NEC4: Assessing Compensation Events Part 2 - Price

Master NEC4 price assessment with worked examples. Learn why 90% get clause 63.1 wrong and the double exercise most practitioners miss. Free expert training.

Key Takeaways

Don't Compare Price to Cost

The most common mistake in NEC4 assessments. Clause 63.1 does not say compare the activity schedule price with the forecast defined cost. It says assess the effect of the compensation event on defined cost. That means calculating cost with and without the CE, then finding the difference.

The Dividing Date is Static

The dividing date separates actual defined cost from forecast defined cost. It locks in at notification or instruction and does not reset, even if you revise the quotation multiple times. This brings stability to the assessment and aligns price and time. Understand when yours is set.

Use Agreed Rates for Low Value CEs

Clause 63.2 lets you agree to use rates or prices as the basis of assessment. If it's a small change, similar work, and both parties are comfortable, don't waste hundreds of pounds achieving accuracy for pennies. Agreement must be mutual. Neither party can insist. But where it fits, use it.

Fee Applies to Omissions Too

Contractors must give fee back on deleted work. It feels unfair, but the contract is clear: defined cost plus fee for additions, defined cost plus fee for omissions. Accept it. And if you spot the saving idea yourself, use clause 16.1 value engineering to share the benefit rather than lose the margin.

Session Transcript

00:00 Introduction and Welcome

Glenn Hide: Good afternoon, everyone. Welcome to what is episode four, focusing on price.

01:42 CECA Introduction

David Allen: Thanks, Glenn. I'm David Allen, the Executive Director for CECA Southern. Today we'll address the price element of compensation events.

03:22 Session Overview

Ben Walker: Today's episode will focus on price assessment of compensation events. We'll look at examples and common problems.

05:16 What is a Compensation Event

Glenn Hide: A compensation event is an event which, if it occurs through no fault of the contractor, entitles the contractor to change the prices, completion date, and key dates.

07:19 The Compensation Event Process

Glenn Hide: We'll review the process, including awareness, notification, and the assessment phases.

09:05 Clause 63.1 Introduction

Ben Walker: We're honing in on 63.1, which is critical for price assessments.

10:04 The Dividing Date Recap

Ben Walker: The dividing date must remain static to ensure clarity in cost evaluations.

12:00 Dividing Date Examples

Ben Walker: It's essential to determine actual vs. forecast costs for effective compensation event assessments.

15:28 Clause 63.2: Agreement to Use Rates

Ben Walker: Explore using clause 63.2 for low-value compensation events, where mutual agreement simplifies the process.

20:10 Clause 63.1: The Default Approach

Ben Walker: 63.1 assesses the change to the prices based on defined costs with and without the compensation event.

22:08 Example 1: Deletion of M&E Plant Building

Ben Walker: In this example, we analyze the financial impact of deleting a building within the project scope.

27:33 Scenario 2: Different Cost Base

Ben Walker: Examining cost variations based on differing defined costs helps clarify contract obligations.

32:22 Example 2: Change to Concrete Beam

Glenn Hide: Assessing the change in the scope of a project entails analyzing costs correctly to maintain compliance.

40:17 Summary and Key Points

Ben Walker: It's critical to preserve tendering positions while accurately assessing compensation event impacts.

44:37 Common Problems and How to Avoid Them

Glenn Hide: Emphasizing defined costs and engaging collaboratively can mitigate future issues.

49:02 Q&A Session

Common inquiries cover everything from the nuances of assessing compensation events to managing project manager expectations.