Q1

You are asked to step in as the Project Manager to manage an ECC Option A contract to
construct a new retail store in its final 4 months. The defect correction period is 2 weeks.
The project has been under way for 18 months and, following an initial review of the
paperwork and procedures, it is evident that both the previous Project Manager and
current Contractor have failed to manage the contract correctly. Any response referring to
dispute resolution should identify whether Option W1, W2 or W3 applies as an assumption.

There are a number of Defects on the project which is nearing Completion. The Client is
keen to get the store open and is prepared to accept some of the Defects.

a. What provisions exist within the contract for a Defect to be accepted? How is this
dealt with financially and who is then liable for work if the Defect is accepted? [3
marks]

Reference:

Clause 45 – Accepting Defects

45.1 The Contractor and the Project Manager may propose to the other that the Scope
should be changed so that a Defect does not have to be corrected.

45.2 If the Contractor and the Project Manager are prepared to consider the change,
the Contractor submits a quotation for reduced Prices or an earlier Completion
Date or both to the Project Manager for acceptance. If the quotation is accepted,
the Project Manager changes the Scope, the Prices and the Completion Date
accordingly and accepts the revised programme.

Clause 46 – Uncorrected Defects

46.1 If the Contractor is given access in order to correct a notified Defect but the Defect
is not corrected within its defect correction period, the Project Manager assesses
the cost to the Client of having the Defect corrected by other people and the
Contractor pays this amount. The Scope is treated as having been changed to
accept the Defect.
46.2 If the Contractor is not given access in order to correct a notified Defect before the
defects date, the Project Manager assesses the cost to the Contractor of
correcting the Defect and the Contractor pays this amount. The Scope is treated
as having been changed to accept the Defect. (I think need not to mention whether
access is given or not since the question is only asked about the way to deal with
financially. Hence, you can just basically refer to Clause 45.2)

Clause 80.1 – Client’s liabilities

80.1 The following are Client’s liabilities.

Loss of or damage to the parts of the works taken over by the Client, except loss
or damage occurring before the issue of the Defects Certificate which is due to

–– a Defect which existed at take over,

–– an event occurring before take over which was not itself a Client’s liability or

–– the activities of the Contractor on the Site after take over.

In my point of view, the Client is then liable for work if the Defect is accepted. The meaning
of defect accepted is no defect of the work after acceptance so the Contractor has already
been completed its liabilities and then shift to the Client after the works taken over.

You meet the Contractor for the first time who explains they were unhappy with the
previous Project Manager. A compensation event quotation was submitted for £420,000,
but the previous Project Manager did not accept this and then assessed it for £40,000.
Upon review you believe that this is clearly wrong and should be more like £400,000.
The Contractor is threatening adjudication.

b. How might this be resolved without the need for adjudication and who is able to
make such an agreement? Assuming that the compensation event is subsequently
changed to £400,000 by agreement of the Parties, how is the shortfall in payment
dealt with? [4 marks]

To resolve this without the need for adjudication, you, as the Project Manager, can
reassess the compensation event in accordance with the contract. Under Clause 65.2 of
the NEC4 ECC, the Project Manager may correct an amount due in a previous certificate
at any time, either before or after the final certificate has been issued.

To avoid unnecessary disputes, it's important to have a detailed discussion with the
Contractor about your reassessment and explain why you believe the £400,000 is correct.
The conversation should be open, honest, and collaborative, focusing on the specifics of
the contract and the reasons behind the original assessment.

Once an agreement is reached, the Project Manager can implement the change. The
difference of £360,000 (£400,000 - £40,000) would be added to the next payment due from
the Employer to the Contractor.

The Contract allows the Project Manager to make such an agreement and reassess the
compensation event. However, it's crucial to keep the Employer informed about these
changes and their implications.

Any change in Prices resulting from the reassessed compensation event must be included
in the Price for Work Done to Date and affect the total of the Prices. The change is
implemented through the amount due, which is decided in the next assessment of the
amount due.

In summary, open and honest communication and following the contractual procedures
can help in resolving this issue without resorting to adjudication.

The Contractor’s most recent programme shows planned Completion after the Completion
Date. Delay damages of £50,000 per day are included in the contract.

c. Assuming the Contractor is late by 8 days, at what time are the damages
retained? What discretion does the Project Manager have? [5 marks]

In the NEC4 ECC, delay damages, often termed as liquidated damages, are defined in the
Contract Data part 1, provided by the Employer. These are typically a pre-agreed fixed
amount that the Contractor is liable to pay for each day that they are late in achieving the
Completion Date, and are intended to cover the Employer for the loss and expense they
may incur as a result of the delay.

