NEC4 Practical Solutions

NEC4 Practical Solutions

Robert Alan Gerrard and Stuart Kings

Published by ICE Publishing, One Great George Street, Westminster, London
SW1P 3AA.
Full details of ICE Publishing representatives and distributors can be found at:
www.icebookshop.com/bookshop_contact.asp
Other titles by ICE Publishing:
NEC4: The Role of the Project Manager
B. Mitchell and B. Trebes. ISBN: 978-0-7277-6353-2
NEC4: The Role of the Supervisor
B. Mitchell and B. Trebes. ISBN: 978-0-7277-6355-6
NEC3 and NEC4 Compared
R. Gerrard. ISBN: 978-0-7277-6201-6
www.icebookshop.com
A catalogue record for this book is available from the British Library
ISBN 978-0-7277-6199-6
© Thomas Telford Limited 2018
ICE Publishing is a division of Thomas Telford Ltd, a wholly-owned subsidiary of the
Institution of Civil Engineers (ICE).
All rights, including translation, reserved. Except as permitted by the Copyright,
Designs and Patents Act 1988, no part of this publication may be reproduced,
stored in a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying or otherwise, without the prior written permission of
the Publisher, ICE Publishing, One Great George Street, Westminster, London
SW1P 3AA.
This book is published on the understanding that the author is solely responsible
for the statements made and opinions expressed in it and that its publication does
not necessarily imply that such statements and/or opinions are or reflect the views
or opinions of the publishers. While every effort has been made to ensure that the
statements made and the opinions expressed in this publication provide a safe and
accurate guide, no liability or responsibility can be accepted in this respect by the
author or publishers.
While every reasonable effort has been undertaken by the author and the publisher
to acknowledge copyright on material reproduced, if there has been an oversight
please contact the publisher and we will endeavour to correct this upon a reprint.
Commissioning Editor: Michael Fenton
Production Editor: Madhubanti Bhattacharyya
Market Development Executive: Elizabeth Hobson

Typeset by Manila Typesetting Company, Philippines

Printed and bound in Great Britain by Bell and Bain, Glasgow
 CONTENTS

Contents

Preface xiii

Abbreviations xv

About the authors xvii

1 General 1
1 Dealing with head office overheads in the TSC (clause 11.2(22)
and 11.2(23)) 1
2 Spirit of mutual trust and co-operation (clause 10.1) 1
3 What is Site Information? (clause 11.2(18)) 2
4 What is the Early Warning Register? (clause 11.2(8)) 3
5 Establishing a cut-off between genuine cost in Providing the Service
and what is effectively a head office cost in the TSC (clause 11.2(15)) 4
6 What is a Subcontractor? (clause 11.2(19)) 4
7 Are in-house designers Subcontractors? (clause 11.2(19)) 5
8 How do we sign the contract? (clause 12) 6
9 Mutual agreement to revise the Activity Schedule (clause 12.3) 6
10 Instructing an additional section of the works (clause 12.3) 7
11 Should we consolidate tender documentation? (clause 12.4) 7
12 What is the status of verbal instructions? (clause 13.1) 8
13 Can you confirm verbal instructions? (clause 13.1) 9
14 Should we act on verbal instructions? (clause 13.1) 9
15 Using a communication system (clause 13.2) 10
16 Can the Supervisor be the Project Manager? (clause 14) 11
17 Do we approve or accept? (clause 14.1) 11
18 Could extensive Project Manager’s instructions render our contract
void? (clause 14.3) 12
19 What is the interaction of early warnings, the Early Warning Register
and compensation events? (clause 15) 13
20 What do we do about the late notification of early warnings? (clause 15) 14
21 How do we deal with the lack of early warning notifications? (clause 15) 14
22 Value engineering (clause 16) 15
23 How do we deal with ambiguities in the ECSC? (clause 17) 16

v
 NEC4 PRACTICAL SOLUTIONS

2 The Contractor’s main responsibilities 19

24 Refusing to do what the Scope requires (clause 20.1) 19
25 Who is responsible for design? (clause 21.1) 19
26 Requesting more design information (clause 21.1) 20
27 Proceeding with the work prior to acceptance (clause 21.2) 20
28 Requesting the design of Equipment (clause 23.1) 21
29 Changing key people (clause 24.1) 22
30 Not providing services and other things as stated in the Scope
(clause 25.2) 22
31 Missing a Key Date (clause 25.3) 23
32 Quality control of the supply chain (clause 26.2) 23
33 Working with Others (clause 27.1) 24

3 Time 25
34 Can a Completion certificate also be a payment certificate? (clause 30) 25
35 Has Completion been achieved? (clause 30.2) 25
36 What goes onto the first Accepted Programme? (clause 31) 26
37 Incorporating a programme into Subcontract Scope (clause 31) 27
38 Programme float and time risk allowances (clause 31) 29
39 What becomes of a tender programme? (clause 31) 30
40 What do we do if the programme shows a wrong date? (clause 31) 30
41 Programme not being responded to by the Project Manager
(clause 31.3) 32
42 Problems with a programme submitted at the tender stage (clause 32) 32
43 Lack of acceptance of programmes (clause 32) 35
44 Showing non-implemented compensation events on a programme
(clause 32) 35
45 Take over and its effect on liability (clause 35) 36
46 A Client’s liability? (clause 35) 37
47 Damage by Others after take over (clause 35.2) 38
48 Where use of the works may not constitute take over (clause 35.2) 39
49 The interaction of take over, Completion and delay damages
(clause 35.2) 40

4 Testing and defects 43

50 Frustrated Supervisor! (clause 41.1) 43
51 What does ‘unnecessary’ mean? (clause 41.5) 43
52 Charging costs incurred for repeating tests and inspections (clause 41.6) 44
53 Is there a snagging list? (clause 43.2) 44
54 Pro forma for latent Defects (clause 43.2) 45
55 Constraints in the Scope (clause 43.2) 45
56 Dealing with a Defect (clause 44) 46

vi
 CONTENTS

57 Dealing with Defects after Completion (clause 44) 47

58 No operational and maintenance manuals! (clause 44) 47
59 Disputing the Defect (clause 44) 48
60 Quality control in the ECC (clause 44) 49
61 Consequential costs of Defects (clause 44) 49
62 Defects arising after the Defects Certificate is issued (clause 44.3) 50
63 Accepting a Defect (clause 45) 50
64 Not getting access to correct Defects (clause 46) 51
65 Whether the Contractor comes back or not (clause 46) 52

5 Payment 53
66 Making applications for payment (clause 50.1) 53
67 Calculating the final account (clause 50.1) 53
68 Assessing the amount due (clause 50.3) 54
69 Retaining money due to non-compliant programmes (clause 50.3) 55
70 Application for payment (clause 50.4) 56
71 No compliant programme is ever submitted (clause 50.5) 56
72 Retaining monies when a programme is not accepted (clause 50.5) 58
73 Pay less notices and delay damages in the ECSC (clause 50.3) 58
74 Error in the ECSC Price List (clause 50.3) 59
75 Difference in payment periods between the ECC and ECSC (clause 51) 60
76 Can the Contractor owe money to the Client? (clause 51.2) 60
77 Payment in the ECSC (clause 51.2) 61
78 Can we add corporation tax to the Fee? (clause 52.1) 62
79 What to include in the Fee? (clause 52.1) 63
80 Passing on discounts (clause 52.1) 63

6 Compensation events 65
81 Omitting work under ECC Option A (clause 60.1(1)) 65
82 Inconsistencies in the Scope (clause 60.1(1)) 65
83 Why is accepting a Defect not a compensation event? (clause 60.1(1)) 66
84 Are compensation events claims? (clause 60.1) 66
85 Stopping the work (clause 60.1(4)) 67
86 Dealing with Others (clause 60.1(5)) 67
87 Late decisions (clause 60.1(6)) 68
88 Objects of interest (clause 60.1(7)) 68
89 Not accepting the design (clause 60.1(9)) 69
90 Tests and inspections that the Scope requires (clause 60.1(10)) 69
91 Unnecessary time for tests and inspections (clause 60.1(11)) 70
92 Interpreting physical conditions (clause 60.1(12)) 71
93 Underground mine workings? (clause 60.1(12)) 71

vii
 NEC4 PRACTICAL SOLUTIONS

94 What are physical conditions? (clause 60.1(12)) 72

95 Weather risk (clause 60.1(13)) 72
96 Take over (clause 60.1(15)) 73
97 Assumptions made by the Project Manager (clause 60.1(17)) 73
98 Prevention (clause 60.1(19)) 74
99 Poor Site Information (clause 60.2) 74
100 Mistakes in a Bill of Quantities (clause 60.6) 75
101 Error in the Bill of Quantities caused by the Contractor (clause 60.6) 75
102 The difference between clauses 61.1 and 65.1 (clauses 61.1 and 65.1) 76
103 The time bar under clause 61.3 (clause 61.3) 77
104 Project Manager’s failure to respond (clause 61.4) 77
105 Link between early warnings and compensation events (clause 61.5) 78
106 Compensation events after Completion (clause 61.7) 78
107 Additional work after Completion (clause 61.7) 79
108 Obtaining different quotes for the same compensation event
(clause 62.1) 79
109 Updating for remaining work (clause 62.2) 79
110 Proposed changes to which programme? (clause 62.2) 80
111 Accepting quotations in a timely manner (clause 62.3) 81
112 Failing to respond (clause 62.3) 81
113 What programme should we use when assessing the impact
of compensation events? (clause 63.1) 82
114 Using the SSCC for Subcontractor’s costs (clause 63.1) 83
115 Forecasting the Defined Cost (clause 63.1) 83
116 Using the fee percentage (clause 63.1) 84
117 Recovering the cost of additional Site staff (clause 63.1) 85
118 Charging for staff time in a compensation event (clause 63.1) 86
119 People costs in a compensation event quotation (clause 63.1) 86
120 Are compensation event quotations based on actual cost?
(clause 63.1) 87
121 Compensation event quotations and Subcontractors (clause 63.1) 88
122 People not working in the Working Areas (clause 63.1) 89
123 Extensions of time (clause 63.5) 90
124 Dominant cause of delay (clause 63) 90
125 Dealing with multiple programmes that have not been accepted
(clause 63) 92
126 Which programme to use when assessing compensation events
(clause 63.5) 93
127 Including risk in compensation events (clause 63.8) 93
128 Inconsistencies in the Contractor’s Scope (clause 63.10) 94
129 Unclear Scope (clause 63.10) 95

viii
 CONTENTS

130 Contractor not assessing compensation events (clause 64.1) 96

131 When is a compensation event ‘implemented’? (clause 66.1) 96
132 What is an implemented compensation event? (clause 66.1) 97
133 Having your cake and eating it! (clause 66.3) 98
134 Can you change an accepted quotation for a compensation event?
(clause 66.3) 98

7 Title 101
135 Does title mean ownership? (clause 70) 101
136 Vesting Plant and Materials (clause 70.2) 102
137 Title to materials from excavation (clause 73.2) 102

8 Liabilities and insurance 105

138 Weather … it’s a compensation event (clause 80.1) 105
139 A hypothetical situation (clause 80.1) 105
140 Copper theft! (clause 80.1) 106
141 Is terrorism a compensation event? (clause 80.1) 107
142 Take over versus Completion (clause 80.1) 107
143 How to define take over (clause 80.1) 108
144 Insurance of existing buildings (clause 83.3) 109
145 Damage caused during a search (clause 84.2) 110
146 Accepting insurance policies (clause 85) 110
147 Failing to provide insurance certificates (clause 84) 111

9 Termination 113
148 Is there a standard ECC termination certificate? (clause 90) 113
149 Is there a standard TSSC termination certificate? (clause 90.1) 113
150 Can you terminate due to poor performance? (clause 91) 114
151 Can we use R21 termination for a minor earthquake? (clause 91.7) 114
152 Can you terminate for corruption? (clause 91.8) 115

10 The Options 117

153 Do I use Option W1 or W2? (Options W1 and W2) 117
154 Option W1 or W2 – which applies? (Options W1 and W2) 117
155 Subcontracting and inflation (Option X1) 118
156 Indices calculations (Option X1) 118
157 Adjusting for the price adjustment (clause X1.5) 119
158 I think I’ve found a drafting error! (Option X2) 119
159 Is this a change in the law? (Option X2) 120
160 Applying Option X2 (Option X2) 120
161 Paying in different currencies (Option X3) 121
162 Ultimate holding company guarantee (Option X4) 121

ix
 NEC4 PRACTICAL SOLUTIONS

163 Is there a standard ultimate holding company guarantee form?

(Option X4) 122
164 Defining sectional Completion (Option X5) 122
165 How is sectional Completion confirmed? (Option X5) 123
166 Sectional Completion – effects of delay (Option X5) 123
167 Defects date running from Completion of the whole of the works
(Option X5) 124
168 How to calculate the bonus (Option X6) 124
169 Applying delay damages (Option X7) 125
170 Dealing with late Completion (Option X7) 125
171 Delay damages and take over (Option X7) 126
172 Delay damages and gain share (Option X7) 126
173 Undertakings to the Client or Others (Option X8) 127
174 Applying collaboration principles (Option X12) 127
175 Getting performance bonds in place (Option X13) 128
176 Paying in advance (Option X14) 128
177 Delayed advanced payment! (Option X14) 129
178 Design liability (Option X15) 129
179 Reasonable skill and care (Option X15) 130
180 Subcontractor retention (Option X16) 130
181 Retention percentage (Option X16) 131
182 Exceeding the retention amount (Option X16) 132
183 Deciding the retention-free amount (Option X16) 132
184 Release of retention (Option X16) 133
185 How to draft low-performance damages (Option X17) 133
186 Limiting liability (Option X18) 134
187 End of liability date (Option X18) 134
188 Providing incentive (Option X20) 135
189 Using Option X20 (Option X20) 135
190 How to build in potential extensions to the Service Period under the
TSC (Option X24) 136
191 How to ‘close out’ each financial year under Option C of the TSC
(Option X25) 136
192 Is a ‘day’ a day? (Option Y(UK)2) 137
193 The purpose of Option Y(UK)3 (Option Y(UK)3) 137
194 Preparing quotations for compensation events (clause 11.2(23)) 138
195 Increase of resources by the Contractor (Option C) 138
196 Disallowed Cost (Option C) 139
197 Productivity of resources (Option C) 140
198 Accrued cost in an application for payment (Option C) 141
199 The use of the Activity Schedule (Option A) 142

x
 CONTENTS

200 Items on an Activity Schedule not undertaken (Option A) 142

201 Additional management staff (Option C) 143
202 Revising the Activity Schedule (Option A) 144
203 Interest paid to a Subcontractor (Option C) 145
204 Open-book problems (Option C) 146
205 What are the Contractor’s share payment timings? (clause 53.3) 147
206 The purpose of Z clauses (Option Z) 147
207 Deletion of clause 63.10 (Option Z) 148
208 Reducing the time bar (Option Z) 148
209 Deleting physical conditions and weather (Option Z) 149
210 Complying with the law (Option Z) 149
211 Stepping-down Z clauses (Option Z) 150
212 Mutual trust and co-operation (Option Z) 150
213 Spirit of the contract (Option Z) 151
214 Amending a core clause (Option Z) 151
215 Replacing sentences (Option Z) 151
216 Protecting clients (Option Z) 152
217 Using other main Option clauses (Option Z) 152
218 Valid Z clauses (Option Z) 153

