NEC3 ECS: Option C - Compensation Event for a client delay

NEC3 and NEC4 Contracts Compensation Events
1

Event has occurred under NEC3 ECS Main Option C.

An event had occurred during the construction phase of the project, which stopped all works for approximately 10 months before the works resumed. It was unclear for how long the stand down period would last when the event started to occur. The responsibility to provide the means for the Subcontractor to resume works was with the Contractor.

During the 10 month delay, the Subcontractor was asked to mitigate costs to a minimum, but not demobilise from site completely. The Subcontractor kept the site setup, off-hired all possible equipment and, where possible moved their directly employed to other projects to mitigate the projects costs.

However, the Subcontractor was not able to utilise the directly employed labour on other projects without additional expenditure for the full 10 month delay. Therefore, towards the end of the delay period, the direct employed labour was brought back to the project and stood waiting on site until the works could resume (Subcontractor raised early warnings ahead of this occurring).

Throughout the stand down period, numerous possible restart dates were given by the Contractor. Although risk reduction meetings were held along with compensation events throughout the period for “extensions of time”, the Contractor did not instruct the Subcontractor to demobilise completely, but minimise costs to as low as possible.

The Contractor is currently disallowing the costs and not allowing them to be priced as part of the CE as the Contractor believes these costs are not in accordance with providing the works. The Subcontractor does not agree and believes it should be paid as Defined Cost and form part of the compensation event (target increase). Note, the Subcontractor only exposed the Contractor to 2 months’ worth of labour costs during the near 10 month delay, therefore mitigating 80% of the labour costs during the delay period.

2

I have assumed the reason for the stoppage was not due to a default of the Subcontractor, you don’t state this but it seems pretty obvious.

That being the case the Contractor is incorrect to disallow the cost and not allow an adjustment to the total of the Prices through the CE process…

The actions of the Subcontractor fall under Provide the Subcontract Works especially given the dialogue that appears to have taken place and the pragmatic approach taken.

3

Would have been better if the Subcontractor had been given Contractor assumptions on which to base their quotation and allowing a forecast (and if necessary a series of forecasts as time moves on). It is always very dangerous to do the quotations retrospectively As it stands the Subcontractor should submit their quotation justifying what they believe they are entitled to, and for the Contractor to make their own assessment and making it implemented. The Subcontractor can then decide to take this to adjudication if they do not agree.

You would like to think that the Parties can get round the table to avoid such a dispute, but there may be no alternative if they both believe they have made the correct decision.

I would agree with Dave that at high level they are wrong to simply “disallow” the costs , but to what value they should be will come down to detail.