If the Contractor is late by 8 days, and the contract includes delay damages of £50,000 per
day, the Contractor would be liable for £400,000 (8 days * £50,000/day).

According to Clause 50.7, the Project Manager includes the delay damages due in the
amount due. This typically happens at the next assessment date, which usually falls on
each assessment interval, often monthly. The Project Manager would deduct the amount
from what is due to be paid to the Contractor.

As far as the Project Manager's discretion is concerned, it is limited. The Project Manager
cannot waive or reduce delay damages unless there is a compensation event that delays
the Completion Date. The Completion Date is only revised if a compensation event occurs
that changes the planned Completion Date, and this is agreed and implemented according
to the procedures stated in the contract.

In all instances, the actions of the Project Manager should be in accordance with the
contract to avoid any potential disputes.

The Contractor eventually achieves Completion.

d. What duties should the Project Manager fulfil at Completion? What

documentation should be produced and who should it be sent to? [5 marks]

Upon the Contractor achieving Completion, the Project Manager has certain duties under
the NEC4 Engineering and Construction Contract:

Certification of Completion: According to Clause 30.1, the Project Manager should issue a
Completion Certificate to certify that the Contractor has completed the works in
accordance with the contract. This certificate should be issued within a week of
Completion.

List of Defects: At Completion, the Project Manager should also compile a list of any
known defects that the Contractor has yet to correct, as outlined in Clause 43.1. This list
should be sent to the Contractor.

Schedule of Defects: The Project Manager has to prepare a schedule of defects that have
to be corrected during the Defects Correction Period and notify the Contractor, as
mentioned in Clause 43.2.

Final Assessment: As per Clause 53.1, the Project Manager is to make a final assessment
of the total amount due within 13 weeks of the Supervisor issuing the Defects Certificate
(which signifies the end of the Defect Correction Period). This assessment includes the
cost of all compensation events, the total Price for Work Done to Date, and any delay
damages.

All these documents should be produced and sent to the Contractor. However, it's also
good practice to keep the Employer informed and provide them with copies of these
documents.
After Completion, it becomes apparent that a lift installed by the Contractor has a
maximum load capacity of 8 people, but the Scope required a lift with a maximum load
capacity of 10 people.

e. How should this be dealt with? What happens if this is not resolved by
the Contractor? Assuming there is no retention, how would this issue be dealt with
financially? [8 marks]

In this case, the lift not meeting the required load capacity specified in the Scope is
considered a Defect under the NEC4 Engineering and Construction Contract. Here's how it
should be handled:

Notification of the Defect: As the Project Manager, you should notify the Contractor of the
Defect as per Clause 43.1, specifying that the lift does not meet the requirements of the
Scope.

Contractor's Obligation: Upon receiving the notification, the Contractor is obligated to

correct the Defect within the Defects Correction Period, as per Clause 43.3. If the
Contractor does not correct the Defect within this period, the Project Manager may assess
the cost of having the Defect corrected by other means and recover this cost from the
Contractor (Clause 45.1).

Financially, if there's no retention, the cost to correct the Defect (like replacing the lift)
would be deducted from the next payment due to the Contractor or, if the contract has
been completed and all payments have been made, the Project Manager could assess the
cost to correct the Defect and the Contractor would be liable for this cost.

If the Contractor still doesn't address the issue, the Employer has the right to employ
others to correct the Defect and recover the cost from the Contractor.

[END]

Q2

During the construction of a new asset on an ECC Option A contract, there is an argument
about the status of the Scope. The Scope provided by the Client states performance
criteria for the mechanical and electrical installation that the Contractor’s design is required
to comply with. The Scope states that the Contractor is required to design these parts of
the works.

The Scope provided by the Contractor for its design does not fully comply with the
performance criteria. The Contractor says, that by accepting the tender, the Client has
agreed to the revised design and that this is what the Client will get. Apparently, any
change to this would constitute a compensation event.

a. Is the Contractor correct? How should this be dealt with by the Project Manager?
[6 marks]

The Contractor's assertion is not correct. In an ECC Option A contract, the Scope provided
by the Client is what the Contractor is required to comply with. If the Contractor's Scope for
its design does not fully comply with the performance criteria set by the Client, it is deemed
as a Defect. The acceptance of the tender does not automatically mean acceptance of any
deviations in the Scope unless explicitly agreed upon.

