Frequently Asked Questions

We are the client and project manager on an NEC4 Engineering and Construction Contract (ECC) Option B (priced contract with bill of quantities) for a road resurfacing project. We issued an instruction to reduce the scope by omitting the base course, followed by a notification to submit a quotation for a compensation event. The contractor multiplied the bill of quantities items omitted (milling carriageway, bond coat and base course) by its ‘profit margin’ of 20% and then added the fee. We do not believe this is correct, as at the time of notifying the compensation event the works were not done. We think clause 63.1 (second and third bullet points) applies, such that the contractor should prepare its quotation using the short schedule of cost components plus its fee. Who is right?

You are right. In ECC, the valuation of any compensation event is based on the effect it will have on the forecast (in this case) defined cost of the work not done, see clause 63.1. If the only change is removal of the base course, the compensation event will be based on the forecast defined cost of carrying out the work plus the fee. Note this is not based on the rates in the bill of quantities: instead it is calculated on the components in the short schedule of cost components, see clause11.2(23). That is the same for deductions or additions.

The assessment does not account for any loss of profit and, in effect, the contractor also loses its fee for the omitted work. The calculated sum is then compared with the value of the rate and quantity in the bill of quantities for the omitted work. If the calculated value is smaller, a positive item is inserted into the bill of quantities. If the value is larger, a minus item is inserted. In both cases the original item is removed.

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