11 Schedule of Cost Components 155

219 Time working within the Working Areas (SCC item 1) 155
220 How is cost defined in Option C of the TSC? (SCC) 155
221 Can we recover congestion charges? (SCC item 13(a)) 156
222 Meeting the requirements of the law (SCC item 13) 156
223 Using estimated staff costs (SCC item 13) 157
224 Payment for pension shortfall (SCC item 13) 158
225 Assessment of compensation events under Options A and B
(SCC item 1) 158
226 Dealing with medical expenses (SCC item 13) 159
227 Hand tools not powered by compressed air (SCC item 44) 160
228 Is security recoverable? (SCC item 1) 160
229 How is a security guard paid for? (SCC item 1) 160
230 What does ‘royalties’ mean in the SCC? (SCC item 53) 161
231 Allowing for the SCC Working Areas overheads percentage
(SCC item 5) 161
232 Damage to Equipment (SCC item 8) 161
233 Damage to vehicles (SCC item 8) 162
234 Can we recover the costs of transport for people? (SSCC item 1) 163
235 Cost of people in the SSCC (SSCC item 1) 163
236 Which SSCC Equipment rates do we use? (SSCC item 2) 164

xi
 NEC4 PRACTICAL SOLUTIONS

237 Cost of Equipment standing (SSCC item 2) 164

238 Using the percentage for people overheads (SSCC item 5) 165
239 The cost of internet charges (SSCC item 51) 166
240 Using the percentage for design overheads (SSCC item 6) 166

12 Contract Data 167

241 What service is in the PSC Scope? (Contract Data) 167
242 Who is Mr I Judge? (Contract Data) 167
243 How do you describe the Affected Property? (Contract Data) 168
244 Incomplete Subcontract Data (Subcontract Data) 168
245 Do we need to name the Project Manager? (Contract Data) 169
246 Scope versus the works (Contract Data) 169
247 Best practice in drafting the Contract Data (Contract Data) 170
248 The period for reply (Contract Data) 170
249 Responding quicker than the period for reply (Contract Data) 171
250 Contractual significance of the Early Warning Register (Contract Data) 171
251 The defects date versus the defect correction period (Contract Data) 172
252 Does the defects date change? (Contract Data) 172
253 Optional statements – what are they? (Contract Data) 173
254 Defining key persons (Contract Data) 173
255 Modelling the Contract Data part two rates and percentages
(Contract Data) 174
256 Optional statements (Contract Data) 174
257 Completing the Contract Data (Contract Data) 175
258 Changes to the Contract Data part two percentages (Contract Data) 175

xii
 PREFACE

Preface
Following the resounding success of NEC3 Practical Solutions the authors have
published NEC4 Practical Solutions to coincide with the launch of the NEC4 suite of
contracts (June 2017).

As well written as the NEC3 contracts were, there was a real appetite from users to
obtain a better understanding of these contracts than others before, and therefore
numerous questions as to their practical application prevailed. When analysed, it was
evident that similar questions tended to be repeated – highlighting a potential gap in
users’ knowledge that might benefit from better guidance or more training.

NEC4 Practical Solutions provides a comprehensive set of responses to the questions

likely to arise on the NEC4 suite of contracts. It is not therefore a clause-by-clause
analysis, but addresses the issues, problems and queries that are most likely to arise
in use.

We have mainly based this book on real questions posed to the NEC Users’ Group
helpline over the past few years. We noticed that there were certain questions that
occurred quite frequently, particularly concerning defined terms, the programme,
payment, compensation events and Defined Cost. It is these recurring questions that
have formed the basis for the book. Where necessary, we reworded NEC3 questions
for the NEC4 contracts. NEC4 Practical Solutions provides detailed contractual
responses to more than 250 common queries faced by practitioners during the
design and implementation stages of a project, as well as the risks associated with
running a project. As it mirrors the typical questions posed, there is a natural focus
on the NEC4 Engineering and Construction Contract (ECC). However, the book also
covers other contracts within the NEC4 suite.

The book is structured in the same chronological order as the ECC, which we hope
will enable readers to use the book as a quick look-up tool to provide answers to
common questions and problems that occur in practice. We have also included tips
on better drafting of contract documents and made reference to further guidance to
enhance its usefulness.

We wanted to write the book because, as NEC4 consultants, we recognise that the
same repeat problems tend to emerge on projects. We are both passionate about
providing concise and practical solutions to these common problems in a format that
can be readily sourced. In turn, this should help project teams resolve differences in
contract interpretation quickly.

It is our hope that NEC4 Practical Solutions will be an invaluable reference guide
for engineers, surveyors, architects, project managers, supervisors, consultants,
contractors, subcontractors and anyone else working with or interested in working
successfully with the NEC4 suite of contracts.

xiii
 ABBREVIATIONS

Abbreviations
ALC NEC4 Alliance Contract (June 2017)
DBO NEC4 Design Build and Operate Contract (June 2017)
DRSC NEC4 Dispute Resolution Service Contract
(June 2017)
ECC NEC4 Engineering and Construction Contract
(June 2017)
ECS NEC4 Engineering and Construction Subcontract
(June 2017)
ECSC NEC4 Engineering and Construction Short Contract
(June 2017)
ECSS NEC4 Engineering and Construction Short
Subcontract (June 2017)
FC NEC4 Framework Contract (June 2017)
PSC NEC4 Professional Service Contract (June 2017)
PSS NEC4 Professional Service Subcontract (June 2017)
PSSC NEC4 Professional Service Short Contract (June 2017)
SC NEC4 Supply Contract (June 2017)
SCC Schedule of Cost Components
SSC NEC4 Supply Short Contract (June 2017)
SSCC Short Schedule of Cost Components
TSC NEC4 Term Service Contract (June 2017)
TSS NEC4 Term Service Subcontract (June 2017)
TSSC NEC4 Term Service Short Contract (June 2017)

xv
 ABOUT THE AUTHORS

About the authors

Robert Alan Gerrard BSc(Hons), FRICS, FCIArb, FCInstCES
Robert is a chartered quantity surveyor with 30 years’ experience of setting up and
managing contracts, mainly in the construction industry, in the UK and overseas. He
is also an Accredited Mediator.

Robert has been the NEC Users’ Group Secretary since 2005, and was part of the
NEC4 drafting team. He is also an NEC consultant, and has run numerous NEC
training courses, working with NEC contracts since 1996.

Stuart Kings BSc(Hons), PhD, MRICS, MCIPS

Stuart provides training and consultancy throughout the world on NEC4, and has
authored numerous articles. He gained his doctorate in improving the effectiveness
of tender documentation. Through work in all industry sectors he has gained a
detailed practical knowledge of the NEC4 suite of contracts and the ingredients to
successful project delivery.

He has recently developed the NEC4 ECC Accredited Project Manager programme
for the NEC, and was also part of the NEC4 drafting team.

Stuart is also a director and co-founder of Sypro Management Ltd (www.sypro.

co.uk), which specialises in on-line NEC4 contract management.

xvii
 Chapter 1: General

CHAPTER 1

General
1

2
1. Dealing with head office overheads in the TSC (clause 11.2(22) and 11.2(23))

QUESTION 3

How do we deal with head office overheads when using the TSC, are these covered in the Fee?

ANSWER

There is no direct reference in the TSC to ‘head office overheads’, and this term might mean 5
different things to different people. You need to understand what cost the Contractor can
recover through the contract – this is called Defined Cost, and is defined in clause 11.2(22)
in Option A and 11.2(23) in Options E and F. Clause 52.1 then confirms that all costs not
included in Defined Cost are assumed to be in the Fee. 6

So, you need to concentrate on the components in the Defined Cost definitions
and understand what they mean, and cover – such as people, Plant and Materials,
Subcontractors and Equipment. Most of the components need to be Providing the Service
within the Service Areas, but there are some exceptions. As you work through all other 7
costs on the same basis, you will appreciate what cost falls within the definition of Defined
Cost and that everything else is deemed to be included in the Fee.

2. Spirit of mutual trust and co-operation (clause 10.1)

9
QUESTION

Clause 10.1 sets out an obligation to follow what the contract states and, from clause 10.2,
work in a spirit of mutual trust and co-operation. I appreciate that a number of cases have
10
defined the latter.

Why are these separated into two clauses?

11

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 1

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

Yes, most of the contracts within the NEC4 suite contain the same clauses 10.1 and 10.2.
These are separated in order to reinforce the need to undertake both:

2 • clause 10.1 contains an express requirement to ‘act as stated in the contract’

• clause 10.2 contains an express provision to act ‘in a spirit of mutual trust and
co-operation’.

3 Both aspects need to be complied with – not just the former. These provisions apply to all
actions and procedures in the conditions of contract.

4
3. What is Site Information? (clause 11.2(18))

5 QUESTION

I have a query regarding the content of Site Information in an ECC Option A contract used
for design-and-build procurement. The project involves the design and construction of an
asset, but the Site is to be determined by a developer, and will be surrounded by a housing
6 development and highways, which are yet to be designed in detail. Does the source of
information impact its status as Site Information? For example, if a ground investigation
or similar report is procured by the design-and-build Contractor, does it still constitute as
being Site Information? Similarly, if a ground investigation report is provided by a third-party
7 housing developer, could that be considered to be Site Information?

8
ANSWER

The first thing to say is that Site Information is a defined term (clause 11.2(18)), so only
information that falls within that definition will count. Part of the definition refers to
9 ‘documents which the Contract Data states it is in’, which means it has to be referenced in
the relevant entry in Contract Data part one.

So, to answer your question, the source of the information in the Site Information is
irrelevant. If it is in the Site Information in the contract and complies with the first bullet of
10
clause 11.2(18), then it is Site Information. The Site Information is, however, used in the ECC
for only one purpose, which is to help determine what ‘an experienced contractor would
have judged at the Contract Date to have such a small chance of occurring that it would
have been unreasonable to have allowed for them’ (clauses 60.1(12), 60.2 and 60.3). Site
11 Information is important in that it enables the Contractor to make reasonable assumptions
at the tender stage, rather than assuming the worst and pricing for it.

You refer to a ground investigation procured by the Contractor. The status of that will
12 depend on when it is procured and what the contract says. If the ground investigation is

2
 Chapter 1: General

procured at the tender stage, and if the Contractor bases its price on the investigation, 1
then it is sensible to include the investigation within the Site Information in the subsequent
contract entered into. That gives better certainty to both Parties. In those circumstances,
however, the Client should satisfy itself that the ground investigation has been competently
carried out, as it potentially takes the risk for any physical conditions that are worse than
2
shown. Of course, the benefit to the Client is that the tender price should be lower as a
result.

There is no facility in the contract to change the Site Information, unlike the Scope. Once
the contract is let, any ground investigation sourced by the Contractor does not become 3
Site Information. The Contractor is, of course, entitled to argue that the information in
its later ground investigation shows that the physical conditions are such as to trigger
a compensation event under clause 60.1(12), but that will be judged partly on any Site
Information you put into the contract. 4

Finally, the Institution of Civil Engineers, the publisher of the NEC, has produced some
guidance on how to write the Scope for the ECC, which also includes a section on the
difference between Site Information and Scope. This is contained in volume 4 of the ECC
5
Guidance Notes. We strongly recommend that anybody tasked with putting together both
the Scope and Site Information reads this document.

6
4. What is the Early Warning Register? (clause 11.2(8))

QUESTION 7

I’m a new adopter of the ECC and note that there is an Early Warning Register. Can you
explain the rationale behind this and how risks are managed in the contract?
8

ANSWER
9
The approach to risk management under the ECC is intended to be proactive rather than
reactive. This is all contained within clause 15. The Project Manager is initially required to
prepare a first Early Warning Register within one week of the starting date. This should be
based upon the identified risks from the Contract Data. The Contract Data also includes an
10
entry to be made stating the frequency of early warning meetings in order that these are
reviewed regularly.

Clause 15.1 places an obligation on both the Project Manager and Contractor to notify any
new early warnings and potentially include others if agreed (clause 15.2). This may include 11
the supply chain, the Client stakeholders or both.

Clause 15.3 sets out how the risk should be managed (effectively forming the agenda for
the meeting) and the need to co-operate and seek solutions that bring advantage to all 12
those affected.

3
 NEC4 PRACTICAL SOLUTIONS

1 Clause 15.4 further requires the Project Manager to issue the Early Warning Register to the
Contractor within one week of the early warning meeting and instruct a change to the
Scope if required at the same time.

This should ensure that the team focuses on proactive risk management and deals with risks
2 effectively.

3 5. E
 stablishing a cut-off between genuine cost in Providing the Service and what is
effectively a head office cost in the TSC (clause 11.2(15))

4 QUESTION

I am working for a client about to procure an Option C maintenance contract over a large
geographic area. There will be a lot of support work away from the Affected Property, such
5 as the call centre, accounts and procurement.

How can we ensure that the Contractor does not charge for management and overhead
costs that are included in the Fee?
6

ANSWER
7
Clause 11.2(15) of the TSC defines the Service Areas. The Contractor can only charge for
directly employed people who are in the Service Areas (SCC, item 1). Support costs outside
the Service Areas are treated as being included in the Fee (clause 52.1).

8 Item 41 (Subcontractors) within the SCC protects against subcontracting work that
is covered by the Fee ‘but not including any amounts paid to or retained from the
Subcontractor by the Contractor which would result in the Client paying or retaining the
amount twice’.
9
Finally, proposals to add to the Service Areas are dealt with in clause 16.4.

10
6. What is a Subcontractor? (clause 11.2(19))

QUESTION
11
We are using the ECC, and in relation to clause 11.2(19) we are trying to understand the
cut-off between labour-only operatives and Subcontractors. Where is the line drawn?

12

4
 Chapter 1: General

ANSWER 1

What you have to look at is the contract between the Contractor and Subcontractor. If the
contract falls within one of the bullets stated in clause 11.2(19), then it is a Subcontractor,
otherwise it is not. So, if it has a contract to lay all the brickwork on a labour-only basis,
2
for example, and is paid an amount per square metre to do so, then it is a Subcontractor
under the first bullet. In that case, it has the obligation to provide the resources to do this
within the time set out in the contract. If it instead has a contract to supply bricklayers at an
amount per hour (and equipment at an amount per hour), and those bricklayers will be put
to work as determined by the Contractor, then it is not a Subcontractor because its obligation 3
is to provide labour to work rather than the end result (last bullet of clause 11.2(19).

4
7. Are in-house designers Subcontractors? (clause 11.2(19))

QUESTION 5

We have been on a fast-track ECC Option E contract, and the design was developed as the
works proceeded. As a result the designer had a heavy presence on Site as well as backup
in the design office. The rates within Contract Data part two are now 5 years old, and
6
the contract has an inflation provision for the designer. The designer is ‘in house’, albeit
a separate legal entity under the umbrella of the parent company. There was no formal
subcontract in place.

Within the Contract Data part two there is a completed table for design employees 7
(disciplines) under the line ‘The rates for Defined Cost of design outside the Working Areas
are’.

Under the ECC, should the designer be treated as a Subcontractor? If not, should the design
8
works (done outside the Working Areas) be valued at the hourly rates in Contract Data part
two plus the Fee plus inflation? Also, if not a Subcontractor, should the design works done
inside the Working Areas be valued at the same hourly rates plus the Fee plus inflation?

ANSWER
10
This designer is not a Subcontractor because you have not got a subcontract with it
(clause 11.2(19)). It is difficult to comment on the inflation provision, as no further details
are provided. For design work carried out outside the Working Areas you will be paid for
the designer’s rate in the Contract Data part two plus the Fee.
11
The designers’ rates only apply for design carried out outside the Working Areas (item 7 of
the SCC). If it is carrying out design in the Working Areas, your quoted rates are not used at
all. Instead, you use the calculation for people set out in item 1 of the SCC, and to that you
add the Fee. 12

5
 NEC4 PRACTICAL SOLUTIONS

8. How do we sign the contract? (clause 12)

1

QUESTION

We have a copy of the ECC, but there is nowhere for the Parties to sign. Is there another
2 document that sits with this, or do we have to create our own signing provisions?