The Project Manager should handle this situation as follows:

Notify the Contractor: The Project Manager should notify the Contractor that their proposed
Scope does not meet the performance criteria specified by the Client. This should be done
formally, pointing out the specific areas where the design falls short of the requirements.

Correct the Defect: The Contractor is obliged to correct the Defect. In this case, the Defect
is the design not complying with the performance criteria. The Contractor needs to modify
their design to meet the specified performance criteria.

No Compensation Event: The Contractor's duty to correct the Defect does not constitute a
compensation event. Compensation events are circumstances which are not the
Contractor's fault and result in additional costs. In this case, the fact that the Contractor's
design does not meet the criteria is the Contractor's responsibility, and they should bear
the cost of making the necessary corrections.

If the Contractor refuses: If the Contractor refuses to correct the Defect, the Project
Manager may assess the cost of having the Defect corrected by other means and recover
this cost from the Contractor according to Clause 45.1.

On the same project a further argument has emerged. This time the Scope provided by
the Client states that the air conditioning unit should perform 9 air changes per hour.
Elsewhere, in another document, which is part of the Scope provided by the Client, it
states 7 air changes per hour.

b. How should the Project Manager manage this and how should it be dealt with
financially? [8 marks]
This situation represents a contradiction or ambiguity within the Scope provided by the
Client. As per NEC4 ECC, this could be considered a compensation event under Clause
60.1(1) - the Project Manager giving an instruction changing the Scope.

Here's how the Project Manager should manage this situation:

Clarification: The Project Manager should first clarify the Client's actual requirement. If the
Client confirms that the requirement is 9 air changes per hour, then the Scope should be
updated to reflect this, and the Contractor should be notified.

Compensation Event: If the Contractor has been working to the 7 air changes per hour
requirement, this change could constitute a compensation event, as it changes the Scope
the Contractor has been working to.

Quotation: The Project Manager should then request the Contractor to provide a quotation
for this compensation event, as per Clause 62, which would detail the changes in Prices
and Completion Date.

Assessment: Once the quotation is received, the Project Manager should assess it as per
Clause 64. If the Project Manager agrees with the quotation, they should instruct the
Contractor to implement the change.

Financially, the cost arising from this change in Scope (from 7 to 9 air changes per hour)
would be treated as a compensation event, and the Contractor would be reimbursed for
the additional costs incurred due to this change.

c. The Contractor later admits that it has priced for 9 air changes per hour. Does this
affect how any compensation event is assessed? [2 marks]

If the Contractor has admitted that they priced for 9 air changes per hour in their original
tender, then this changes the situation.

In this case, if the original contract and Scope stipulated 9 air changes per hour and that's
what the Contractor priced for, then there is no change in Scope. Therefore, there would
be no compensation event to assess. The Contractor would be expected to deliver on what
was originally agreed upon in the contract, at the originally agreed price.

If the Contractor has priced for 9 air changes per hour, but has been working to a
requirement of 7 air changes per hour, then the Project Manager should instruct the
Contractor to meet the original requirement of 9 air changes per hour. This would not
constitute a compensation event, as the Contractor has already priced for, and agreed to,
this requirement in the original contract.
The important thing here is that the Contractor delivers what was agreed upon in the
contract. Any deviations from the contract should be dealt with according to the contract's
terms and conditions.

d. If this was an Option C contract, how would the impact of this differ from an
Option A contract? [3 marks]

Under an NEC4 ECC Option C contract, the financial risk and reward are shared between
the Contractor and the Client based on an agreed target cost. If the actual cost is less than
the target, the savings are shared; if the actual cost exceeds the target, the additional
costs are also shared.

In the situation where there's a discrepancy in the Scope regarding the air changes per
hour, the process to resolve the discrepancy would remain the same as under Option A –
the Project Manager would seek clarification and update the Scope as necessary.

If the Contractor has already priced for 9 air changes per hour, there is no change in the
Scope, and hence, no compensation event. The Contractor is expected to deliver what
they priced for. However, if the Contractor has been working to the requirement of 7 air
changes per hour, the additional cost to meet the original requirement of 9 air changes per
hour would impact the total cost of the project.

Under Option C, any increase in cost will affect the total of the Prices, and hence, the
Contractor’s share. If the actual cost is higher than the target cost, the Contractor will bear
a portion of the additional cost, as specified in the contract (the 'share' percentages). The
Project Manager will assess the cost using the Shorter Schedule of Cost Components.

