NEC3 PSC (Option E) - Compensation Events for X1 & X2


We have a NEC3 PSC (Option E) contract with a consultancy to provide resources to our project- so we have a schedule of rates for various resources.

The Consultant did not provide us with their most up to date rates, so we put a caveat in the contract stating that the consultant would provide us with their rates for that year, when known.

The Consultant has since provided us with rates, allowing for inflation (X1) and increased Employers National Insurance contributions (X2).

As we were aware that the rates would change, we allowed for this within our quotation to our end client (Employer) and we also issued a Purchase Order for the inflated amount for the year to our Consultant.

My query is, would we need to notify a Compensation Event to our Employer, as this is not going to change the Contract Price. And also, if we had not of allowed for this rate inflation, what Compensation Event clause would X1 and X2 fall under (note- clause 16 has been removed from our standard PSC contract).

Any advice would be appreciated.



I would recommend providing more detail for the experts here like what is the option of your contract with the Client as there are a number of considerations to be factored in. That said, here are my thoughts.

Assuming this is an un-amended NEC3 contract, you should notify the Project Manager of any event listed in 60.1 as well as other compensation events are stated in secondary Option Clauses. If your Subcontractor has notified you of a cost increase and if you are ‘back-to-back’ with your conditions you should be passing this onto to your Client.

You have suggested however you have made an allowance of this amount within your Price, presumably before contract award and that the Compensation Event raised by your Consultant has not impacted to your Defined Cost. If so, as this event has no effect upon Defined Cost, it would not be accepted as a Compensation Event by the Project Manager, so why raise it ?

On what Compensation Event you should raise this under a Change in Law (Social Care Levy) would be raised as a X2.1 Compensation Event as it is a secondary clause compensation event.

On Inflation, I believe this is done via your Application for Payment, good link below explaining how this is done



Thank you for your response and for providing me with the article on ‘price increase’. My thoughts exactly, if the change was already anticipated and will not increase the total cost of the project to the employer, then there would be no reason to notify it.

My intention is to formalise this arrangement by General Communication- better to have a formal record of the rate change than not too.