised’ is a strong word and implies ‘punishment’. The answe is no they cannot punish you in the sense that it has to be an assessment of the effect of on Defined Cost + Fee (which would be a negative application) in accordance with clause 63.

As Glenn says, if the PM is pushing it to far and not being ‘impartial’ as the judge said they should be in Costain vs Bechtel, then escalate ultimatelly to adjudication.