3
ANSWER

The omission is quite deliberate. It is for the Parties to decide how the contract is to be
made, because it could well depend on the law of the contract (or even the law of the
4 country that one or more of the Parties reside in). In the UK, it could also depend on
whether you want a deed, or not.

So, you can make it as straightforward or as complicated as the applicable law requires.
5 Simple offer and acceptance will do in the UK, or you can write out a more formal
document (deed or not) for both Parties to sign.

6
9. Mutual agreement to revise the Activity Schedule (clause 12.3)

7
QUESTION

We have an ECC Option A project on Site where the programme has been revised. As
funding is time critical, we are questioning how we can ease the release of payments.
Considering clause 32.1, can the Project Manager and Contractor mutually agree to revise
8 the Activity Schedule to co-ordinate with the accepted revised programme, including
splitting original contract activities within the Activity Schedule and tasks within the revised
programme into two sub-activities (e.g. ‘Delivery of materials on Site’ and ‘final complete
installation’)?
9

ANSWER
10
The only way that you can change the Activity Schedule is as a result of a compensation
event (clause 63.14), if the Contractor changes its planned method of working (clause 55.2)
or if the Contractor corrects the Activity Schedule so that the activities on the Activity
11 Schedule relate to the Scope (clause 55.2). None of these apply in this case. The only way
that your suggestion can be achieved is if the Client and Contractor agree to change the
contract and it is confirmed in the way set out in clause 12.3.

12

6
 Chapter 1: General

10. Instructing an additional section of the works (clause 12.3)

1

QUESTION

I am the Project Manager working on an ECC design-and-build contract. The Client has
instructed me to notify the Contractor to accelerate a certain amount of work to ensure that 2
it is completed on a certain date, which is before the current Completion Date.

Is the right way to do this to notify the Contractor of a new sectional Completion Date,
providing the Contractor with a list of the scope of work to be completed by this date and 3
then ask the Contractor for a quotation for the impact of this?

4
ANSWER

You simply do not have the power under the contract to issue an instruction to complete
works by a certain date or add a new sectional Completion Date to an existing contract. If you 5
tried to do that, the Contractor could ignore your instruction with impunity, because it is only
required to obey an instruction that is given in accordance with the contract (clause 27.3).

All that can happen is that the Client (not the Project Manager) and Contractor can agree to
change the contract to accommodate the new requirements. It is likely that the Contractor will 6
only agree to this for an additional sum, payment of which will form part of the agreement.
Any such agreement must comply with clause 12.3. We therefore recommend that the Client
needs to start talking to the Contractor about this, because the longer the agreement takes,
the more expensive it is likely to be. As the Client’s instruction applies only to a certain amount 7
of the works rather than all of it, you cannot even use clause 36. And even if you could, you
still need to get the Contractor’s agreement to the quotation before proceeding.

11. Should we consolidate tender documentation? (clause 12.4)

9
QUESTION

We are about to start a contract using ECC Option B, which has been the subject of a
prolonged period (6–10 months) of exchanges, refinements and discussions following the
10
initial tender. We think it would be beneficial for a copy of a definitive document, which
presents all the agreement after all the correspondence and negotiations, to be supplied
before commencement. We consider this would make the contract management task
simpler for both ourselves and the Project Manager. We have asked for this but have been
advised along the lines that we have all the information necessary already and, additionally, 11
that it will be available by means of the electronic management system used for tendering.
It would appear that the intention is to work with the multiple volumes of all exchanges/
offers/counter-offers through the period as a package of emails rather than presenting the
out-turn in a more concise package that references the necessary changes. Is there any 12
written requirement in the ECC for a consolidation of such documentation?

7
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

We would recommend that you do not do this. For a start, there is simply nowhere for
these records of your negotiations to be incorporated into an NEC4 contract. That is quite
deliberate. And if they are not in the contract, then they probably will not be part of the
2 contract (although that latter point is a legal matter that we cannot advise on). You need
to start with a clear, unambiguous and consistent contract (as with all contracts), and you
will not do it in the way suggested because the documents that form the negotiations
will, inevitably, be inconsistent and often ambiguous, as Parties take certain lines and then
3 subsequently concede them. Our recommendation is that once you have reached your
agreement, you change the original documents (the Scope, Bill of Quantities, etc.) to reflect
that agreement, and use those as a basis for your contract. Case law (and, for that matter,
adjudications and arbitrations) are littered with examples of cases where people have done
4 as your Client has suggested, and the parties have then, much later, fallen out over what
they think the ‘agreement’ they made meant. This advice applies to all contracts under all
forms of contract.

12. What is the status of verbal instructions? (clause 13.1)

6
QUESTION

We recently finished projects using the ECC in which we completed lots of additional work,
but have not had instructions from the Project Manager (as verbally promised). The Client
7 is refusing to pay any further monies until we show instruction and allocation sheets. What
should we do?

ANSWER

Verbal instructions have no status in this contract – they have to be in a form that can be
9 read, copied and recorded (clause 13.1). You should not have acted on these instructions
until they were in that form. And if the Project Manager has now proved to be dishonest
by promising them in that form and then not delivering, you are potentially in trouble. As
an aside, allocation sheets are not required for compensation events – you have to make
10 an assessment as to what the changes will cost, not keep records and use them afterwards
(clause 63.1). We consider that you will need to take legal advice on furthering this matter.

11

12

8
 Chapter 1: General

13. Can you confirm verbal instructions? (clause 13.1)

1

QUESTION

We are using ECC Option B and have a query on confirmation of verbal instructions. We
recall that confirmation of verbal instructions may be limited and has little or no contractual 2
value and that every instruction has to be given in writing by the Project Manager (or the
Supervisor for those limited areas it is responsible for).

1. What is the status of confirmation of verbal instructions, and what are their limitations 3
of contractual usefulness?
2. Clause 13.1 states that communications have to be in writing, so if a confirmation of
verbal instruction was to be issued, and bearing in mind it is in a form that could be
read, copied and recorded, would it be deemed as a contractually legitimate instruction 4
if the Project Manager countersigned either simply with its name, or even stated
‘Accepted’ or ‘Agreed’?

ANSWER

1. All communications that the contract requires are communicated in a form that can be 6
read, copied and recorded (clause 13.1). In addition, notifications (of early warnings,
compensation events, etc.) have to be communicated separately from any other
communication (clause 13.7). All of that means that there is no such thing as a valid
verbal instruction, and therefore no such thing as a confirmation of verbal instruction.
7
2. The Project Manager and the Contractor need to understand that NEC4 contracts
require you to communicate professionally. The Project Manager should not give an
instruction unless it is willing to put it in a form that can be read, copied and recorded,
and you should not accept or act on one unless it is in that format. If the Project 8
Manager is not willing to do so, then it really should resign immediately, because it is not
following the requirements of the Client’s contract. That is the only safe advice we are
able and willing to give you.
9

14. Should we act on verbal instructions? (clause 13.1)

10

QUESTION

We have an ECC construct-only project in which the Contractor built a car park. The
design (included in the Scope) was provided by the Client. It turns out that there were 11
problems with the design, and the works could not be built. Although written early warning
notifications were raised, there were no instructions at the time from the Project Manager
to change the Scope or any record of what was discussed at the early warning meetings.
However, the Contractor acted on verbal instructions, and revised drawings from the Project 12
Manager, which changed the Scope, and the works were built.

9
 NEC4 PRACTICAL SOLUTIONS

1 A year later, a compensation event was notified by the Project Manager as well as it formally
changing the Scope to match the solution built. Therefore, there is no dispute about the
change to the Scope being a compensation event, just a difference in how to prepare the
quotation. In relation to the quotation, when should it be deemed assessed from (i.e. what
part is on actual Defined Cost and what part is on forecast Defined Cost)?
2

3 ANSWER

Neither party seems to have covered itself in glory on this contract! Verbal instructions
are not valid in the ECC. The Project Manager should not have given them, and your staff
should not have acted on them. It seems that the Project Manager issued drawings and so
4
on for the new design, and that would probably be enough to say that the instruction was
correctly issued at that time. When the verbal instruction was provided, the Project Manager
should have issued the instruction correctly, should have notified this as a compensation
event and instructed you to provide a quotation. This conclusion is reached reading clauses
5 14.3, 13.1, 61.1 and 61.2 in that order.

Therefore, the date of the verbal instruction and revised drawings issued is most likely the
date you use to split ‘actual’ from ‘forecast’ Defined Cost, and to decide which Accepted
6 Programme should be used. That means all of it is assessed using forecast Defined Cost.
Quite deliberately, the dividing date does not depend on when the assessment is made,
because that will be different depending on who is doing the assessing, you, the Project
Manager or the Adjudicator.
7

15. Using a communication system (clause 13.2)

8

QUESTION

We intend using a web-based system to manage communication on our ECC project. We

9 find that using pro formas and registers can become cumbersome, and want to make use
of modern technology. How do we encompass this in the contract? Is it a ‘constraint’ in the
Scope?

10

ANSWER

11 We agree: high volumes of pro formas and contract communications can become difficult
to manage. Clause 13.2 makes direct reference to the system you have identified within
the Scope. It states that ‘communication has effect when it is communicated through the
system specified within the Scope’.
12
Volume 2 of the ECC Guidance Notes (Preparing an ECC Contract) provides further advice
on how to specify such a communication system.

10
 Chapter 1: General

16. Can the Supervisor be the Project Manager? (clause 14)

1

QUESTION

We are using ECC Option B. In this, the contract states that the Project Manager and the
Supervisor should be distinct and separate; further, in another publication it states that 2
there should be no line reporting from the Supervisor to the Project Manager and that
the Supervisor carries out its specified duties independently of the Project Manager. It
further states that even if there is line reporting between the two people named in their
employment conditions, outwith their ECC designated roles, this relationship cannot be 3
mirrored in their duties carried out under the contract.

Bearing this in mind and acknowledging that the contract permits the Project Manager to
delegate those duties it wishes to others, can the Project Manager delegate any of its duties
4
to the Supervisor, or is there a conflict here with the intentions of how the ECC should
be run, which would mean that these delegated responsibilities cannot be fulfilled by the
Supervisor?

ANSWER
6
The roles and responsibilities are different. The skill sets are different. The Project Manager
cannot just do in the ECC what the Supervisor does, and vice versa. The Supervisor is
not subservient to the Project Manager, and the Project Manager cannot ‘overrule’ the
Supervisor when it comes to the Supervisor’s duties.
7
That said, there is no reason at all why the same person should not carry out the two
roles on small/medium-sized projects. It is not at all unusual in those circumstances for the
same person to be named as both the Project Manager and Supervisor. Equally, the Project
Manager can delegate some of its actions to the Supervisor should it wish. There is no 8
conflict with the intentions of those drafting the contract in either of these options. Having
said that, if the Project Manager delegates all of its actions to somebody else, then one
questions whether that other person should have been named as the Project Manager in
the first place! 9

17. Do we approve or accept? (clause 14.1)

10

QUESTION

Does it matter if we continue to use the term ‘approved’ when we sign off things such as 11
Contractor’s drawings? This fits within our company quality assurance (QA) requirements.

12

11
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

It is important that you follow the requirements of the particular contract you are working
with. In the ECC, for example, if there is design to be undertaken by the Contractor
and submitted for acceptance by the Project Manager, then you are to ‘accept’ this, not
2 ‘approve’ (clause 21.2). If you use words in your standard processes that are not associated
with the particular contract, then have you actually discharged your obligation in that
contract? This is further reinforced through clause 14.1, which states such acceptance does
not change the Contractor’s liability for its design. You may need to change your company
3 QA requirements; you may need to discuss those requirements of the contract with your
insurers that may positively impact on your premiums. You do, though, need to understand
and follow the prescriptive requirements of each contract properly.

18. Could extensive Project Manager’s instructions render our contract void?
(clause 14.3)
5

QUESTION

We have an ECC contract with such a significant change that we believe the contract to be
6
essentially rendered void – what do you think?

7
ANSWER

Although you give very brief details here, we cannot offer legal advice so what we can say
on this matter is in any case limited. The Project Manager has an apparently unfettered right
8
to change the Scope (clause 14.3). However, the Contractor’s obligation is to carry out the
works, as defined in the Contract Data part one (second bullet) (clauses 20.1 and 11.2(15)).

For example, if the works are described as to build a power station, it could be argued that
9 the Project Manager could not instruct the Contractor to build an entirely and unconnected
water treatment works, although it could instruct the Contractor to build one to treat the
water coming into or out of that power station. In these cases the Contractor is protected
because the instruction will be a compensation event that is valued based on a cost and
10 time forecast. In addition, the Site is defined in clause 11.2(17) and the relevant entry in the
Contract Data, and neither Party has the unilateral ability to change that definition. So it
could be argued that the Project Manager could not instruct anything to be built outside of
that area.
11
There seems to be no doubt that the Project Manager can instruct extensive changes to the
Scope, but how far it can go will end up being a legal question, which we cannot answer.
And if it goes too far, whether that would render the whole contract void is also a legal
question involving all sorts of complex legal principles.
12

12
 Chapter 1: General

19. What is the interaction of early warnings, the Early Warning Register and
compensation events? (clause 15) 1

QUESTION
2
We would like to get clarity on the use and updating of the Early Warning Register within
NEC4 contracts. We have an ECC contract using Option A, and the Contractor is claiming
what we think is not an additional cost for the specified risk/compensation event.

Our contract stated that the Contractor can use some old apparatus for a new installation. 3
This risk was recorded in Contract Data part one as a matter to be added to the Early
Warning Register. Unfortunately, the old apparatus was damaged by fire and cannot be
reused. A quotation was requested, and the Contractor is claiming things like Subcontractor
transportation for its people to and from its Site and Working Areas. Our question is, how 4
did the Contractor intend to do this work originally and what would be the extra in this
case?

ANSWER

The first thing to point out is that the Early Warning Register and early warnings have got
6
nothing directly to do with compensation events. They are about managing the risk of
problems that may occur, whoever’s they are. Compensation events are about events that
have occurred or are going to occur and that are at the Client’s risk. Not all early warnings
will be about future compensation events, and not all compensation events will have an
7
early warning.

We assume there was a Project Manager’s instruction that changed the Scope, resulting in
a compensation event arising under clause 60.1(1). The value of this compensation event is
based on the forecast effect it is going to have on Defined Cost (clause 63.1). Therefore, you 8
have to decide how much the Defined Cost has increased. If this will mean installing new
apparatus (you do not say), then the additional cost (if any) of the Subcontractor’s additional
people doing that might have to include any additional costs of getting them to Site. That
will be determined by inspection of the Subcontractor’s contract to determine if such costs 9
are recoverable (item 4 of the SSCC). It is difficult to be any more specific because we do
not know what the transport arrangements are likely to be. However, if the Defined Cost
of those travel arrangements increases because of this compensation event, that amount
is payable by the Subcontractor to or for its employees and covered in the subcontract
10
conditions, then the Contractor is entitled to recover that additional cost.

11

12

13
 NEC4 PRACTICAL SOLUTIONS

20. What do we do about the late notification of early warnings? (clause 15)
1

QUESTION

We have a Contractor on an ECC contract that is notifying early warnings well after
2 the event. We believe that it is doing this in a cynical attempt to overload the Client’s
management team and achieve a tactical advantage. It probably believes this will end up
in adjudication. We will be able to demonstrate that it has not attempted to minimise our
costs at all over the duration of this contract. Can we as the Project Manager reject an early
3 warning, and what benefit is there for any Party to notify early warnings after the event?

