NEC4 Option B and Covid related material cost increases

NEC4 Option B contract that was tendered pre-Covid pandemic but with start date post Covid pandemic starting, an additional CE clause under 60.1(21) in CD part 1 was added for ‘matters directly or indirectly arising out of or in connection with Coronavirus, COVID-19/CONVID 19’, prices were not changed from the tendered rates and the project commenced. Contractor has since notified a number of EWN’s with regards to price changes for materials and products and stated that this price change is as a result of Covid and are seeking to notify a CE for these price increases, attributing the inflated costs that are over and above ‘normal’ inflation that would have been reasonably expected and allowed for by an experienced contractor at time of tender to Covid, with normal market inflation suggested as circa 1.5% per annum. How should any CE notification be assessed in this scenario and what supporting evidence should be provided to identify that the cost increase is ‘directly or indirectly’ linked to Covid and not as a result of other market factors? If a blanket approach is adopted to accepting and assessing CE’s on the basis of increased material costs where shown to be over 1.5% does this effectively change the contract to a cost plus?

The material price increases is a complex matter and can effectively be indirectly attributed to a range of factors, including; Coronavirus, Brexit, Government policy, macroeconomic issues, among others.

I am sure the additional compensation event was added with ‘good intention’ but does seem to have created a bit of an administrative problem, not least because the ‘indirectly arising’ part would apply, but trying to demonstrate the consequential effect will be challenging. If the matter is accepted as a compensation event then you would also need to assess the associated ‘time’ and disruption, which is a further challenge.

Personally I would separate out issues as much as possible rather than treating the matter as a ‘global claim’. Isolate certain products and components and use statistical data and analysis to demonstrate what increases have the greatest impact, which has recently been steel and timber products. It doesn’t look as though this is an easy matter to assess so establish a framework of principles to determine how the assessment will be undertaken.

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