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construction contract and commercial consultants

NEC3 questions #1 – When does a Project Manager make a compensation event assessment?

In this series titled “NEC3 questions”, Steven Evans addresses the most common questions asked about the NEC3 contract.

In what circumstances does a Project Manager make an assessment of a compensation event and how does a Contractor dispute it?

Under NEC3, the Project Manager must (not may) assess a compensation event in the 4 circumstances set out in clause 64.1, i.e.

  • if a Contractor has not submitted a quotation and details of his assessment within the time allowed;
  • if the Project Manager decides that the Contractor has not assessed the compensation event correctly in a quotation and he does not instruct the Contractor to submit a revised quotation;
  • if, when the Contractor submits quotations for a compensation event, he has not submitted a programme or alterations to a programme which the contract requires him to submit; or
  • if, when the Contractor submits quotations for a compensation event, the Project Manager has not accepted the Contractor’s latest programme for one of the reasons stated in the contract.

If the Project Manager assesses the compensation event, he does so by assessing the affect of that event on Defined Cost using the Schedule of Cost Components under Main Options C or D or the Shorter Schedule of Cost Components under Main Options A or B. Alternatively he may, at his discretion, use the Shorter Schedule for C or D instead. As for time, the Project Manager assess the effect the compensation event has on the planned completion date.

Once his assessment is notified to the Contractor, providing such notification is timely and compliant with the communication rules of the Contract, then pursuant to clause 65.1, the compensation event is implemented and the changes to the prices or the completion date set out in that notification is final between the parties and can only be undone by adjudication.

Accordingly, if the contractor disputes the assessment, he has no choice but to adjudicate; however, if the reason for the Project Manager having to assess the compensation event is that the contractor failed to assess it himself, he may find that an adjudicator will decide that he has lost his opportunity.

For further information, please contact us.

Written by Steven Evans who is a construction contract and commercial expert with particular specialism in NEC3, and is an NEC accredited tutor.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.