What are NEC compensation events?
A compensation event is a term used in NEC contracts to mean an event which can affect the cost to the Client of the work being carried out, the time when the works will be completed, or both. A compensation event is the only way in which these can be changed.
What is compensation event notification?
Notification of a compensation event Compensation events are events which, if they occur, and do not arise from the Contractor’s fault, entitle the Contractor to be compensated for any effect the event has on the Prices and the Completion Date or a Key Date.
What are compensation events?
Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it. As a result, the prices, key dates or the completion date may be reassessed, and in many cases the contractor will be entitled to more time or money.
How are compensation events assessed?
Under NEC3, neither the rates and prices in the Activity Schedule nor the Bill of Quantities are considered in assessing a compensation event. Rather, the assessment is based on the effect of the event on the Contractor’s cost; i.e. it either increases the cost or decreases it.
WHO issues a compensation event?
As soon as a contractor is aware of an event, he should issue a Notification of Compensation Event (NCE). If the contractor fails to do this within 8 weeks of becoming aware of the event then they are not entitled to a change in prices, completion date or a key date.
Is NEC option a lump sum?
Under this option, NEC allows for partial payments based on the proportion of the work that has been completed at the time of the interim payment. As such, it can allow for more constant cash flow and be more flexible. Priced contracts allocate a lump sum for the work.
How many compensation events are there?
Events that are compensation events are set out in the Contract. There are 19 events listed in clause 60.1 of the core clauses, a further 3 in main options B and D (the bills of quantities options) and more scattered through the secondary options.
What is NEC option E?
Option E is a cost reimbursable contract in which the contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee. Option E contains the core clauses, secondary option clauses, schedules of cost components, contract data, and so on.
What is an NEC3 compensation event?
Part three of the series will come at the end of the year and examine time under NEC3. Compensation events are events which are usually not the fault of the contractor and change the cost of the work, or the time needed to complete it.
Do the processes and procedures apply to all NEC4 contracts?
However, the processes and procedures included in this note apply equally to other NEC4 contracts. Clause 60.1 sets out a number of events which are identified as compensation events. Note that there may be other events, depending on the choice of Options (for example X2 – changes in the law) or by additional entries in Contract Data.
What happens if a contractor does not notify a compensation event?
Clause 61.3 provides that if the contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the prices, the completion date or a key date.
What is the time bar for notification of compensation events?
Most importantly, the notification of compensation events may be subject to a time bar at clause 61.3. Clause 61.3 provides that if the contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the prices, the completion date or a key date.