So, while under Option A the Contractor would bear the full cost of any additional work,
under Option C, the additional cost is shared between the Client and the Contractor.

To compound problems, the Scope provided by the Client did not state that the cladding to
the building should be in their corporate green colour, it merely defined the performance
standards but said nothing about the colour.

e. The Contractor’s view is that specifying a particular colour would now be a

compensation event. Is that correct? Also, how should the Project Manager deal
with this? [6 marks]

If the Scope provided by the Client did not specify the color of the cladding, and the Client
now wants it to be in their corporate green color, then yes, it would constitute a
compensation event. This is because it's a change in the Scope of the work after the
contract has been agreed upon.
Here's how the Project Manager should handle this:

Notification of Change: The Project Manager should formally notify the Contractor of the
change in Scope - that the cladding should be in the corporate green color.

Compensation Event: The Project Manager should then instruct the Contractor that this
change constitutes a compensation event, as per Clause 60.1(1) of the ECC.

Quotation: The Project Manager should ask the Contractor to provide a quotation for the
compensation event, detailing the changes in Prices and Completion Date due to this
change.

Assessment: Once the quotation is received, the Project Manager will assess it. If the
Project Manager agrees with the quotation, they should instruct the Contractor to
implement the change.

Financially, the cost arising from this change in Scope (from unspecified color to corporate
green) would be treated as a compensation event, and the Contractor would be
reimbursed for the additional costs incurred due to this change.

[END]

Q3

An ECC Option C contract has been awarded for the construction of a concert arena.

The access to the Site is constrained significantly and results in the Contractor having to
decant the fill material into small dumper trucks from the delivery wagons. The Scope
provided by the Client was clear about the access constraints.

a. The Contractor believes that this constitutes an impossible requirement and

notifies the Project Manager of this under clause 17.2. How should the Project
Manager respond? [3 marks]

In an ECC Option C contract, the Contractor shares in the financial risk and reward of
completing the project. If the Scope provided by the Client clearly stated the access
constraints, the Contractor would have been expected to consider this while pricing their
tender.

If the Contractor now believes that this constitutes an impossible requirement, the Project
Manager should respond in the following manner:
Review the Claim: The Project Manager should first review the Contractor's claim under
clause 17.2 and the original Scope provided. They should examine whether the
requirement was indeed impossible or if it was just difficult or costly.

Consultation: The Project Manager should consult with the Contractor to discuss their
concerns and understand why they believe the requirement to be impossible.

Seek Expert Opinion: If necessary, the Project Manager may seek independent or expert
opinion on the feasibility of the requirement.

Decision: If the requirement is indeed impossible, the Project Manager may need to agree
to a change in the Scope, which would be a compensation event. If the requirement is
deemed feasible, although challenging or costly, the Contractor is expected to meet the
original Scope, and there would be no compensation event.

Communication: The Project Manager should communicate their decision and reasoning to
the Contractor, ensuring to document all discussions and decisions.

Remember, under an Option C contract, any increase in cost due to the difficulty of the
work would impact the total cost of the project, and hence, the Contractor’s share of cost
overruns or savings.

The Client’s health and safety representative is concerned about the deep excavations
required to construct the arena lighting columns and wants to see the design of the
earthwork supports.

b. What provisions exist within the contract to provide for this? [4 marks]

The NEC4 ECC contract contains several provisions related to health and safety and the
sharing of design information:

Health and Safety: Under clause 27.2, the Contractor is required to provide the Project
Manager with a health and safety plan before starting the work. This plan needs to be
updated as the work progresses. The Contractor is responsible for the health and safety of
their operations on the site.

Design: Under clause 21.2, the Contractor is obliged to submit design documents to the
Project Manager for acceptance at the times stated in the Scope. If no times are stated,
the Contractor decides when to submit.

In this case, the Contractor should provide the design of the earthwork supports for the
deep excavations to the Client's health and safety representative. This should be done in
accordance with the timescales set out in the Scope or at a time decided by the Contractor
if no timescales are stated.

Right to Audit: The Project Manager has the right to audit any aspect of the Contractor's
work, including health and safety procedures and design documents, according to clause
26.2.

The Client's health and safety representative's request to see the design of the earthwork
supports is entirely within their rights, and the Contractor should comply promptly.

