Under NEC3 Option A Subcontract, can a Contractor exclude time risk allowance from a compensation event assessment if the works are being assessed retrospectively?

[pmcgonagle]

We are a Subcontractor on an NEC3 Option A Subcontract. The Contractor instructed revised drawings for ducting which was a compensation as per clause 60.1 (1). The revised drawings increased the spacing requirements between the ducts, which resulted in a larger trench to be excavated and backfilled. The original duration for the ducting works activity on the Accepted Programme was 10 days (8 days + 2 days TRA). The actual duration for undertaking the works was 15 days. We submitted a quotation for undertaking the additional works, however as the works had been completed during the assessment period, we both agreed to assess retrospectively on Defined Cost, as opposed to prospectively on a forecast. We are in agreement that the duration for undertaking the works was 15 days. The issue we have is the Contractor believes the assessment for the additional works should be 5 days (15 days minus the 10 days including the TRA) however we believe the TRA to be the Subcontractors and believe the assessment should be for 7 days (15 days minus 8 days excluding TRA).

The Contractor has stated the duration of the activity would have been priced which includes TRA therefore when comparing against actual durations that includes inefficiency and any other disruption it must be taken into consideration otherwise you are not comparing like for like. Fundamentally the change to the Defined Cost would include from the point including TRA until the activity is completed. When assessing TRA it should be used only prospectively not retrospectively and there is no compensation event clause for loss of opportunity.

I appreciate the basic principle behind compensation events is that the Subcontractor (in this scenario) should be no better or worse off after the event than he was before. If for example we included TRA for weather and a weather event happened which pushed out the completion of the works to 15 days, in theory we would be worse off if the Contractor didn’t take into consideration an element of TRA from the Accepted Programme duration. If we can demonstrate that some risk/s occurred when undertaking the works, surely this should be taken into consideration in the Contractor’s assessment?

[Andrew_W-I]

Time risk allowances (TRA) are taken into account when considering the effect of a compensation event on planned Completion, whereby the date for planned Completion includes TRA within the programme that excludes the CE and the programme that includes the CE.

Any TRA which specifically relate to the effects of the CE, however, must have a significant chance of occurring, which suggests that they have not actually occurred. In your case the CE scope change has effectively been ‘re-measured’ based on actual time duration.

You don’t say what the previous 2 days TRA specifically relates to. If it was a ‘general risk’ allowance, then it would be difficult to argue that this should continue to be included in the programme, especially when the programme operation it related to has been completed. If it was for a specific risk that actually occurred, then it would be included in the 15 days assessment, for example 13 days plus 2 days TRA.

One important point to consider here, is that the duration on the Accepted Programme is ‘indicative’, that is the assessment of a CE is the difference between the Defined Cost of the works including the CE and the Defined Cost of the works not including the CE. Although any operation durations on the Accepted Programme should be considered, they are not necessarily definitive in determining a CE assessment. For example, what if the operation originally stated 2 days with 8 days TRA. Would you replace the 2 days with 15 days and retain the 8 days TRA? The ‘better or worse’ principle is not intended to provide an opportunity to simply re-measure the works but to assess the ‘effects of the CE’.

Consequently based on what you have said I would suggest that the 15 days includes TRA.