We are on an NEC option A Contract. The contract includes Option X1 for inflation. It is my understanding that X1 is only applied to interim payments i.e. when assessing the amount due. However, the Contractor has been applying X1 within its Quotations for Compensation Events. Is this a correct application of X1?
Yes it sounds like the Contractor is correct, NEC3 cl.X1.3 and NEC4 cl.X.1.5 required compensation events to be adjusted for inflation back to the base date so that when they are added to the Activity Schedule all Prices are at base date levels. Then when amounts due are assessed the Prices in the Activity Schedule are updated to current levels.
Hi Neil, Is this adjustment included within their quotations? I.e they add an a sum for inflation in the quotation?
Quotes shouldn’t be uplifted by X1, if that’s what you mean? As Neil stated the role of X1 in quotations is to revert current prices back to base prices.
- Do your quote in today’s prices
- Discount it back to the base date
- Include it in payments, with the X1 uplift
At first glance it seems like unnecessary admin, but actually its logical. The price was set in history, so you have to discount back to it, otherwise you are not comparing like for like.
If the quote is for something that won’t be done for a couple of years - which is quite possible - its right that you should get inflation on it, just like you do on anything else.