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Instruct Newsletter #19 - NEC - CE’s: Obey or Not?
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This week we had a subscriber with an interesting problem regarding compensation events and the Contractor not being willing to place any orders until the CE quotation had been accepted.
Let’s figure out what is happening and what the NEC contract says:
Define the problem (CE not being obeyed)
What does the contract say to do?
How should the NEC Project Manager respond
Let’s begin…
1. Define the problem
Here is the sequence of events that has occurred:
NEC Project Manager was preparing a PMI to instruct the Contractor to undertake a piece of work
The Contractor knew this piece of work was required, so they notified it as a compensation event instead of waiting for the PMI
To avoid duplication, the NEC Project Manager accepted the CE rather than notifying a PMI
Contractor is now saying they won’t proceed until the quotation is accepted
The quotation includes for a time delay in the CE programme, delaying Completion and increasing cost. The NEC PM wont accept this delay.
If the Contractor is waiting for the quote to be accepted, but the Project Manager won’t accept it, the Contractor will wait longer and delay completion further…a never ending issue.
This all stems from the Contractor saying they won’t proceed with the work until the quotation is accepted. But is this in accordance with the contract? What exactly does the contract say about this?
2. What does the contract say to do?
This is how the events reflect the contract:
Contractor notified CE under clause 61.3, referencing a change to the Scope (60.1(1)) - Already happened
Project Manager replied to the CE notification as per clause 61.4 (within 1 week and including an instruction to submit quotes) - Already happened
The Contractor is required to submit a quotation within 3 weeks of being instructed (62.3) - Not yet happened
The compensation event is implemented when the Project Manager accepts the quotation (66.1) - Not yet happened
However, the contract also explains how the Contractor should respond and act in these situations:
Clause 63.9 - “The assessment of the effect of a compensation event is based upon the assumption that the Contractor reacts competently and promptly to the event and that any Defined Cost and time due to the event are reasonable incurred.” The Contractor must react to the CE competently and promptly! Not waiting for the quotation to be accepted!
Also, the contract defines the date when forecast cost should be used in the quotation (assessment):
Clause 63.1 - “The change to the Prices is assessed as the effect of the compensation event upon
the actual Defined Cost of the work done by the dividing date
the forecast Defined Cost of the work not done by the dividing date and
the resulting fee
For a compensation event that arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision, the dividing date is the date of that communication.” The date when the CE was accepted created the dividing date, the split between actual and forecast cost. Forecast cost (Defined Cost) must be reasonably incurred (Clause 63.9)!
In summary, the Contractor needs to respond quickly and ensure that all the costs they are seeking to claim, will be reasonable incurred. Introducing a delay (with additional cost) while they wait for the PM to accept the quotation is not “reasonably incurred”. The PM has already accepted it as a compensation event, so the Contractor will get paid.
3. How should the NEC Project Manager respond
The Project Manager has a few options here, some more contractual than others. Here is how we would tackle the problem as NEC PM:
Speak with the Contractor (possibly notify an early warning and have an early warning meeting) to highlight the problem and request their immediate action. (Get on with the work!). If that doesn’t work…
Notify an early warning with a thorough explanation as to why the Contractor is not acting in accordance with the contract (Clauses 10.1 & 10.2). Use that as a record of discussions.
Don’t accept the Contractor’s quotation and explain in the response why its not accepted (delays and costs on the programme which are not in accordance with the contract, i.e. waiting for PM acceptance)
Notifying the Contractor under Clause 64.1, stating they have not assessed the compensation event correctly, and the NEC PM will be undertaking their own assessment! This is final decision by the PM that they will decide the cost for themselves.
Make an assessment as per the Contractors quote, but removing the time and cost delay. The core of the CE was never in dispute, so the NEC PM just removes the unreasonable costs.
Have you ever been in this position? A Contractor not willing to do something that is clearly required in the contract?
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