In this series titled “NEC3 questions”, Steven Evans addresses the most common questions asked about the NEC3 contract.
“When do compensation events change the rates in the Bills of Quantities?”
The NEC3 suite has 2 main options that utilise a Bill of Quantities; option B and option D.
Option B is a straightforward application of the Bills, i.e. the Contractor prices the document which is then used to calculate how much the Contractor is paid based on the quantity of work done, adjusted by compensation events.
Option D is slightly different in that the Bill is used as the ‘target’ cost, adjusted by remeasurement and compensation events. The Contractor is reimbursed his Defined Cost plus the Fee, and a share of the pain or gain if the total Defined Cost exceeds or falls short of the ‘target’.
In both cases the works are entirely remeasured using the rates in the Bill, as adjusted by compensation events.
Certain of those compensation events arise solely due to the errors in the preparation and/or remeasurement of the Bill as follows:
Clause 60.4:
A difference between the final total quantity of work done and the quantity stated for an item in the Bills of Quantities is a compensation event if
- the difference does not result from a change to the Works Information,
- the difference causes the Defined Cost per unit of quantity to change and
- the rate in the Bill of Quantities for the item multiplied by the final total quantity of work done is more than 0.5% of the total of the Prices at the Contract Date.
In simple terms if, when an item is remeasured, its quantity is different to that in the original Bill (but not a difference that arose from a change to the Works Information) and as a result of that difference the cost per unit changes, and the total remeasured quantity of that item multiplied by the original Bill rate is greater than 0.5% of the total of the original Bill, then a compensation event occurs which permits the amendment of the unit price.
Clause 60.5
A difference between the final total quantity of work done and the quantity for an item stated in the Bill of Quantities which delays Completion or meeting of the Condition stated for a Key Date is a compensation event.
This is reasonably straightforward; any difference in the remeasured quantity compared to the original quantity is a compensation event if it causes a delay to Completion or a Key Date. Note, the requirement for the difference to be to a substantial item (i.e. more than 0.5% of the total) does not apply to this event.
Clause 60.6
The Project Manager corrects mistakes in the Bill of Quantities which are departures from the rules for item descriptions and for division of the work in to items in the method of measurement or are due to ambiguity or inconsistencies. Each such correction is a compensation event which may lead to reduced prices.
Self explanatory – the Bill must be compiled in accordance with the method of measurement stated in the Contract Data and any departure is a compensation event permitting its correction.
Finally, clause 60.7 prescribes that, when pricing the works, the Contractor can assume the Bill of Quantities is correct.
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