4
ANSWER

Clause 15.1 is clear, and it appears to be misunderstood here. You only give an early
warning of a matter that ‘could’ have the listed effect. If it has already had the effect, then
5 it is not an early warning; instead, it is a late warning! So, the timing depends on when the
effect occurred, not when the event did. You must remember that the notifying of early
warnings is not a one-way street. The onus is as much on you the Project Manager to do so
if you are aware of any matter too, and if you do not, you will be in breach.
6
Early warnings are a form of risk management. They are not compensation events and do
not entitle the Contractor to any more time or money. Notifying an early warning is not the
same as notifying a compensation event. The Contractor still has to do the latter, even if it
has already done the former; and it has to do it within the eight weeks set out in clause
7 61.3. The only proviso to that is that none of that applies to compensation events that result
from your instructions, when the contractual onus is on you to notify (clause 61.1) and the
eight-week time limit does not apply.

8 Having said all that, our view is that it is always in the Client’s interests if the Project
Manager is seen to be actively considering and discussing all early warnings, whether they
are strictly contractually valid or not.

21. How do we deal with the lack of early warning notifications? (clause 15)

10
QUESTION

We are using ECS Option A. There is a provision within the contract that enables the
Contractor to consider early warning notices (or more particularly, the lack of) when
11 assessing compensation events using clauses 61.5 and 63.7. Assume a Subcontractor risk
event occurs and an early warning is notified as it could affect the programme – clause 15.3
requires the Parties to co-operate to ensure, as far as possible, that actions are taken and
decisions are made that avoid or mitigate the effects of identified risks on cost, quality and
12 time. In this case the Subcontractor requires assistance from the Contractor in the induction

14
 Chapter 1: General

of operatives and acceptance of method statement changes. The Contractor, unfortunately, 1

is not forthcoming with assistance, and instead waits for the Subcontractor to sort the issue,
but the effects of the event could have been reduced if the assistance from the Contractor
had been received.
2
With reference to the above timeline and the provision in clause 63.7, is it conceivable that
the delays are additional to those that would have been incurred anyway as a result of the risk
event occurring? For example, a risk event occurs, Contractor assistance is received, total delay =
one day. Or risk event occurs, Contractor assistance is not received, total delay = three days.
3
In the above example, is it possible to pass the two days’ additional delay back to the Contractor –
as had the Contractor acted as stated in the contract, this would have mitigated the delay?
We are aware that there is no express clause in the contract for this, it is just that the contract
will punish the Subcontractor for not notifying an early warning, but does not punish the 4
Contractor for not providing as much assistance as is reasonably practicable.

5
ANSWER

The main way that the Completion Date or Prices change is if a compensation event occurs.
And we cannot see how one has occurred. And there is not one that says ‘the Contractor
6
has not helped me to sort my problem out’. We assume that you were aware of the need
for these inductions and acceptances – either they were in the Subcontract Scope, or they
were part of the law. In that case you were required to sort them out, and they were your
obligation.
7
Also, remember that the early warning and compensation processes are entirely different.
The clauses (61.5 and 63.7) that you refer to are about you not notifying an early warning
of something that was at the Contractor’s risk, in the sense that it would turn into a
compensation event. This is something that is entirely at your risk and which you knew 8
about, but did not manage properly. We know that sounds harsh but, as we say, we assume
that you knew about it and yet you still let it delay the work, in the sense that you did not
allow enough time for it. So, for the reason in our first paragraph, we cannot see how this
can be a compensation event. 9

22. Value engineering (clause 16) 10

QUESTION

We are a Client about to let a major contract under ECC Option A. Despite our best 11
endeavours to draft the Scope, we consider that there could be significant value engineering
savings both in terms of capital cost and whole-life cost. However, our procurement process
has precluded early contractor involvement.
12
What provisions exist in the ECC to help generate such value engineering ideas post-contract?

15
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The ECC deals with this in two areas. Firstly, clause 16 allows the Contractor to propose
changes to the Client’s Scope in order to reduce the total of the Prices. Within four weeks
(clause 16.2) the Project Manager makes a decision (having consulted with the Client). This
2 effectively deals with reductions in capital cost.

The whole-life cost aspect is dealt with in secondary Option X21. Clause X21.1 allows the
Contractor to propose reductions in the cost of operating and maintaining an asset over its
3 life. The details contained within the quotation are detailed in clause X21.2 (e.g. a detailed
description and analysis of the resulting risk). The Project Manager then replies within the
period for reply with either an acceptance or reasons for not accepting (clause X21.3). For
example, this could include a proposal for a more expensive pump in a pumping station that
4
has a higher capital cost but a lower whole-life cost.

In summary, capital cost value engineering proposals are dealt with in clause 16 and whole-
life proposals in Option X21.

23. How do we deal with ambiguities in the ECSC? (clause 17)

6
QUESTION

Clause 17.1 of the ECC deals with ambiguities and inconsistencies. Can you please advise
7 how ambiguities are dealt with under the ECSC?

8 ANSWER

The ECSC is designed for simple low-risk work, and therefore there should hopefully be
fewer ambiguities. The only place this is likely to be would be in the Scope. In that case, if
9
it is unclear or uncertain, you should ask the Client to clarify what is meant. Any instruction
given will be a change to the Scope, which would be a compensation event (clause 60.1(1)).
In assessing that compensation event, it will be assumed that you used in your tender the
interpretation most favourable to you (clause 63.10) – that is, the one that cost the least.
10 To give a practical example, if one part of the Scope says you use a particular item that costs
£100 and another specifies, for the same thing, a different item that costs £200, you will be
assumed to have allowed for the cheaper one. If the Client says ‘I want the expensive one’,
then the value of the compensation will be £100 plus the stated percentage uplift (assuming
11 all other Defined Cost is the same).

12

16
 Chapter 1: General

FURTHER THOUGHTS AND TOP TIPS 1

• Make sure when drafting the ECC Scope (and the equivalent in other NEC4 contracts)
that you use the same terminology as laid down in the contract (e.g. ‘Defined Cost’ and
‘Accepted Programme’).
2
• The Client needs to think about appointing a suitable Project Manager and Supervisor
with the right skills. Consider the various accreditation courses now available (see http://
www.neccontract.com).
3
• Take care not to give or act on verbal instructions; follow the contract, and put
communications in a form that can be read, copied and recorded.

• Take care to use words such as ‘acceptance’ in properly managing the contract where
the contract requires this. 4

• Appreciate that early warnings are a good and positive thing that can help in best
practice contract management. They are entirely different from compensation events,
and cover very different things. 5

• Note that only the Contractor and the Client can change a term of the contract that
exists, and the Project Manager cannot waive, amend or delete a project of another’s
contract.
6

10

11

12

17
 Chapter 2: THE CONTRACTOR’S MAIN RESPONSIBILITIES

CHAPTER 2

The Contractor’s main responsibilities

1

2
24. Refusing to do what the Scope requires (clause 20.1)

QUESTION 3

The Scope requires our Contractor to prepare a breakdown of cost in a particular format but
it is refusing to do so. Does it have to do this? What provisions exist within the contract to
enforce this? 4

ANSWER 5

Clause 20.1 is a very short yet key clause – the Contractor Provides the Works in accordance
with the Scope. This is defined in clause 11.2(16) as information that either specifies and
describes the works or states any constraints on how the Contractor Provides the Works.
6
This is either in the documents that the Contract Data states it is in or any subsequent
instruction. Clause 14.3 allows the Project Manager to change the Scope. The Contractor
is therefore obliged to comply with the Scope and any subsequent instruction (see also
clause 27.3). Ultimately, continued default of the Contractor’s obligations could result in
termination (clause 91.2 (R11)). The suggested approach would be to meet (perhaps by 7

means of an early warning), explain the provisions within the contract and encourage
compliance in order to avoid the ultimate sanction within the contract.

25. Who is responsible for design? (clause 21.1)

9
QUESTION

We are delivering a project under ECC Option A, and the project is largely designed by
the Client. The Scope stated that we, as the Contractor, should design the piling but was
10
silent on the rest. The steelwork has been designed and calculated by the Client’s structural
engineer but we are debating who should be responsible for the design of the fixing details.

11

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 19

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The answer is simple. Under clause 21.1 the Contractor is only required to design the parts
of the works that the Scope states it is to design. In this case, that is solely the piling. If the
Project Manager now wishes you to design the fixing details, then a change to the Scope
2
should be instructed, and this will then be a compensation event under clause 60.1(1).

3 26. Requesting more design information (clause 21.1)

QUESTION
4
We are using Option C of the ECC, and are required to design and build a new sports
complex for our Client. The Scope clearly states that the Contractor is responsible for all of
the design – which is not in contention. However, the Supervisor is insisting on seeing more
5
and more of the drawings and design. This is incurring additional cost for us as it is insisting
on paper copies of each drawing. Where do we stand with this?

6
ANSWER

One important initial comment is that the Supervisor has no power in the contract to
request particulars of design. Clause 21.2 is the important clause in this situation. You are
7
only required to submit particulars of the design as the Scope requires – if it says nothing,
then that is exactly what you provide. If the Project Manager (not Supervisor) wishes to
change the Scope under clause 14.3, and then requests particulars of the design, then you
will be required to comply with this (clause 27.3). However, this change to the Scope will be
8
a compensation event (clause 60.1(1)). The last sentence in clause 21.2 is very important and
must be complied with – it states that you do not proceed with the work until the Project
Manager has accepted. No timescale is mentioned in this clause, so we need to revert to the
period for reply (clause 13.3). This needs to be built into your programme and assessed as
9 part of the compensation event.

10 27. Proceeding with the work prior to acceptance (clause 21.2)

QUESTION
11
It is the first time that we have used the ECC, and we have opted for Option A. We followed
the published NEC Guidance Notes on the Scope, and specified the parts of the works
that the Contractor is required to design. The project is fast track, and has £50 000 per day
damages. As a result of this the Contractor is progressing with the design and work very
12
quickly. Our concern is that the Contractor is undertaking work prior to our acceptance.

20
 Chapter 2: THE CONTRACTOR’S MAIN RESPONSIBILITIES

Our question relates to part of the design that has been submitted for acceptance. This has 1
triggered thoughts in the Client team and, in hindsight, the original Scope needs changing.
What do we do in this situation? Is this a compensation event?

ANSWER

What the contract says is that, assuming you requested the Contractor to submit particulars 3
of its design (under clause 21.2), then it is not to proceed until the Project Manager has
accepted. Failure to comply would be a default; continued default may result in termination
of its obligation to Provide the Works (clause 91.2 (R11)).

This period of consideration is deliberately built into the contract to allow the Project 4
Manager to review the design and, as in your case, potentially change your mind. The
response period will be the period for reply (clause 13.3). The two reasons for not accepting
(note that we do not use the term ‘reject’) are that it does not comply with the Scope or
the applicable law. So, if you do not accept because you have changed your mind, then this 5
would in turn be a compensation event (clause 60.1(9)). It is important to meet with the
Contractor and explain these provisions within the contract.

28. Requesting the design of Equipment (clause 23.1)

7
QUESTION

I am the Project Manager on a large petrochemical project, and my internal health and
safety manager is keen to see the design of earthwork support for deep trench excavations
and also a temporary footbridge required for the project. I cannot find a clause in the 8
contract that allows me to request this.

ANSWER

The clause in this case is clause 23.1. Equipment under the ECC includes items provided by
the Contractor and used by it to Provide the Works and that the Scope does not require 10
it to include in the works (clause 11.2(9)). You can instruct (under clause 23.1) that the
Contractor submit particulars of the design of an item of Equipment for acceptance. You
can only ‘not accept’ if you consider that this will not allow the Contractor to Provide the
Works in accordance with the Scope, the Contractor’s design, which the Project Manager 11
has accepted, or the applicable law.

12

21
 NEC4 PRACTICAL SOLUTIONS

29. Changing key people (clause 24.1)

1

QUESTION

We interviewed a Contractor as part of the tender process for an ECC project, the Site
2 Agent proposed (listed as a key person) was highly experienced in the healthcare sector
(which we are in). We have now heard that this person has obtained a new job and is about
to leave. What provisions are there in the contract for dealing with this?

ANSWER
4 The qualifications and experience of this key person should have been detailed in Contract
Data part two. Clause 24.1 requires that the Contractor submits the name, relevant
qualifications and experience of any proposed replacement person for acceptance by
the Project Manager – a reason for not accepting is that their relevant qualifications and
5 experience are not as good as those of the person who is to be replaced.

6 30. Not providing services and other things as stated in the Scope (clause 25.2)

QUESTION
7
We have a large bypass project under Option B of the ECC. We specifically requested that
the Contractor provided us with a cabin on Site and broadband and electrical connections.
It has failed to provide these, and, as a result, we are incurring additional costs. What
provisions are there in the contract for dealing with this?
8

9
ANSWER

Clause 25.2 requires that the Contractor provides services and other things as stated in
the Scope. The same clause also states that any cost incurred as a result of the Contractor
not providing is assessed by the Project Manager and included as a negative adjustment
10 to the amount due under clause 50.3 (‘less amounts to be paid by or retained from the
Contractor’).

11

12

22
 Chapter 2: THE CONTRACTOR’S MAIN RESPONSIBILITIES

31. Missing a Key Date (clause 25.3)

1

QUESTION

We have a Key Date on our ECC Option C healthcare project. This is for the construction
of a concrete plinth and first-fix electrics ready to take a cancer scanner from a specialist 2
supplier with whom we have a direct contract.

The Contractor recently notified an early warning as, due to its delay, it anticipates missing
the Key Date. How and when do we value this? 3

ANSWER 4

This is assessed when the Project Manager decides that it has not met the condition stated
by the Key Date, not before (clause 25.3). At this point the Project Manager would assess
the additional cost to the Client in carrying out work or paying an additional amount to 5
Others in carrying out work. For example, this may include re-hire of a crane and storing the
scanner in a warehouse. This should be cost incurred ‘on the same project’, so cannot be
remote – it has to be directly incurred on the same project. The assessment should also be
made within four weeks of the date.
6

32. Quality control of the supply chain (clause 26.2)

7

QUESTION

We are about to embark on a high-security new-build prison and have selected the ECC. 8
The choice of main Contractor is critical, which we will inevitably have control over during
the tender process. Our concern is the Subcontractors and whether they are of the right
calibre – what provisions are there in the ECC in this respect?
9

ANSWER
10
The ECC provides a level of control in this respect. There is no naming or nomination
process. Clause 26.1 confirms that – whether the work is subcontracted or not – the
Contractor retains responsibility. The next clause (26.2) is key to addressing your concern.
This requires that, prior to the appointment, the Contractor submits the name of each 11
Subcontractor to the Project Manager for acceptance. The Project Manager can only ‘not
accept’ if it believes that acceptance will not allow the Contractor to Provide the Works.
Reasons would need to be perhaps around health and safety or major concerns about
quality assurance systems or vetting of staff. It is irrelevant what was stated during the
12
tender process in terms of Subcontractors – the ECC only becomes operable once signed,

23
 NEC4 PRACTICAL SOLUTIONS

1 so the Contractor will need to submit at this point. Clause 26.2 therefore provides a level
of transparency – ultimately, it is the Contractor’s responsibility. Failure of the Contractor to
comply with this obligation may result in the Client terminating its obligation to Provide the
Works (clause 91.2 (R13)).
2

33. Working with Others (clause 27.1)

3

QUESTION

We have a complex engineering project under the ECC and have placed direct contracts
4 with a number of suppliers. The civil engineering works are being undertaken by a main
Contractor under Option A. We have a number of direct contracts with suppliers and other
contractors with whom we require the main Contractor to liaise with and co-ordinate its
design. How does the ECC support this?
5

ANSWER
6
The other suppliers and Contractors that you have direct contracts with are classed as
‘Others’ under the ECC (clause 11.2(12)).