The Contractor notifies a compensation event under clause 61.3 stating that this was not
included in the Scope and this is impeding the work.

c. Is this a compensation event? How should the Project Manager respond? [5

marks]

If the Scope did not explicitly state that the Contractor would need to share the design of
the earthwork supports with the Client's health and safety representative, then the
Contractor could argue that this is a change to the Scope and hence a compensation
event. However, the general requirement to comply with health and safety regulations and
provide necessary documentation is typically understood to be part of the contract.

Here's how the Project Manager should respond:

Review the Claim: The Project Manager should first review the Contractor's claim under
clause 61.3 and the original Scope provided. They should examine whether sharing these
design documents was implicitly or explicitly part of the Scope.

Consultation: The Project Manager should consult with the Contractor to discuss their
concerns and understand why they believe this is a compensation event.

Decision: If the Project Manager agrees that this is a change to the Scope, they should
treat it as a compensation event. If they disagree, they should explain to the Contractor
why this requirement is considered part of the original Scope.

Communication: The Project Manager should communicate their decision and reasoning to
the Contractor, ensuring to document all discussions and decisions.

If it is indeed a compensation event, the Contractor would be entitled to additional costs

and/or time. In this case, the Project Manager should ask the Contractor to provide a
quotation for the compensation event, detailing the changes in Prices and Completion
Date due to this change.
The original Scope was, in hindsight, poorly drafted in certain areas. Whilst
the Contractor is responsible for design, the Scope did not contain a requirement for the
submission of design in accordance with clause 21.2. The newly appointed Supervisor now
wants to see the design of the permanent foundations and steelwork.

d. Can the Supervisor instruct this? How can the design be verified before work
commences? [6 marks]

While the Contractor is indeed responsible for design, if the original Scope did not contain
a requirement for the submission of design in accordance with clause 21.2, this could be
construed as an oversight in the contract drafting. However, clause 21.2 does state that if
no times are specified in the Scope for submission of design documents, the Contractor
decides when to submit these.

The Supervisor does not have the power to instruct the Contractor to do work or change
the Scope. This authority lies with the Project Manager. However, the Supervisor can, and
should, communicate their concerns to the Project Manager.

The Project Manager can then instruct the Contractor to submit the design of the
permanent foundations and steelwork. This would be a change in the Scope and may
constitute a compensation event, as it could affect the time and cost of the project.

To verify the design before work commences, the Project Manager could:

Request the Contractor to submit the necessary design documents as per clause 21.2.

Consult with independent experts or engineers to review and validate the design.

If necessary, ask for the design to be updated or revised based on expert feedback.

The Client’s use of the arena has now changed from that envisaged at the tender stage.
When the Contractor’s steelwork design is submitted, it complies with the law and original
Scope, however, it would now prevent future expansion to the West side of the arena
which is what is being considered by the Client.

e. Does the Project Manager have to accept the design? What provisions exist in the
contract for dealing with this situation? [7 marks]

Under the NEC4 ECC contract, the Project Manager is not obligated to accept a design
that meets the original Scope if it fails to meet the Client's updated needs. In this scenario,
the Project Manager can reject the design, even if it complies with the law and the original
Scope, but does not cater to the Client's new requirement of possible future expansion to
the West side of the arena.

Here's how the Project Manager could approach this situation:

Reject the Design: The Project Manager can reject the design under clause 21.2, even if it
satisfies the original Scope.

Communicate Changes: The Project Manager should then communicate the changes to
the Contractor, explaining that the Client's needs have evolved and future expansion to the
West side of the arena is now being considered.

Compensation Event: This change in the Client's requirements would constitute a

compensation event under clause 60.1(1), as it is a change to the Scope.

Request Revised Design: The Project Manager should request a revised design from the
Contractor that takes into account the potential for future expansion.

Assess Quotation: Once the Contractor provides a quotation for the compensation event,
the Project Manager should assess it and, if acceptable, instruct the Contractor to proceed
with the revised design.

It's essential that all these steps are documented and communicated clearly to ensure
mutual understanding and agreement.

[END]
Q4 An Option B contract has been awarded for the construction of a new road.

The requirements for street lighting were not included in the Scope. The Project
Manager instructs a change to the Scope to include the street lighting but does not notify a
compensation event. The Client, who has budgetary constraints, is now stating that, as 10
weeks have passed by, the Contractor is not entitled to a change in the Prices or
Completion Date.

a. Is this correct and how should the Project Manager deal with this?

[5 marks]

Under NEC4 ECC Option B, which is a priced contract with a bill of quantities, any
changes to the Scope that impact the cost or the Completion Date should be treated as a
compensation event, as per clause 60.1(1).

