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construction contract and commercial consultants

NEC3 questions #3 – When is a compensation event not a compensation event?

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

When is a compensation event not a compensation event?”

When it is time barred…….

Compensation events under NEC3 are the method by which the Prices and the Completion Date are changed. Clause 60.1 lists out 19 events which includes the usual suspects such as additional work, weather, ground conditions, etc.

Clause 61 contains a procedure by which the Project Manager and the Contractor must notify the other of a compensation event. In the case of the Contractor, clause 61.3 requires notification within 8 weeks of becoming aware of the event; if he fails to do so, he loses his right to claim a change in the Prices or the Completion Date.

This clause provides opportunity for many to claim a Contractor’s entitlement is ‘time barred’. However, the Contractor would not be time barred if he failed to notify an event which the Project Manager should have notified to the Contractor, but did not.

Clause 61.1 describes such events as those arising from the Project Manager or the Supervisor issuing an instruction or changing a decision.

In those events, clause 61.1 requires the Project Manager notify the Contractor “at the time”, but if he does not, clause 61.3 requires the Contractor to notify the Project Manager but, as above, without falling foul of the time bar if he fails to do so.

That appears reasonably straightforward, but closer inspection of the applicable clauses reveals that NEC3, out of character, uses words such as “believes”, i.e. “the Contractor believes that the event is a compensation event” and “becoming aware”, i.e. “if the Contractor does not notify an event within 8 weeks of becoming aware of the event….”.

These words are difficult to define in a corporate context.

A final consideration; under clause 61.3 the obligation on the contractor to notify an event does not arise until the contractor believes that event is a compensation event. However, that same clause prescribes that the 8 week time bar runs from awareness of the event. It is possible that by the time an event becomes a compensation event (i.e. one that effects the Prices and the Completion Date), the 8 weeks may have expired.

For more 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.