The contract refers to Others in a number of instances – in direct answer to your question,
7
clause 27.1 is the most relevant – this requires the Contractor to obtain approval of its design
from Others as necessary. It is also worth reviewing all of the clauses that refer to Others –
these include clauses 25.1, 27.1, 60.1(5), 80 and 91.3.

FURTHER THOUGHTS AND TOP TIPS

9
• The Scope is a key document, which the Contractor is required to comply with. Make
sure this is well understood and implemented.

• Ensure that the design submission and acceptance procedures are fully appreciated at
10 the beginning of the project.

• Make sure that Subcontractors are accepted at the commencement of the project
(before their appointment is made).
11
• The Scope should clearly define the Contractor’s interaction with Others – on complex
projects this is vital to define accurately.

• The impact of missing a Key Date is significant – ensure Key Dates are well planned and
12 the Condition to be met is clearly defined.

24
 Chapter 3: Time

CHAPTER 3

Time
1

2
34. Can a Completion certificate also be a payment certificate? (clause 30)

QUESTION 3

We have used the ECSC on a small job that was completed a few months ago. We issued a
Completion certificate (which was also the penultimate payment certificate) releasing half of
the retention being held. The Contractor’s bond people will not accept it as a Completion 4
certificate for that job, making it difficult for the Contractor to get another bond for another
job. Can a Completion certificate also be a payment certificate?

ANSWER

There is no such thing as a payment certificate in the ECSC, instead the Contractor makes
6
the assessment, applies for payment, and the Client decides what is due and pays (clauses
50 and 51). The requirement for a certificate for Completion to be issued by the Client is set
out in clause 30.3. It does not have to be in any particular form, but it does have to state
clearly on what date the works were completed, and should be issued within one week of
that date. It cannot also be a payment certificate because, as said, there is no such thing as 7

a payment certificate. Note that in the ECSC there is no separate certifier as such, although
the Client can delegate any of its actions to anybody, as long as that delegation complies
with clauses 14.5 and 13.1. Whether or not this is accepted by anybody for any reason is not
something we are able to comment on. 8

35. Has Completion been achieved? (clause 30.2) 9

QUESTION
10
Our query concerns certifying Completion within an ECC project (Project A) that consists
mainly of a large-diameter water main, which the Client currently has beneficial use of.
In accordance with clause 11.2(2), all the work within the Scope has been completed.
However, recently a fitting on the water main (which was manufactured, supplied and
11
installed by the manufacturer and/or its subsidiaries) started to leak. This necessitated the
new water main being temporarily taken out of service while the fitting and surrounding
section was cut out and replaced with a different product. After the repair to this Defect the
water main went back into service and the Client gained beneficial use of the same again.
The faulty fitting had been awaiting transportation to an independent testing laboratory 12

NEC4 Practical Solutions ICE Publishing: All rights reserved 25

.
 NEC4 PRACTICAL SOLUTIONS

1 for inspection, analysis, and a report into the likely causes and mode of failure. However,
another fitting (again supplied, installed, etc., by the same company) started leaking on
another project (Project B – the same Client but a different Contractor). This fitting has now
also been removed and sent for testing and a further report. As you can imagine, the failure
of the same fitting on two different contracts has led to some cause for concern within
2
the Client’s organisation as to the potential for further failures and the possibility of further
Defects. Contractually, how do things stand within Project A? Obviously the findings of the
independent laboratory and report are the immediate concern; however, the Contractor may
claim that a Defect occurred and, in accordance with clause 44, it was corrected. Therefore,
3
while there are no further leaks (Defects) is the Contractor now entitled to Completion
being certified?

ANSWER

It appears that the Contractor has been entitled to have Completion certified some time
5 ago. The Project Manager should have certified Completion within one week of the works
complying with the definition of Completion, and its failure to do so is a breach of the
contract (clause 30.2). These matters may be Defects, which can and should be, or rather
should have been, dealt with by the processes set out in clauses 43–46. In addition, as soon
6 as the Client started using the water main or within two weeks of Completion (whichever
happened earlier), the Project Manager should have certified take over (clause 35). Again,
failure to do so within one week is also a breach of contract.

36. What goes onto the first Accepted Programme? (clause 31)

8
QUESTION

My query is in relation to the first Accepted Programme. We have a tender programme that
we believe is included as a contract document but not referenced within Contract Data part
9 two. The contract award was delayed by 12 weeks, and therefore the tender programme
within the contract did not reflect the later contract dates. At the contract award, Contract
Data part two stated ‘To be submitted by the Contractor in accordance with the contract’
(i.e. within three weeks). Following the contract award we submitted a first programme
10 for acceptance. This programme was the tender programme adjusted by the delay to the
contract award but in line with the contract dates and original logic. This programme has
not been accepted for the following reasons:

• the Contractor’s plans, which it shows are not practicable

11
• it does not show the information that this contract requires.

The main issue relates to the starting date, which is currently in delay due to Client planning-
approvals problems. The Project Manager is looking for us to submit a first programme,
12
which reflects changes that have occurred since the Contract Date. The Project Manager

26
 Chapter 3: Time

appears to be looking for us to change our logic from the tender programme and show 1
activities happening later as a result of the Client’s delays.

Our query is whether this is reasonable or should we be able to submit a programme in line
with our original logic irrespective of changes that have happened since the Contract Date?
As there are also a number of Project Manager’s instructions already, which are going to be 2

compensation events, any other situation would mean that the programme does not reflect
the contract and the baseline at the outset. It should be noted that the programme that was
submitted for acceptance was also lacking resources and other matters, which we realise
need to be added for acceptance. We would be grateful for any guidance on this matter 3
prior to us arranging an early warning meeting with the Project Manager.

ANSWER

Your tender programme is only the first Accepted Programme if it is referred to in Contract
Data part two. Otherwise it is not the first Accepted Programme, and we cannot comment 5
on the status of it with such limited information; the incorporation of a programme into the
contract could have quite dramatic implications.

Putting the above to one side, you need to produce a compliant programme that reflects
6
things as of the Contract Date; this will line up with the other dates and your obligations.
Things that happen after that, such as Project Manager instructions to change the Scope,
other Client delays and so on, will be dealt with in the order they are known about and not
on the first Accepted Programme. You could not predict these sorts of problems, nor of
course does the contract expect you to. 7

37. Incorporating a programme into Subcontract Scope (clause 31) 8

QUESTION
9
We are using ECS main Option B. The Subcontractor is providing temporary traffic
management, and the main item is to provide 4 km single-lane overnight closures on a dual
carriageway. The quantity of closures installed has increased. The Subcontractor has notified
a compensation event, requesting an enhanced rate/change to the original Bill of Quantities
10
(BoQ) rate. The Subcontractor is using clause 60.1(1) as the basis of its entitlement, saying
that any deviation from the prescribed programme and resources therefore constitutes a
change to the Subcontract Scope. The reason for this is that the Contractor has identified
within the Form of Agreement the appendix where the Subcontract Scope is contained and
11
within this appendix we have included a programme and histogram. Within Subcontract
Data part two we have, ‘If a programme is to be identified in the Subcontract Data – the
programme identified in the Subcontract Data is identified in Subcontract Scope Appendix
A item 4’.
12

27
 NEC4 PRACTICAL SOLUTIONS

1 Can the Subcontractor rely on the inclusion of the two documents – the programme and
histogram – within the appendix as the Subcontract Scope? And as such is it entitled to a
compensation event under clause 60.1(1)? We consider that a change to the Subcontract
Scope at the risk of the Subcontractor or a consequence of its proposals is not a
compensation event. During the currency of the Subcontract Works the Subcontractor failed
2
to submit a revised programme as required under clause 32. Does this further impact on the
Subcontractor’s entitlement to a compensation event as it has failed to identify the effects
of the compensation event?

3 Finally, the Subcontractor has only recently identified its entitlement to the compensation
event pursuant to clause 60.1(1), which is several months after Completion. It had previously
claimed an entitlement under clause 60.4 but was unable to demonstrate that the Defined
Cost of its resources had changed. Does this change in argument/direction have the same
4 effect of clause 61.7 and effectively time bar any compensation event claim? Note that the
subcontract had sectional Completion Dates, and as such certain sections are now beyond
the defects date.

ANSWER

6 If you have somehow included a programme within the Subcontract Scope, then if you
change that programme that becomes a compensation event because you are changing
the Subcontract Scope. And that compensation event will be valued not based on the rates
in the BoQ but on the actual increase in Defined Cost. So, it is not a case of enhancing a
rate – the Subcontractor has to demonstrate the Defined Cost. That may be more or may
7
be less than it has in the BoQ, but it still has to demonstrate it. It is the Subcontractor that
is supposed to provide the programme, not you. It is for you to accept or reject it. It is its
programme for its subcontract works. We suggest you look at clauses 11.2(1) and 31 and 32
for more information on this, and it is in the Subcontract Data rather than the Subcontract
8
Scope because programmes will inevitably change! So, your mistake was saying at the entry
in the Subcontract Data to look in the Subcontract Scope for the programme. Because now,
whenever it changes, it is a compensation event. The time bar in clause 61.3 does not apply
to clause 60.1(1) because it is a compensation event that you were supposed to notify, not
9 the Subcontractor (clause 61.1). We cannot see how the time bar in clause 61.7 can apply
when you have not yet got near the defects date. The answer to that will be in what you
have set the defects date up to be in the Subcontract Data. So, yes, it is a compensation
event, but the Subcontractor still has to demonstrate what effect it had on Defined Cost,
10 just as it does with any other compensation event.

11

12

28
 Chapter 3: Time

38. Programme float and time risk allowances (clause 31)

1

QUESTION

On an ECC Option A contract, in presenting the clause 31 programmes, the Contractor has
not defined any float or time risk allowance; rather, it has included a terminal risk allowance. 2
With particular reference to the critical path, we consider that not only does this preclude
the ability to monitor risk/residual risk as the works progress, but it also prevents assessment
in terms of the sufficiency of the operational resource and time allowances and the
deliverability of the programme generally. It is worth noting that the critical path constitutes 3
complex bridge construction works over an environmentally sensitive water course. Could
you advise on the resolution of the issue, with regard to the Contractor’s position that there
is no float within the critical path, and an assessment that a programme with no float on
the critical path is impractical/unrealistic and, therefore, cannot be accepted? 4

An early warning meeting cannot fully resolve the matter (the Contractor has already stated
that, due to its commercial approach on the job, there is no float/risk provision in the critical
path operations), and there only appears to remain a completely unsatisfactory situation
5
whereby these mutually exclusive positions lead to an impasse undermining the programme
as a management tool.

ANSWER

The Contractor is required to show float and time risk allowance on its programme
(clause 31.2). If the Contractor does not do so, then the Project Manager can notify its 7

reasons for not accepting under clause 31.3 (second bullet). A programme without any
time risk allowance or float, or where all the time risk allowance is at the end, is also simply
not practicable to achieve and should therefore not be accepted under the first bullet of
clause 31.3. 8

However, with regard to the critical path, the Contractor is absolutely correct that there
simply cannot be any float within that – by its very definition it is the path that is critical. In
fact, one of the accepted definitions of the critical path is that path that has zero float, or, 9
to put it another way, it is the quickest period that the work can be carried out in. Generally,
now, computer software will define the critical path and float for the remaining items once
the programmer has entered the time periods for each activity (including any time risk
allowances for that activity) and the links between the activities (either logic or resource
10
driven). However, the Contractor is not best advised to lump all of its time risk allowances
together at the end of the programme. These should be included for each activity that
needs them (not all will). The amount of these will depend on many factors, including the
nature of the activity and the time of year it is being carried out. That way, the programme
shown will be achievable (i.e. practicable). Time risk allowances remain the Contractor’s, and 11
the Client cannot use them when assessing the effects of a compensation event.

12

29
 NEC4 PRACTICAL SOLUTIONS

39. What becomes of a tender programme? (clause 31)

1

QUESTION

As part of a quality assessment, we asked tenderers for a resourced programme submitted

2 from the stages of design to Completion. As you might expect, these varied in quality.
Contract Data part one stated that ‘The Contractor is to submit a first programme for
acceptance within four weeks of the Contract Date.’ We have a few questions on this scenario:

3 1. In awarding the contract, are we bound to accept the tender programme as the clause
31 programme?
2. Are we entitled to request a new clause 31 programme based on the actual Contract
Date?
4 3. At award of contract, the Contract Date was two weeks later than had been assumed
by the tender programme. Is the Contractor entitled to have Key Dates and/or the
Completion Date moved forward by two weeks?

ANSWER

6 The answer to question 1 is going to depend on the status of the programme issued at
the tender stage. If it was referred to by the Contractor in Contract Data part two, then it
becomes the first Accepted Programme (clause 11.2(1)); the reference in Contract Data part
one is irrelevant because the ‘if’ statement does not then apply.
7
With regard to question 2, we are not sure that in practice this is particularly relevant,
because the programme has to be revised in any event at regular intervals (clause 32).

With regard to question 3, the Contract Date has no relevance to a programme issued for
8 acceptance – it is the starting date and access dates that are important (clause 31.2). These
are the dates that were in your Contract Data, unless they were perhaps amended in tender
correspondence.

40. What do we do if the programme shows a wrong date? (clause 31)

10
QUESTION

On an ECC contract, the Contractor is asking for acceptance of a programme that shows
the effects of a Project Manager’s instruction, which is a compensation event affecting both
11
the Prices and planned Completion. I believe the Contractor has not assessed this correctly,
and the assessment is not currently agreed between us. I have not accepted the submitted
programme because the programme shows the Contractor’s critical path delay as 53 days,
whereas my assessment is 29 days. The programme thus indicates an incorrectly revised
12 Completion Date. Is this a reason for not accepting under clause 31.3?

30
 Chapter 3: Time

I am looking at the second bullet here, and considering the direction of the second bullet 1
of clause 32.1 and the first bullet of clause 32.1. I do not understand how I can accept a
programme that shows something that is not agreed. This compensation event is significant
in value, and I believe it will take some time to settle (maybe by means of the tribunal), as
we have reached an impasse.
2

Subsequent to this event, we have had a further significant compensation event involving
a delay, which is agreed in both cost and time. I am therefore required to accept a further
programme to reflect this change. How should I progress this if the previous matter is not
agreed? 3

4
ANSWER

There are two separate dates that have to be shown on the programme for acceptance. The
date for planned Completion is one such date (second bullet of clause 31.2). This is the date
on which the Contractor plans to achieve Completion. It will be at the end of the critical 5
path and all of the activities will, directly or indirectly, link to it. It can be before, on or after
the Completion Date. If it is the last, the Contractor is admitting it is going to finish ‘late’.

The Completion Date is the other such date (first bullet of clause 31.2). This is the date
6
by which Completion should be achieved. This is not linked to anything else on the
programme, and can only be moved as a result of a compensation event (clause 63.5) or
agreed acceleration (clause 36.3).

