NEC3 ECC: Clause 63.2 and forecast defined cost

NEC3 and NEC4 Contracts Compensation Events
1

The PM has instructed a change to the Works Information to omit works and reduce the total of the prices. These works have been previously attempted and could not be completed due to ground conditions (refusals). It should be noted that 60.1(12) physical conditions is an Employer’s risk under the contract (NEC3 ECC Option C).

The PM has assessed the reduction in prices using the defined cost for previously completed works (although different access arrangements and available working times) which includes costs for CE’s due to ground conditions. Additionally they have used this as a benchmark to calculate based on the number of items removed from scope (foundations)

  1. Should cost omissions include employer’s risk for Forecast costs? i.e. forecasting that this scope of work would include additional costs for physical condition events even if the Contractor has not yet submitted CE’s for these events (not yet completed).
  2. Should the forecast defined cost take into account the planned delivery period of the most recent accepted programme which has longer access than previous works and therefore is a more efficient delivery period?
2

Hi and welcome to the community.

I’m assuming that the ground conditions encountered have been acknowledged as a compensation event.

I would suggest the assessment should be based on:

  1. Defined Cost + fee of the abortive works = addition
  2. Defined Cost + fee forecast of the original works based on a reasonable interpretation of the tender site investigation = reduction
  3. Defined Cost + fee of any (if any) delay resulting from the changed works taking cognisance of the deleted work = addition
  4. A change to the Completion Date (if any) resulting from the changed works taking cognisance of the deleted work
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3

Greg,

Further to Dave’s response with which I agree, my replies to your two questions are as follows.

  1. In short, no. The forecast Defined Cost (which is the basis of the negative CE assessment) cannot include risks for potential CEs - if I am reading your question correctly of course. Risk allowances (cl. 63.6) refer only to Contractor’s risks that have a significant chance of occurring.

  2. Yes, because the assessment is based on the assumption that the Contractor reacts competently and promptly (cl. 63.7).

As a final note, due to the contract being under Option C, by reducing the total of the Prices, the Employer is also reducing its gain share (in proportion to the applicable percentage).

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