Variations to X1 Option A NEC 3 TSC and assessing compensation events

NEC3 and NEC4 Contracts Secondary X, W and Y options
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have a situation where. X1.1 (a) and (b) were deleted and replaced so that the base Date Index and the Latest Index are the final index available 5 months before the price adjustment date.

The contractor has requested a variation on the basis that the contract is no longer viable because of price increases and changes to fuel legislation, arguing that the above method does not reflect the changing market conditions and the associated increase in the cost base. Effectively, they want to adjust prices based on the difference between the BCIS Base Date Index and the Latest available index for that month. Contractually, there is no entitlement to this change.

How does X1 for inflation work in respect of current CE’s and what impact would this change have on assessment of CE’s.

X2 is also selected but has anyone accepted this for recent changes to fuel legislation?

Without the change could the contractor argue that the contract has become impossible. This is a high threshold but has anyone had any experience of someone successfully arguing something is commercially impossible?

Any thoughts much appreciated.

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The amendment of X1.1 does not sound correct; if Base Date Index (“B”) and Latest Index (“L”) coincide (i.e. both being “the final index available 5 months before the price adjustment date”), the formula does not work and the Price Adjustment Factor (PAF) would be “0” (see X1.1 (c) where L=B and L-B/B = 0/B=0); unless you have further amendments.

Regarding X1 in respect of CEs, clause X1.3 refers, i.e.: Defined Cost (actual and/or forecast) + Fee; Defined Cost = (Defined Cost current at the date of the assessment) / (1 + PAF of the last assessment of the amount due) + (Defined Cost at base date levels for amounts calculated from rates and prices in the Price List). However, in your case (if the conclusion above is correct) this is irrelevant as the price adjustment in each assessment (clauses X1.4 or X1.5 apply depending on the Option) would be “£nil”.

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Thank you Peter, that is incredibly helpful