You need to make sure that you understand the difference between these two and do not 7
confuse them. You also need to understand that terminal float (i.e. the period between
planned Completion and the Completion Date) remains the Contractor’s responsibility (plus
or minus) and cannot be used to alleviate the effect of a compensation event (clause 63.5).
8
With regard to the compensation event, the time for ‘settlement’ is irrelevant to you. If you
are not happy with the Contractor’s quotation, clauses 64.1 and 62.3 require that you make
your own assessment of both the money and time consequences of the compensation event.
Clause 64.3 requires that you do that within three weeks. Once you notify the Contractor of
9
this assessment, the compensation event is implemented under clause 66.1. You then include
in your payment certificate the amount you have assessed (Options A or B) when these
works are complete or add it to the target (the Prices, in Options C or D). You also extend the
Completion Date by the amount you consider it is due. That is the end of your involvement.
10
The Contractor can (possibly negotiate with the Client or) go to adjudication to get it changed.
If the Contractor believes it will take 53 days to deal with this event, it is entitled to put that on
its programme for acceptance, and therefore move the date for planned Completion by that
amount. That will not move the Completion Date, and if you accept that programme it will not 11
mean you are accepting that the Completion Date should move by that, or any other, amount.
On the other hand, if you do not think it will take 53 days to deal with the event, then you
can reject the Contractor’s programme because it does not represent the Contractor’s plans
realistically (clause 31.3, third bullet). Of course, if you are wrong on that, then eventually the
12
Contractor will be likely to win the argument if it goes to adjudication.

31
 NEC4 PRACTICAL SOLUTIONS

41. Programme not being responded to by the Project Manager (clause 31.3)
1

QUESTION

As a Contractor we consistently find that our programmes are not responded to by the
2 Project Manager on our ECC projects. Can your offer advice as to how we should best deal
with this and how we should protect ourselves.

ANSWER

Unfortunately, this is not uncommon! The good news is that clause 31.3 in the ECC does
4 provide expressly for this.

It is worth noting that the Project Manager should ‘act as stated’ (clause 10.1). This means
that it should either ‘accept’ or ‘not accept’ within two weeks of programme submission.
5 The reasons for not accepting are listed in clause 31.3.

In the ECC, if the Project Manager does not respond within the time allowed, the Contractor
may (optional) notify (clause 13.7 in a separate communication) of its failure. If the failure
continues for a further week, it is treated as acceptance – effectively ‘deemed accepted’.
6
The very existence of this provision should hopefully ensure that the Project Manager does
indeed respond. Teams that work effectively under the ECC often agree to meet before the
submission deadline, review the programme and agree informally to the revised programme.
7 This is then followed with a clause 32.2 submission and clause 31.3 acceptance. It is also
worth noting that clause 10.2 requires that the Project Manager acts in a spirit of mutual
trust and co-operation, so it should be proactively looking to work with the Contractor and
agree revised programmes.
8

42. Problems with a programme submitted at the tender stage (clause 32)
9

QUESTION

We are at present engaged on a major construction project using ECC Option A, and seek
10 clarification on a point of procedure regarding the programme. All tenderers submitted a
programme as part of their tender, as they were required to do. Following evaluation of
the tenders, the Client’s agent (this role includes acting as Project Manager) recommended
award to contractor X. No comment was made at the time by the Client/agent regarding
11 contractor X’s programme, and there was no notification of acceptance or reasons for
non-acceptance of this programme. The contract was formally awarded by the Client to
contractor X (the Contractor) in early October.

12

32
 Chapter 3: Time

The Project Manager advises that the Contractor submitted its first programme for 1
acceptance in January. The Project Manager wrote to the Contractor 13 days later
with comments that required attention prior to the Project Manager’s acceptance. The
Contractor responded, claiming that the Project Manager’s response had neither accepted
nor notified reasons for not accepting, stating that one of these should have been due
2
within two weeks of submission and it therefore deemed the programme submitted
in January to be the Accepted Programme. The Contractor then submitted an updated
programme in February taking cognisance of the comments and requirements sent by the
Project Manager earlier. The Project Manager wrote to the Contractor more than two weeks
3
later, indicating that the programme submitted in February was not accepted for all four
clause 31.3 reasons. The Contractor maintains that there is an Accepted Programme –
probably referring to its ‘deemed’ Accepted Programme.

We understand that if a programme was required to be submitted with the tender, the 4
programme is identified in the Contract Data at the Contract Date. In this situation an
Accepted Programme already exists and no amount can be retained under this clause. We
also understand that once the programme has been accepted, it becomes the Accepted
Programme. A commentary on the ECC says that ‘the contract does not deal expressly with 5
the position if the Project Manager finds the programme identified in the contract data
unacceptable. It is by definition the Accepted Programme. Presumably this is a matter to be
dealt with before the award of the contract.’

None of the above considers the possibility in which the Project Manager neither accepts 6
nor notifies reasons for not accepting, as appears to be the case in our project. We would
welcome any comments and advice you may be able to offer, particularly regarding whether
an Accepted Programme (or deemed Accepted Programme) exists and to which one would
this relate. Also, if this relates to the one submitted with the tender, how should any 7
deficiencies in information that would have led to it not being accepted had it been properly
assessed at the time be dealt with now?

ANSWER

The first thing you and your Contractor need to understand is that the Accepted Programme 9
is not a single programme but a continually evolving one. The contract requires the
Contractor to submit revised programmes at regular intervals – note the final bullet of
clause 32.2 and the entry you have in your Contract Data part one. We always recommend
that the interval should be no longer than monthly, ideally shorter. Once each programme 10
has been accepted, it becomes the Accepted Programme until the next one is issued and
accepted (clause 11.2(1)). And so the cycle goes on.

The status of the programme submitted with the Contractor’s tender depends on how
it has been referred to within the Contract Data, so unfortunately we disagree with one 11
of the quoted suggestions above that its status is unclear – nothing could be clearer. If
the programme has been referenced in Contract Data part two by the Contractor, then
it automatically becomes the first Accepted Programme – the wording of clause 11.2(1) is
very clear on that. Of course, it then gets superseded by future programmes, once they are 12

33
 NEC4 PRACTICAL SOLUTIONS

1 accepted. If it is not referred to in the Contract Data, it is not an Accepted Programme. If the
tender assessment team is not happy with this programme, then do not accept the tender,
or put up with it or negotiate (if procurement rules permit).

Looking at what has actually happened, it seems to us that there has been a catalogue of
2 errors on both sides. Firstly, it seems that the Contractor was very late in submitting its first
post-contract programme for acceptance. And the Project Manager has also not done what
it should have done. If the tender programme was not the Accepted Programme, for the
reasons in the previous paragraph, the Project Manager should have been retaining 25% of
3 the Price for Work Done to Date in assessments until a ‘correct’ programme (clause 50.5)
was submitted. Even if it was the Accepted Programme, the Project Manager should have
been chasing for another one, and instructing one if need be (first bullet of clause 32.2).
Once the Project Manager receives a programme, it has two weeks to say ‘yes’ or ‘no’, and
4 if it says ‘no’ it has to give reasons (clause 31.3). If the Project Manager has some comments
it wants to discuss with the Contractor, it is a bit too late to write after 13 days. Why not just
talk to the Contractor about the programme and discuss any concerns? And then the Project
Manager failed to reply within the two weeks, which is a compensation event in itself (clause
5
60.1(6)). But then the Contractor got it wrong, as well. There is no such thing as a ‘deemed
accepted’ programme. As previously mentioned, the Contractor’s protection is through
the notifying of a compensation event. But it is now too late to do that (clause 61.3). The
Contractor then submitted a new programme for acceptance – absolutely correct. But the
Project Manager has now not accepted that for all four reasons in the contract. That means
6
it is either an appalling programme or the Project Manager is perhaps covering against all
eventualities, or somewhere in between. None of those options bodes well for the future.

The present position is that you either have no Accepted Programme at all or the (well
7 out of date) one in the Contract Data is the Accepted Programme. That can be in neither
Party’s interest. So, our first piece of advice is for the Project Manager to sit down and talk
constructively with the Contractor. Neither has covered itself in glory so far, so both should
approach those discussions with a degree of humility, and, above all, with a positive desire
8 to get a programme that both sides can live with. That is far better than having no Accepted
Programme at all or, worse still, an out-of-date, and therefore useless, one. And, in any
event, acceptance does not impose any liability on the Client or the Project Manager (clause
14.1). A further point is that until the Contractor starts issuing programmes for acceptance
within the periods in the contract, and the Project Manager accepts them, the Project
9
Manager is required to assess all compensation events, using what it believes the Accepted
Programme should be (clauses 64.1 and 64.2), and it has to do that within three weeks
(clauses 64.3 and 62.3).

10

11

12

34
 Chapter 3: Time

43. Lack of acceptance of programmes (clause 32)

1

QUESTION

We are a Subcontractor on a contract using the ECS. We are struggling to get acceptance of
any of our programmes, and have to date submitted ten programmes for acceptance by the 2
Contractor, none of which have been accepted. Each time our programme is not accepted,
the Contractor changes the subcontract access dates, and we resubmit the programme with
the new access dates for some sections of the work, and again it is not accepted. The work
is progressing ahead of our original programme. Can this situation carry on until the end 3
of the project, where the Contractor keeps on not accepting our programme, or is there a
mechanism in the ECS where it has to accept a programme?

ANSWER

You are required to submit programmes for acceptance as set out in clause 32.2. Once you 5
have done so the Contractor has two weeks to accept or not accept it (clause 31.3). If the
Contractor does not do so within that period, then that is a compensation event (clause
60.1(6)), and you will be compensated for the effect that the event has had on the Defined
Cost and the programme. If the Contractor does not accept it, the Contractor has to give 6
reasons (clauses 31.3 and 13.4). You are required to resubmit the programme taking into
account those reasons (clause 13.4). If the reason is listed in the contract (clause 31.3), then
that is the end of the matter (clause 13.8). If the reason is not one of those listed in the
contract, then that is also a compensation event (clause 60.1(9)). The problem you may have
7
with these compensation events is that you have only got seven weeks from when you
knew about them to notify them as a compensation event, otherwise you lose all your
rights to additional time and money (clause 61.3). In addition, if the Contractor issues an
instruction changing the subcontract access dates (as set out in the Subcontract Data), each
of those instructions will be a compensation event (clause 60.1(2)). 8

44. Showing non-implemented compensation events on a programme (clause 32) 9

QUESTION
10
Under an ECC Option B contract, we have a number of instances in which the Project
Manager has instructed a change to the Scope but the compensation event has yet to
be implemented (as the quotation is either outstanding or not yet agreed); the effects
on the programme have therefore not been accepted. The Contractor has submitted its
11
latest clause 32 programme for acceptance and included the programme effects for these
compensation events, which are not yet implemented.

As the Client, we view this as incorrect as we have not yet notified acceptance of
these compensation events, and indeed clause 32.1 only mentions that the effects of 12

35
 NEC4 PRACTICAL SOLUTIONS

1 implemented compensation events be included within the programme. Is this position

correct?

We are concerned that if we do accept a programme that includes the effects of

implemented compensation events we may by default be agreeing to the time effect of the
2 compensation event when this is not the case. However, we appreciate that the Contractor
is keen to reflect the actual position within its programme with regard to instructed work
that has been completed before the compensation event has been implemented – thus to
ensure it shows this work as as-built on the programme.
3

ANSWER
4
It is important to understand that a programme submitted for acceptance has to show both
the Completion Date (contractual) and planned Completion (practical) (clause 31.2). The
latter is linked through the activities in the programme, the former is not. The latter can
5 move for all sorts of reasons, the former can only move because of a compensation event.
If the Contractor knows something is going to happen, it has to show its effects on the
programme straight away, whether it is a compensation event or not, and that may or may
not affect planned Completion. That is because it has to show ‘the order and timing of the
6 operations which the Contractor plans to do’ (third bullet of clause 31.2).

The practical effects of events, therefore, including compensation events that are known
about but not yet implemented, have to be shown on the programme. So, planned
Completion may move, but the Completion Date does not and cannot at that stage. Once
7 the compensation event is implemented, then the Completion Date is moved and that
movement is shown on the programme. As long as the Contractor’s programme follows
those rules, then the Project Manager should accept it, as long as you are happy with it in
other respects. Acceptance will not infer or imply anything about the compensation event.
8 And it will not take any responsibility from the Contractor (clause 14.1).

9 45. Take over and its effect on liability (clause 35)

QUESTION
10
What effect does certifying take over for part of the works have on the Contractor’s
insurances/liability for that part. We have an ECC Option A contract for environmental
improvement works (new footways, lighting, etc.) in which vandalism and anti-social
behaviour have increased in recent months. As a result, the Contractor is keen to protect
11
itself at the earliest opportunity.

12

36
 Chapter 3: Time

ANSWER 1

Take over of all or any part of the works occurs when the Client starts using that part (or
all), unless that use is for a reason stated in the Scope or to suit the Contractor’s method of
working (clause 35.2). One of the Client’s liabilities listed in clause 80.1 is loss of or damage
2
to any part of the works that have been taken over (sixth main bullet). Up until take over the
Contractor is responsible for this (clause 81.1) and must insure it (clause 83.2). Take over is
therefore important because once any part of the works is taken over, the Contractor is not
liable for damage unless caused by it.
3

46. A Client’s liability? (clause 35)

4

QUESTION

I am the Project Manager on a project using ECC Option C. Completion was achieved on 5
4 June, and the Client took over the works on 11 June. However, a few days later, due to
heavy rain, topsoil was washed off an area of the embankment slope, which also took with
it landscape planting. The Contractor states the scheme is handed over. We state it is a
Defect as the topsoil layer should not have failed.
6

ANSWER 7

The first place we would look in the contract is the set of Client’s liabilities in clause 80.1.
The sixth main bullet says

loss of or damage to the parts of the works taken over by the Client, except loss or 8
damage occurring before the issue of the Defects Certificate which is due to … a Defect
which existed at take over … or … the activities of the Contractor on the Site after take
over.
9
If it was the case that there was no Defect that existed at take over, or the Contractor has
carried out no untoward activities after take over to cause this, then this matter would be a
Client’s risk. The Contractor would have done that which it was obliged to do, which is to
Provide the Works in accordance with the Scope.
10
A Defect is a part of the works that is not in accordance with the Scope (clause 11.2(6)).
Were tests or inspections carried out to verify whether the Contractor had done that which
the Scope stated it should do? Was the Scope sufficient in itself – that is, did the Contractor
do right but the brief was wrong in the first place? How can you now be sure that there was 11
indeed a Defect in how the Contractor had provided the works? How can you be sure that
the constructed works should not have failed?

12

37
 NEC4 PRACTICAL SOLUTIONS

1 We would imagine it is going to be extremely difficult to prove a Defect existed at the time
of take over. If somehow it can be proved, then this would be a Contractor’s risk under
clause 81.1. Are there other areas of similar topsoil and planting that demonstrate the Scope
has not been followed? Maybe the Scope was correct, and the Contractor’s work was
acceptable, but it was unfortunate timing that this part of the works had not had a chance
2
to settle before the damaging rain – this is not a Contractor’s risk after take over.

3
47. Damage by Others after take over (clause 35.2)

QUESTION
4
We are using ECC Option C and would like to know what is the correct (contractual)
position in respect of damage caused by Others? For example, in the instance that we, as
the Contractor, had completed our works and subsequently handed over an area of the
5 completed works to another Contractor (which is not part of the contract) by request of
the Project Manager. What is the position of the Contractor when the Project Manager
states that the Contractor was the principal Contractor and therefore holds responsibility
for damage caused by Others (irrespective of the handover documentation that was issued
6 to the other Contractor from the principal Contractor clarifying the state of the completed
works). You should note that the contract makes no provision in allowance for interim
handovers to Others and that there is no provision or allowance for resources in the Prices
for monitoring those works carried out by Others.
7

ANSWER
8
We are afraid that there is no such thing as ‘handover’ in the ECC, so it is difficult to
comment on this, other than to reflect on the correct wording/processes in the ECC. NEC
contracts are not the same as other contracts, and everybody needs to take care to use the
correct principles and terms when managing them or confusion might arise.
9
If the Client wants to use a part (or all) of the works, either for its work or for the work of
Others (as here), then it takes over the works (clause 35.2) (we assume from what you say
that neither of the two exceptions in the clause’s bullets applies in this case). The Project
10 Manager is then required to certify the date for take over within one week (clause 35.3).
That is what you should have got the Project Manager to do, rather than using the term
‘handover’.