In this case, the addition of street lighting to the Scope is a change and should have been
notified as a compensation event by the Project Manager. The fact that 10 weeks have
passed without notification does not negate the Contractor's right to a change in the Prices
or Completion Date.

Here's how the Project Manager should approach this situation:

Acknowledge the Oversight: The Project Manager should acknowledge the oversight in not
notifying the compensation event when the change to the Scope was instructed.

Notify Compensation Event: The Project Manager should now notify the compensation
event, even though it is late. Under clause 61.3, the Project Manager may instruct the
Contractor to submit a quotation.

Assess Quotation: Once the Contractor provides a quotation for the compensation event,
the Project Manager should assess it and, if acceptable, implement the compensation
event. This would change the Prices and potentially the Completion Date.

Communicate with the Client: The Project Manager should explain to the Client that the
oversight does not negate the Contractor's entitlement to additional cost or time. The
budgetary constraints should have been considered when the change to the Scope was
instructed.
The work has been undertaken and completed. The Contractor argues that as no rate
exists in the Bill of Quantities, the compensation event should be based on
the Contractor’s actual costs plus Fee.

b. What key clauses define how the compensation event should be assessed and is
the Contractor correct?

[7 marks]

Under NEC4 ECC Option B, the assessment of compensation events is defined in clause
63. If there is a change in the Scope, the Prices are changed by using the rates in the Bill
of Quantities. However, if a rate is not included in the Bill of Quantities for the new work,
clause 63.13 is applicable. This clause states that the assessment of the compensation
event should be based on the Contractor's defined cost plus the fee.

So, in this case, the Contractor is correct. Since no rate for the street lighting exists in the
Bill of Quantities, the cost of the compensation event should be assessed based on the
Contractor's actual costs plus the Fee.

It's also important to note that under clause 63.1, the Project Manager should not make the
assessment until they have decided that the Contractor has submitted enough information.

Within the Bill of Quantities, an item of excavation has not been divided into different depth
classifications, which the method of measurement requires.

c. The Contractor notifies a compensation event under clause 61.3. Is this correct?
How should the Project Manager respond and within what timescale? [4 marks]

Under NEC4 ECC, the Contractor is allowed to notify the Project Manager of an event
which the Contractor believes is a compensation event as stated in clause 61.3. In this
case, if the Bill of Quantities does not comply with the required method of measurement –
that is, dividing excavation into different depth classifications – the Contractor can argue
that this is a compensation event since it could impact the cost and time of the work.

Here's how the Project Manager should respond:

Review the Claim: According to clause 62.3, the Project Manager should respond to the
Contractor's notification within two weeks of receipt. This response should either confirm
that the event is a compensation event or reject it, stating why.
Assess the Impact: If it is a compensation event, the Project Manager should assess the
impact on the Prices and Completion Date. They could ask the Contractor to provide a
quotation which should be assessed in line with Clause 63.

Amend the Bill of Quantities: If the Contractor's claim is justified, the Project Manager
should amend the Bill of Quantities to comply with the method of measurement, dividing
excavation into different depth classifications.

Communication: The Project Manager should communicate their decision and reasoning to
the Contractor, ensuring to document all discussions and decisions.

The Project Manager fails to respond to the notified compensation event. Four weeks later
the Contractor realises this.

d. What options are available to the Contractor? If the Project Manager continues to
fail to respond to a notified compensation event, what impact will this ultimately
have? [4 marks]

According to NEC4 ECC, if the Project Manager does not respond within the timescale of
two weeks after a compensation event is notified, the Contractor can take certain steps.

Reminder to the Project Manager: The Contractor could send a reminder to the Project
Manager highlighting the oversight and requesting a response to the notified compensation
event.

Assumption of Agreement: If the Project Manager does not reply within two weeks of the
reminder, Clause 61.4 comes into effect. This clause states that if the Project Manager has
not replied to the notification within two weeks, they are regarded as having accepted that
the event is a compensation event.

If the Project Manager continues to fail to respond:

Contractor Submits Quotation: The Contractor could take the initiative to submit a
quotation for the compensation event in accordance with Clause 62.

Assumption of Agreement on Quotation: If the Project Manager does not respond to the
quotation within three weeks, as per Clause 65.1, the Contractor's quotation is treated as
having been accepted.

