Under the NEC 4 ECC Option C can a Compensation Event instructed under Clause 60.1(21) lead to a Reduction in Prices?
We believe that 63.4 is quite clear that only CE’s instructed under 63.4 is clear that the only CEs which can Reduce the Prices are 60.1(1) and 60.1(17) are the only items which can lead to a Reduction in Prices.
For context, items which will reduce the Defined Cost have been included within a Compensation Event register attached to the Contract Data. Some of these events were proposed by the Contractor as a route to reduce the Defined Cost. The Project Manager now believes these events will Reduce the Prices; the Contractor believes that they are Contractor’s Proposals, and whilst it can be managed through Clause 60 it should not lead to a reduction in Prices.
Which is the correct method to apply the Contract?
If a Contractor’s proposal under clause 60.1(21) results in a reduction of Defined Cost, it can reduce the total Forecast of the Cost to Complete (affecting the share calculation and outturn cost), but it does not automatically reduce the Prices (Target Prices) themselves.
The only way for Prices (the Targets) to be reduced is:
- by changing the Scope (CE under 60.1(1)), or
- by correcting a Project Manager’s assumption under 60.1(17).
Can an instruction which is included as an ‘Additional Compensation Event included within the Contract Data’ be an instruction under both 60.1(21) and 60.1(1) simultaneously?
Clause 63.3 states that the Prices are not reduced unless the conditions of contract provide for this to occur.
Clause 63.4 is a ‘core clause’ and relates to compensation events 60.1(1) and 60.1(17), although there are other occurrences, including those at clauses 60.6 and at X2.1.
For consistency, and following the ‘direction’ of the contract, the compensation events stated in Contract Data (clause 60.1(21)) should state that the Prices can be reduced for this to occur.