The sixth main bullet of clause 80.1 makes it clear that the Client is liable for damage to the
11
works once they are taken over, not the Contractor (clause 81.1). And you are no longer
required to insure the works, because the first sentence of clause 84.2 makes it clear
that the Contractor only has to insure against its risks. The fact that you are the principal
Contractor is irrelevant. The Construction (Design and Management) Regulations 2015
12 specifically state they impose no civil liability of any sort. And in any event the contract is
clear as to whose liability it is (i.e. the Client’s).

38
 Chapter 3: Time

48. Where use of the works may not constitute take over (clause 35.2)
1

QUESTION

On an ECC Option A contract the Client wishes to use a part of the works for a number of
weeks but considers that the works are not complete, and believes and is concerned that 2
such use will automatically trigger Completion for that part of the works, the beginning of
the countdown to the defects date for that part of the works as well as having insurance
consequences for the Client. To that end the Client has requested the Contractor to confirm
in writing that such use does not constitute take over. Such confirmation is required by the 3
Client as a precondition of the Client using the works. If the Contractor does not provide
such confirmation, the Client will be obliged to use an area that is outside the Site.

At the request of the Client, a ‘Statement of Readiness of Use’ has also been provided 4
by the Contractor as a second precondition of the Client using the works. The statement
provided confirms that the works are complete but for two items, which in no way prevent
or hinder the immediate and full use of the works as requested by the Client.

The Contractor’s view is that such use of the works by the Client does constitute take over 5
of that part of the works under the contract, but that that does not automatically equate
to Completion either of the whole of the works or, as the Client believes, of that part of the
works. The Contractor does not dispute that it must complete the works whether or not
take over has been certified. Note that clause 11.2(2) has been amended to 6

Completion means in any event a state in which the Works are complete in all respects
and free from apparent Defects, save for any minor items of incomplete works or minor
Defects the existence, Completion or rectification of which in the opinion of the Project
7
Manager would not prevent or interfere with the use and enjoyment of the works;
provided where it is expressly stated in any provisions of the Scope that the testing,
commissioning, regulation or adjustment of any mechanical or electrical services is to
be completed before practical Completion of the works shall not be considered to be
practically completed until the same is done as the Contract Documents require. 8

9
ANSWER

The Client appears to have misunderstood the contract. Completion and take over are two
entirely different concepts in the ECC. Completion is about what state the works are in – that
is, do they meet the requirements set out in clause 11.2(2)? Completion is what the Contractor 10
has to achieve before the Completion Date. Take over is about who is using the works, as set
out in clause 35. Once the Client starts using the works, the Client takes them over. The Client
is entitled to start using all or any part of the works before Completion, and if it does so, it
has taken over those parts of the works (clause 35.2). However, Completion will still not be 11
achieved until the works have met the tests set out in clause 11.2(2). At take over, the Client
is liable for any loss of or damage to the works (sixth main bullet of clause 80.1). As these are
no longer the liability of the Contractor, the Contractor is no longer required to insure them
12

39
 NEC4 PRACTICAL SOLUTIONS

1 (first sentence of clause 83.2). However, the defects date is related to the date of Completion,
not the date of take over (see the relevant entry in the Contract Data part one). If the Client
does take over early (i.e. before Completion and before the contractual Completion Date), that
will be a compensation event. However, if the Client takes over in the situation in which the
Contractor is already late (i.e. before Completion but after the Completion Date), that is not a
2
compensation event. See the wording of clause 60.1(15). It is for the Project Manager, not the
Contractor, to decide when Completion and take over have occurred and certify them (clauses
30.2 and 35.3). The Project Manager does so by applying the meaning to those terms set out
in the contract. There is no such thing as a certificate of readiness of use in the ECC; you are
3
not required to provide it, and it means nothing.

As a final point, it appears to us that the Client’s changes to clause 11.2(2) are a recipe for an
argument and are totally subjective. The drafting seems to introduce new defined terms and
4 does not properly use the identified terms. What exactly is a ‘minor’ item of work? And what
does the reference to ‘practical Completion’ mean? The contract was designed to remove
subjective judgements such as these, and replace them with objective decision-making, by
defining what is meant by Completion. This change has reintroduced the uncertainty that
5
vague words such as ‘substantial Completion’ and ‘practical Completion’ bring.

49. The interaction of take over, Completion and delay damages (clause 35.2)
6

QUESTION
7 We are currently engaged on an ECC Option A project including Options X5 and X7. Option
X5 defines 27 individual Completion Dates and Option X7 allocates delay damages to 26 of
the 27 Completion Dates.

8 1. The Scope on this project is silent on what constitutes Completion for any of the individual
Completion Dates, and a dispute has arisen over when Completion was achieved. As the
Contractor, we believe that Completion was achieved at latest when the Client provided
access to Others (Contractors) to start their works. Are we correct with this view in the
absence of any other Completion criteria in the Scope?
9

2. A number of the individual Completion Dates are based on providing a complete set of eight
bases. The Client has started erection works prior to all eight bases being complete but has
refused to provide Completion for the bases that it has effectively taken over early. How
10 should the Project Manager have dealt with this situation?

3. What are the obligations of the Project Manager regarding deduction of delay damages? Is
the Project Manager obliged to deduct delay damages in full unless the Completion Date(s)
11
are altered by agreed compensation event? What happens with delay damages in a scenario
such as question 2 above – should the Project Manager levy delay damages in full?

4. If the Project Manager fails to deduct delay damages from an interim assessment is the
Project Manager/Client time barred at any stage from subsequently revisiting the applicability
12 of delay damages? We have received notification from the Project Manager requesting

40
 Chapter 3: Time

repayment of delay damages because they were not deducted in every monthly assessment 1
when they should have been.

5. The wording used in Option X5 for each of the Completion items is slightly different from
the same headings used for the delay damages under Option X7: for example, under Option
2
X5 the Completion Date is defined as a date for Array A but under Option X7 it is defined
as a sum for Array 1. Is it imperative that the wording in Options X5 and X7 match for the
provisions on interim Completion and delay damages to apply?

ANSWER

Completion of a section of the works is dealt with in exactly the same way as Completion 4
(clause X5.1). In the absence of anything in the Scope, the definition of Completion is set
out in the final part of clause 11.2(2). It is when ‘the Contractor has done all the works
necessary for the Client to use the works and for Others to do their works’. It appears
the Contractor has achieved that by the fact that Others (i.e. these other Contractors) are 5
carrying out their works.

However, you must also remember as well as Completion there is also take over to consider.
Completion is about the state that the works are in (clause 11.2(2)), whereas take over is
6
about who is using the works. The Client takes over the works (or any part of the works)
when it starts using them (clause 35.2), and that would include getting Others to use them.
The Project Manager has to certify take over as well, within one week of the use starting
(clause 35.3). So, on the information you have given us, take over must have occurred,
7
regardless of whether or not Completion has been achieved, and the Project Manager is in
breach by not certifying as such.

You will see in Option X7 that delay damages cease on the earlier of Completion or take
over happening. Therefore, delay damages cannot be applied to these sections. 8

In addition, the Client can take over part of the works or part of a section of the works at
any time. For example, in your case, the Client could start using six out of the eight bases in
a section (clause 35.2), in which case those six bases are then taken over. In that case, the
9
delay damages for that section are reduced in the ratio to the amount of benefit that the
Client has got from the six as opposed to the eight bases (clause X7.3).

The Project Manager (not the Client) deals with the deduction of delay damages as part of its
assessment (third bullet of clause 50.3). The Project Manager is obliged to deduct them when 10
they become payable. If the Project Manager does not do so, that is an error, but this can be
corrected in any later assessment (clause 50.6). There is no time bar for this to be done.

Obviously, the sections should have the same name in Options X5 and X7. If they do not,
11
that can cause problems, but that is a legal matter on which we are unable to offer advice.
In reality, in the scenario you have set out, it is unlikely that any delay damages would
be payable, assuming that the Client started using the bases by the Completion Date for
those bases. The fact that the Project Manager has not done what it should (i.e. certifying
12
Completion and/or take over) does not mean that you are liable.

41
 NEC4 PRACTICAL SOLUTIONS

1 FURTHER THOUGHTS AND TOP TIPS

• Make sure that the state of Completion is properly thought about and defined in the
Scope when preparing the tender documents.
2 • Think of the programme requirements in clauses 31 and 32 as being a set of minimum
requirements – there is nothing to stop inclusion of more than the minimum if the
Parties agree that it would help the contract management.

3 • With the first programme in particular, the Contractor should get the person(s) who
prepared this document to spend some time walking the Project Manager through it, to
understand better the logic and any pinch points that concern the Contractor.

• Make sure that take over, testing and Completion are understood, properly reflected
4 in the tender documents, planned out properly and clearly shown on the Accepted
Programme.

10

11

12

42
 Chapter 4: Testing and defects

CHAPTER 4

Testing and defects

1

2
50. Frustrated Supervisor! (clause 41.1)

QUESTION 3

I am a frustrated Supervisor under an ECC Option A contract! I was not involved in drafting
the original Scope but understand that no specific tests or inspections were stated. What
tests and inspections should the Contractor undertake and how can I instruct additional 4
tests and inspections?

5
ANSWER

The frustration is appreciated and, worryingly, not uncommon. Drafting the Scope correctly
is vital and should be a team effort – taking on board all expertise.
6

If the Scope is silent, then the only tests and inspections that the Contractor is required to
undertake are those required by the applicable law (clause 41.1).

If you suspect a Defect, you can as the Supervisor instruct the Contractor to search. 7
However, if there is no Defect, then this will be a compensation event (clause 60.1(10)).

It sounds like you are better off redrafting the Scope and then getting the Project Manager
to change the Scope (clause 14.3). This, however, will be a compensation event (clause
8
60.1(1)). It may be more sensible to get the Project Manager to notify an early warning and
discuss the impact of the additional tests and inspections you now require – a view can then
be taken.

Ultimately, if the work does not comply with the quality standards within the Scope, then it 9
will be a Defect (clause 11.2(6)).

10
51. What does ‘unnecessary’ mean? (clause 41.5)

QUESTION 11

I am trying to understand what ‘unnecessary’ means under clause 41.5 of the ECC. I
recognise that if a test or inspection by the Supervisor causes unnecessary delay then this
would be a compensation event (clause 60.1(10)) – but what does this mean?
12

NEC4 Practical Solutions ICE Publishing: All rights reserved 43

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

This is a good question – and its answer could be subjective. Our advice would be to define
the time periods within the Scope. Tests and inspections normally fall into three categories:
tests and inspections that the Contractor undertakes, those undertaken by the Supervisor
2
and those witnessed by the Supervisor. Why not create a table in the Scope and, against
those that involve the Supervisor, include a timescale.

3
52. Charging costs incurred for repeating tests and inspections (clause 41.6)

4 QUESTION

As the Client, we have engaged a consultant Supervisor on an hourly rate to manage our
ECC project. We are having a number of problems with our Contractor, and numerous tests
5 need to be repeated as a result of Defects being found when tests are undertaken. Are we
allowed to charge the Contractor for this?

6
ANSWER

Yes – clause 41.6 allows the Project Manager to assess the cost to the Client in repeating a
test or inspection. The Contractor pays the amount. While the work is underway, the cost
7
will be deducted from the amount due (second bullet of clause 50.3).

8
53. Is there a snagging list? (clause 43.2)

QUESTION
9
Reading clause 43.2 in conjunction with clause 13.7 appears to imply that every single
Defect should be notified separately – surely this cannot be right as we have hundreds of
Defects on our project?
10

ANSWER
11
There is no ambiguity. Clause 43.2 requires that until the defects date the Supervisor and
Contractor notify one another of each Defect. The ‘notification’ needs to be undertaken
separately as per clause 13.7, as you say. Each one may have a differing defect correction
12 period, depending on how these have been completed in the Contract Data, so it is
important that they are separate.

44
 Chapter 4: Testing and defects

This rigour ensures that we overcome the problems of old – poor and ambiguous 1
paperwork. Perhaps there will be more paperwork, but it will be very clear where everybody
stands with each and every Defect. There are some basic NEC communication pro formas
available, and it is useful to agree a communication protocol at the outset of the project,
agreeing how this will be managed.
2

54. Pro forma for latent Defects (clause 43.2)

3

QUESTION

Is there a latent Defects pro forma? 4

ANSWER

First, we are not sure about ‘latent’ Defects – latent to what? Assuming that you are using
an ECC contract, then all Defects (note the definition in clause 11.2(6)) found up until the 6
defects date are notified by the Supervisor to the Contractor (clause 43.2). You can use a
generic notification form or you can design your own specifically for this. Strictly speaking,
none of these are latent Defects as such. After the defects date, any Defect the Client finds,
which is not listed on the Defects Certificate, may well, in law, be a latent Defect, but you 7
will need to get legal advice on that. The contract keeps the Client’s rights with regard to
these (last sentence of clause 44.3). The law will then decide how and when these should
be notified. However, in such case there is no automatic right to correction (as there is
before the defects date), and you will need to take legal advice as to how to proceed.
8

55. Constraints in the Scope (clause 43.2)

9

QUESTION

The Contractor has designed a heating system to provide a room temperature of 10°C. The 10
Scope states this should be 15°C. I, as the Project Manager, have therefore currently advised
the Contractor that I am disallowing costs under the eighth bullet point of clause 11.2(26),
as this is a Defect associated with the Contractor not complying with a constraint as stated
in the Scope. This has been challenged on the basis that the Scope does not contain a 11
schedule of constraints (i.e. compliance or not with a specification clause is not deemed
as a constraint). Do constraints have to be specifically identified in a separate document,
highlighted in say a list, or can they just be items included within the Scope?
12

45
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

We assume that the specification is within the Scope. We consider that you were wrong
to treat this as a Disallowed Cost, but not for the reason that the Contractor suggests. The
constraint is on ‘how’ the Contractor Provides the Works, not on ‘what’ it provides, as is the
2
case here. This only applies to method specifications, not results-based specifications, as this
one clearly is.

Such constraints do not have to be in a formal schedule of constraints as is suggested by the

3 Contractor, but they do have to be clear and unambiguous. However, that does not apply in
your case for the reason given previously. This is, of course, still a Defect that the Contractor
must correct (clauses 11.2(6) and 44.1).

The Supervisor (not Project Manager) should therefore notify it under clause 43.2. The cost
4
of correcting this Defect will be paid, as long as it is corrected before Completion (seventh
bullet of clause 11.2(26)).

5
56. Dealing with a Defect (clause 44)

6 QUESTION

On our project the Client’s Scope specifies some mesh access flooring to be 45 mm thick.
The Contractor has installed this at 43 mm thick on an ECC Option C contract. The work is
7 underway – how do we best deal with this?