This lack of response from the Project Manager can ultimately lead to a delay in the
project, an increase in costs, and potential disputes. Therefore, prompt communication and
response to compensation events are critical in contract management.
The Project Manager eventually responds, accepts that this is a compensation event and
instructs the Contractor to submit a quotation. Two weeks into the quotation response
period the Contractor telephones the Project Manager stating it is very difficult to assess.

e. What is the default method of assessing a compensation event under Option B?

What other option is available to the Project Manager and Contractor?

[5 marks]

Under NEC4 ECC Option B, the default method for assessing a compensation event is to
use the rates and prices in the Bill of Quantities, as stated in clause 63.1. This is done to
change the Prices and Completion Date due to the compensation event.

However, in this scenario where the Contractor finds it difficult to assess the compensation
event using the rates in the Bill of Quantities, the Project Manager and the Contractor have
another option:

Use Defined Cost: Under clause 63.1, if the Project Manager and Contractor agree that it
is not practicable to forecast the effect of the compensation event using the rates or prices,
they can assess it using the Shorter Schedule of Cost Components, that is, the
Contractor's Defined Cost plus Fee.

This alternative method allows for a more flexible approach when the effects of the
compensation event are challenging to assess using the rates in the Bill of Quantities.
However, this method should be agreed upon by both the Project Manager and the
Contractor.

[END]

Q5

A contract to construct a sports centre complex has been awarded under an ECC Option C. Secondary
Options X2 and X7 have been incorporated.

The work is underway when the Contractor encounters a burst pipe which it did not cause and which
requires immediate repair in order to prevent further damage to the rest of the works.
The Contractor notifies a compensation event under clause 61.3. The Project Manager refuses to accept
this as a compensation event stating that an early warning should have been notified initially. Any response
referring to dispute resolution should identify whether Option W1, W2 or W3 applies as an assumption.

a. Is the Project Manager correct to take this approach? What options are available to
the Contractor? [7 marks]
Under NEC4 ECC Option C, encountering a physical condition that the Contractor didn't cause and couldn't
have anticipated is considered a compensation event, as stated in Clause 60.1(12). The burst pipe fits this
criteria.

The Project Manager's refusal to accept this as a compensation event based on the lack of an early
warning notice is not correct. The requirement for an early warning notice (Clause 16) is separate from the
compensation event process (Clause 60-65). While giving an early warning could have been beneficial, it's
not a prerequisite for a compensation event.

The Contractor has several options:

Reiterate the Contract Provisions: The Contractor can reiterate the clause 60.1(12), explaining that the
burst pipe constitutes a compensation event regardless of whether an early warning was given or not.

Submit a Quotation: Even without the Project Manager's acceptance, the Contractor can submit a quotation
for the cost incurred due to the burst pipe.

Dispute Resolution: If the disagreement continues, the Contractor can refer to the dispute resolution
procedures outlined in the contract. Given that X2 (Changes in the law) and X7 (Delay damages) are the
secondary options in this contract, the applicable dispute resolution option would be W1. This is because
W1 applies when the contract is not subject to the UK's Housing Grants, Construction and Regeneration
Act, which appears to be the case here as neither X4 (Parent company guarantee), X12 (Multiparty
collaboration), nor X20 (Key performance indicators), which trigger W2, have been selected.

Six months into the project, a change in law comes into effect. This is to do with electrical standards.
The Contractor immediately notifies a compensation event. The Project Manager refuses to accept this
because it was known about before the tender period but was not enacted.

b. Is the Contractor correct? [2 marks]

Given that the contract incorporates Secondary Option X2, which covers changes in the law, the Contractor
is correct to notify a compensation event due to the enacted change in electrical standards.

Clause X2.1 states that a change in the law of the country in which the Site is located is a compensation
event if it occurs after the Contract Date. The key point here is the timing of when the law change takes
effect, not when it was known or announced.

If the change in electrical standards law came into effect (i.e., became enforceable) after the Contract Date,
it would indeed be a compensation event, even if it was known about before the tender period.
The Project Manager's refusal to accept this as a compensation event because it was known about before
the tender period is not in line with the contract's provisions. The Contractor can refer to Clause X2.1 to
dispute the Project Manager's decision.

Underground mine workings are uncovered by the Contractor. The Contractor decides to fill the voids with
expensive concrete which is readily available. The Project Manager subsequently accepts that this is a
compensation event but considers it could have been more efficiently dealt with by use of a weak mix
concrete.

c. Upon notification of a compensation event how should the Project Manager respond and how
should this be assessed? Is there any effect on payment? [6 marks]

Under NEC4 ECC, when a compensation event is notified, the Project Manager is required to respond
within two weeks. This response should confirm whether the event is considered a compensation event or
not, and if not, provide the reasons for the decision, as per Clause 62.3.

