Frequently Asked Questions

We are the project manager on an NEC4 Engineering and Construction Contract (ECC). We have issued a negative compensation event which has removed some of the scope. This happens to be on the critical path on the accepted programme. The effect will allow the contractor to complete the works earlier. As there will be a reduction to the defined costs in the way of staff and site preliminary costs, can you confirm there will be a cost saving for the client for these items and that the completion date can be brought forward?

There is no such thing as a ‘negative’ compensation event and you do not ‘issue’ one. If a compensation event reduces the total defined cost, the prices are not reduced unless otherwise stated in the conditions of contract, see clause 63.3. However, in this case the prices can be reduced because of the wording of the first bullet of clause 63.4.

But there is no such mechanism to make the completion date earlier. That is because clause 63.5, which sets out how the completion date may be changed by a compensation event, only deals with delays to the completion date. So, the completion date cannot be changed in this case.

The contractor can slow down the work if it wishes to, and this may save it money. Therefore, the calculation of how much saving of defined cost will not be straightforward and you cannot just apply a broad brush like you are proposing for that calculation. We suggest that you discuss this with your contractor.

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