In this scenario, where the Contractor has decided to use expensive concrete to fill the voids from the
uncovered mine workings, and the Project Manager believes a more efficient and cost-effective solution
could have been applied, the Project Manager can take the following steps:

Review the Contractor’s Proposal: The Project Manager should review the Contractor's proposal,
considering if the solution was reasonable and in line with the 'spirit of mutual trust and cooperation'
required by the contract.

Assess the Compensation Event: As per Clause 63.1, the Project Manager should assess the
compensation event. If the Project Manager believes that the Contractor did not make a reasonable
decision, the assessment should be based on what would have been reasonable. In this case, that could
mean using the cost of the weak mix concrete for the assessment.

Communicate the Assessment: The Project Manager should communicate their assessment to the
Contractor, explaining why they considered the weak mix concrete as the more reasonable option.

In terms of payment, if the Project Manager assesses the compensation event based on a more cost-
effective solution (the weak mix concrete), the Contractor would be paid based on this assessment, even if
they used a more expensive material. So, the Contractor might not recover the full cost of the expensive
concrete they used.

The most recent programme submitted by the Contractor forecasts that the works will not be complete
before the Completion Date. This would be disastrous for the Client who has a number of high profile sports
events booked. The Project Manager is put under pressure by the Client to not accept the latest
programme submitted by the Contractor.
d. How should the Project Manager respond? [5 marks]

The Project Manager, under NEC4 ECC, has a duty to manage the contract in line with its terms and
conditions. While it's understandable that the Client is worried about potential delays, the Project Manager
should respond in a way that maintains the integrity of the contract. Here are potential steps for the Project
Manager:

Review the Programme: The Project Manager should thoroughly review the Contractor's submitted
programme, identifying the reasons for the forecasted delay. This should be done in line with clause 31.2,
which outlines the aspects to be considered in a programme.

Communication with the Contractor: If there are valid reasons for not accepting the programme (e.g., it
doesn't comply with the contract, it's unrealistic, or it doesn't show the information the contract requires),
the Project Manager can reject the programme and should communicate this to the Contractor, outlining
the reasons and asking for revisions.

Client Communication: The Project Manager should communicate with the Client, explaining the
contractual obligations and the process of programme acceptance or rejection. They should reassure the
Client that all efforts will be taken to ensure timely completion of the project.

Encourage Mitigation Measures: If the programme is technically acceptable but shows a delay, the Project
Manager could encourage the Contractor to consider mitigation measures to recover the delay, such as
increasing resources or resequencing the works.

Consider Compensation Events: If there are any compensation events that have caused or are predicted to
cause a delay, these need to be assessed promptly to adjust the Completion Date.

The Project Manager should not reject the programme solely because it predicts a delay. The key is to
manage this situation professionally, following the contractual procedures and maintaining open and clear
communication with both the Contractor and the Client.

The Contractor employs a new contracts manager who manages to mitigate the five week delay down to
one. Ultimately, the project finishes one week late. The Client is delighted and agrees with the managing
director of the Contractor that delay damages will not be deducted.

e. How should the Project Manager deal with a request from the Client to not deduct damages?
What paperwork should be in place to formalise this agreement?

[5 marks]

The Project Manager should approach this situation carefully as delay damages are a contractual matter.
Here are the steps the Project Manager should take:
Review the Contract: The Project Manager should review the contract, specifically Secondary Option X7,
which covers delay damages. This option specifies the amount of money the Contractor must pay for each
day the project finishes late.

Communicate with the Client: The Project Manager should discuss with the Client about the contractual
obligations and the implications of not deducting the delay damages.

Formalize the Agreement: If the Client still insists on not deducting the delay damages, this change must be
formalized in writing. The best way to formalize this agreement would be through a contract amendment or
variation, which needs to be signed by all parties. This document should clearly state that the Client has
agreed to waive the delay damages for the one-week delay.

Record the Decision: The decision not to deduct delay damages should be recorded in the project records
to maintain transparency and avoid potential disputes in the future.

Remember, any agreement that deviates from the contract’s original terms should be documented formally.
It's also worth noting that while the Client and Contractor can agree on this, they should ensure that it does
not set a precedent for future projects or contractual obligations.

[END]