8 ANSWER

The use of the 43 mm mesh will be a Defect because it does not comply with the Scope
(first bullet of clause 11.2(6)). The Supervisor (not Project Manager) should therefore notify
9
the Contractor of this Defect (clause 43.2). The Contractor is then required to correct
it under clause 44.1. That has to be carried out before Completion, if it will prevent
Completion (clause 11.2(2)), otherwise it has to be carried out within the defect correction
period set out in the Contract Data (clause 44.2). If the Contractor does not correct this
within that period, then the Project Manager assesses what it will cost the Client to get
10
it corrected by other people, and deducts that from the Contractor (clause 46.1). As to
payment, we note that this is an Option C contract, which shares the risk of Defects
between the Parties. The answer will therefore depend on when the correction is carried
out. If it is carried out after Completion, then the cost of it will be a Disallowed Cost (fourth
11 main bullet of clause 11.2(26)). Otherwise, the cost forms part of Defined Cost, and is paid.
In Option C, the risk of the Contractor’s errors is, with few exceptions, shared between the
Parties.

12

46
 Chapter 4: Testing and defects

57. Dealing with Defects after Completion (clause 44)

1

QUESTION

We have an ECC project. The project achieved Completion 2 months ago, and we are
debating with the maintenance team what kind of warranty periods the ECC provides for 2
one particular aspect – the air-handling units.

ANSWER

The ‘warranty’ period in the ECC is effectively the time period between Completion and
the defects date. This is typically 52 weeks, but it is whatever has been completed in the 4
Contract Data. During this period there is a dual obligation – the Supervisor needs to
notify the Contractor of Defects and the Contractor is required to correct within the defect
correction period (again defined in the Contract Data).
5
In addition, even when the Defects Certificate has been issued that does not affect
your rights to recover the monies from the Contractor for that breach (last sentence of
clause 44.3).
6

58. No operational and maintenance manuals! (clause 44)

7

QUESTION

I undertook Project Manager duties on a small ECC contract last year. The Contractor has
now contacted me for payment of retention money (2.5% outstanding); however, the 8
Contractor has not provided the operational and maintenance manuals that were detailed in
the Scope. Should I have notified the Contractor that this was a Defect for non-compliance
with the contract? And although I did not, can I still notify a Defect and withhold the
retention money until this information is provided? It is my understanding that I can 9
withhold approval of retention money until the Defects Certificate has been issued.

10
ANSWER

The Supervisor should have notified these omissions as Defects as soon as it was aware
of them. Whether it can do so now depends on the defects date, which is defined in the 11
Contract Data as being a period after Completion. If the defects date has passed, it is now
too late to notify a Defect (clause 43.2). In that case, all the Supervisor can do now is issue
the Defects Certificate, certifying all notified Defects have been corrected (clauses 44.3 and
also 11.2(7)). The Project Manager is then required to issue the final certificate (clause 50.1),
12
which will include the release of all retention (clause X16.2). If the defects date has not yet

47
 NEC4 PRACTICAL SOLUTIONS

1 passed, the Supervisor (not the Project Manager) should immediately notify the Contractor
that these omissions are a Defect. The Supervisor does not need to instruct the Contractor
to correct them because the contract already does that. The Contractor then has to correct
those Defects within its defect correction period, which starts when the Supervisor notifies
the Contractor of the Defects (clause 44.2). The defect correction period is set out in the
2
Contract Data. If the Contractor does not correct these within this period, then the Project
Manager assesses what it will cost the Client to get these corrected (by other people), and
deducts that amount from the Contractor (clause 46.1).

59. Disputing the Defect (clause 44)

4

QUESTION

The ECC Guidance Notes state that the term ‘Defect’ has a restricted definition and that
5 it is intended to include unfinished or omitted parts of the works. We currently have an
ECC Option A contract, which is in the period between Completion and the defects date,
and, as the Client, we are experiencing issues with the roof of a building constructed by
the Contractor. The Scope required a slate roof to be provided for the building, with the
6
Contractor responsible for the design. Following Completion, we have had dozens of tiles
falling from the roof, which we view as being caused by a poor batten design within the
roof structure that allows wind to blow into the void and disturb the tile fixings. However,
this issue was only discovered after take over, and therefore we are seeking advice as to
whether this can be a Defect for notification following Completion. The Contractor is
7
contending that it is not responsible for repairing the roof or resolving the underlying cause.
If the issue is classed as a Defect and the Contractor maintains its position, then we propose
to invoke our right under clause 46.1 to assess the cost of having the Defect corrected by
other people and to deduct this from the Contractor.
8

ANSWER
9

This certainly is a Defect. The Scope requires the Contractor to design and install a
functional roof, which it has clearly failed to do. The fact that this has not happened until
after Completion (and/or take over) is irrelevant.
10
The Supervisor (not Project Manager) should immediately notify this as a Defect, if it has not
already done so. If the Contractor does not correct the Defect within the defect correction
period, then the Project Manager can deduct the cost of getting others to repair it (clause
11 46.1).

12

48
 Chapter 4: Testing and defects

60. Quality control in the ECC (clause 44)

1

QUESTION

Does the ECC automatically or otherwise give the Client a ‘right to reject’ the work done by
the Contractor if this does not meet agreed requirements? 2

3
ANSWER

The main obligation on the Contractor in terms of quality arises in clause 20.1, which states
that the Contractor Provides the Works in accordance with the Scope. A Defect in clause
11.2(6) is a part of the works that is not in accordance with the Scope. 4

A Supervisor is generally appointed by the Client. The Supervisor and Contractor have a
reciprocal obligation under clause 43.2 to notify each other as soon as they find a Defect up
to the defects date. 5

Clause 44.1 gives the obligation to the Contractor to correct the Defect. Clause 44.2 states
by when this is to be corrected, and there are other clauses dealing with uncorrected
Defects and accepting Defects.
6

61. Consequential costs of Defects (clause 44)

7

QUESTION

Testing and Defects are covered under section 4 of the ECC, but is there any provision in the 8
contract to recover or offset the cost for damage caused by the Contractor or the recovery
of consequential loss by the Client?

ANSWER

The ECC sets a period during which the Parties have dual obligations if a Defect is found. 10
In the ECC, that period ends at what the contract calls the defects date. Up until then
the Contractor is required to correct any Defects that are found (clause 44.2), and the
Client is obliged to provide access so that the Contractor can do so (clause 44.4). Neither
can ‘charge’ the other for this, and each covers its own costs. So, the Client is unable to
11
recover consequential costs. Latent Defects found after the defects date will be dealt with
as breaches of contract, and the dual obligation no longer applies. Damage caused by the
Contractor when correcting a Defect will be a Contractor’s liability (sixth main bullet of
clauses 80.1 and 81.1). The Contractor is required to insure against this (clause 83.2).
12

49
 NEC4 PRACTICAL SOLUTIONS

62. Defects arising after the Defects Certificate is issued (clause 44.3)
1

QUESTION

I have the job of closing out schemes that have been completed several years ago but,
2 for various reasons, are still in an aftercare and landscaping period, although the Defects
Certificate has been issued. The majority of the schemes are ECC Option C and signed by
deed, which have a 12-year latent Defects period. My understanding of a latent Defect is
something that is not obvious; for example, it could be a geotechnical Defect. If we suspect
3 a Defect has arisen after the Defects Certificate has been issued, but within the 12-year
period, what should we do?

ANSWER

The contract says nothing about Defects after the issue of the Defects Certificate. The
5 issue of the Defects Certificate does not relieve the Contractor of all of its obligations
with regards to Defects (clause 44.3). You will need to get legal advice on the Contractor
remaining liable for breaches, as you will have to show that whatever went wrong was
caused by the breach of the contract by the Contractor and work within the Limitation Act
6 1980. The contract is, quite deliberately, silent on the matter, and has no procedures to deal
with it, in order to allow whatever law the contract is under to do so instead.

7
63. Accepting a Defect (clause 45)

QUESTION
8
Our Contractor is proposing that a Defect is not corrected on our project, and suggested
that it could offer a cost saving to us. Is this permissible under the ECC and how should it be
valued?
9

ANSWER
10
Yes, the Contractor or the Project Manager may propose to the other that the Scope is
changed so that a Defect does not have to be corrected (clause 45.1).

11 The proposal from the Contractor may result in an earlier Completion Date and a reduction
in Prices. There is no methodology as such stated in the ECC (like clause 63.1 requires for
the assessment of compensation events); however, the figure needs to be sensible and
agreed between the Project Manager and Contractor.
12

50
 Chapter 4: Testing and defects

Also, when considering the monetary assessment, the potential cost of not doing the 1
work should be considered (if it is simply an omission, i.e. the Contractor has failed to do
something). In addition, life cycle cost issues need to be considered. Under clause 45.2, once
accepted the Scope is changed accordingly – this means that the Contractor is no longer
responsible for the Defect. If the Defect being accepted now incurs additional life cycle cost,
2
then this should also be a factor in the reduced Prices (e.g. the installation of a less efficient
pump may result in a higher utility cost to run).

64. Not getting access to correct Defects (clause 46)

QUESTION 4

We are under the ECC Option C form of contract. As a Contractor we have been notified of
a Defect, although we have not yet achieved Completion. The correction of Defects under
these circumstances would be a Defined Cost and therefore part of the Price for Work Done 5
to Date. However, what stops the Project Manager from deliberately not granting access
for the correction of a Defect – thus ensuring that the Contractor cannot correct the Defect
(and include it in the Price for Work Done to Date) – and just use clause 46.2 to charge the
Contractor the cost of correcting the Defect? This would appear to prejudice the Contractor’s
6
position in being paid (though this will affect the Contractor’s share) and artificially create a
situation in which the Contractor would have to pay for the correction of all Defects.

ANSWER

We think you may be confusing two different matters: whether or not you get paid to carry
8
out work, and what your obligations are to correct Defects. If, because of the definition of
Completion, the Defect requires correction before Completion can be certified, then the
Project Manager cannot certify Completion until it has been corrected.

Therefore, we cannot see how this scenario can happen, because it is not a Disallowed Cost 9
until after Completion has been certified in accordance with the contract. In addition, the
Client is required to allow you access to and use of the Site (clause 33.1) up until take over,
and if it does not that will be a compensation event in itself (clause 60.1(2)). You have such
access and use until take over, and just because the works are taken over does not mean 10
that Completion has been achieved. Clause 46.2 only applies once Completion is certified.
After that you are required to correct Defects (clause 44.2), and under Option C the cost of
that will be a Disallowed Cost.
11
So, after Completion, Defects are at your cost anyway, with or without clause 46.2. You
need to be aware that the wording of clause 46.2 is deliberately different to that in clause
46.1. If the Client cannot provide access for you to correct a Defect, the value of the
deduction is not the cost of getting somebody else to correct the Defect; it is what it would
have cost you to correct. This means that you are in no worse a position than if you had 12
carried out the correction yourself.

51
 NEC4 PRACTICAL SOLUTIONS

65. Whether the Contractor comes back or not (clause 46)

1

QUESTION

I am trying to understand the difference between clauses 46.1 and 46.2 of the ECC. They
2 do not make sense to me – can you help?

3
ANSWER

Yes, these outline two scenarios that relate to uncorrected Defects. Scenario 1 (clause 46.1)
is when the Contractor was given access to correct the Defect by the Client but it failed to
4 rectify it in the defect correction period. In this instance the monetary value is assessed as
the cost incurred by the Client of having the Defect corrected by other people – this will
typically be a higher cost than clause 46.2. Whether the Defect is corrected by other people
is up to the Client, but the monetary value is assessed in this manner.
5
Scenario 2 (clause 46.2) is when the Contractor was not given access by the Client – perhaps
because the building was operational and it would have been impossible/unsafe to rectify
the Defect. In this instance, the lesser value would be assessed – this cost was incurred
by the original Contractor in rectifying the Defect. In theory, this should be a lesser cost
6
than clause 46.1. Again, it is then the Client’s decision as to whether the Defect is actually
corrected.

Both scenarios provide a sum of money for the Client to then deal with the problem.
7

8
FURTHER THOUGHTS AND TOP TIPS
• The Scope should clearly define the quality standards.

• Ensure that the defect correction period(s) are appropriate and thought through.
9
• Ensure that the Client manages Defects post-Completion with its resources. Often they
are not managed as the contract requires.

• If tests or inspections are undertaken by the Supervisor, include their timescales and
10 durations.

• Do not be afraid to notify Defects. It is what the contract requires. Following the
contract is professional and provides a clear audit trail.
11

12

52
 Chapter 5: Payment

CHAPTER 5

Payment
1

2
66. Making applications for payment (clause 50.1)

QUESTION 3

In an ECC Option C contract, once the Completion certificate has been issued, is there
a set period in which the Contractor can still submit applications for payment? Once the
Completion certificate has been issued, does the Contractor have four weeks to submit its 4
application and after this date, if it is still working on the final application, can it still submit
an application or is this then at its own cost?

ANSWER

The Contractor is obliged to submit an application for payment before each assessment
6
date to the Project Manager (clause 50.2). The Project Manager is obliged to assess the
amount due at each assessment date. If the Contractor has made an application before the
assessment date, the Project Manager must consider it (clause 50.2), but if the Contractor
has not, the Project Manager still has to make its own assessment (clause 50.4). Assessment
7
dates continue at the maximum of the assessment intervals from the starting date until
four weeks after the issue of the Defects Certificate by the Supervisor or the Project
Manager issues a termination certificate (clause 50.1). So, assessments and payments are
made by the Project Manager after Completion, to the extent that the Price for Work Done
to Date has changed. And that is especially so with Option C, under which you cannot make 8
the final payment of the Contractor’s share until you have finalised the Price for Work Done
to Date and the final total of the Prices (clause 54.4).

67. Calculating the final account (clause 50.1)

10
QUESTION

We are engaged as the Project Manager on an ECC Option C project in which the
Contractor has failed to provide its final account. Completion was achieved a while ago. Do
11
we have to provide any notice before we make a Project Manager’s assessment for the final
account?

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 53

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The obligation is on the Project Manager to make an assessment of the final amount due
and to certify a final payment. This will be no later than four weeks after the Supervisor
issues the Defects Certificate unless a termination certificate is issued (clause 53.1).
2
So, you should already be assessing what is due and certifying it. In Option C it is important
you set up a system whereby the Contractor shows the Project Manager its Defined Cost
each month and the Project Manager regularly audits this. The Project Manager will fail in
3 its duties if it certifies payment based on ‘say’ or unsubstantiated figures (see the first bullet
of the definition of Disallowed Cost in clause 11.2(26)). This exercise should not be left until
the end of the contract, as it can lead to all sorts of problems, arguing retrospectively about
what is and is not Defined Cost and Disallowed Cost.
4
Therefore, by the time you get to completion under Option C, all of the hard work should
be done and the Project Manager should have a good idea of what the total Defined Cost
is. And until such time as the Contractor justifies any other costs, they are not due because
they will be a Disallowed Cost until they are justified.
5
As to the payment of share (one way or other), the main tranche of that should have been
certified by the Project Manager at the assessment immediately following Completion,
and should be based on its forecasts of the final Price for Work Done to Date and the final
6 total of the Prices (clause 54.3). The final payment of the share is made as soon as the final
figures for the Price for Work Done to Date and total of the Prices are known (clause 54.4).

The final amount due has to be certified within four weeks of the Supervisor’s Defects
Certificate (clause 11.2(7)) being issued, which in turn has to be issued by the later of the
7
defects date and the end of the last defect correction period. So, the Project Manager
should make its final assessment of the amount due by then.

8
68. Assessing the amount due (clause 50.3)

9 QUESTION

We have an ECC Option A contract that incorporates secondary Option X7 delay damages
and Option X16 retention. When assessing the amount due, should the Project Manager
10
deduct retention before or after applying delay damages?

11 ANSWER

The amount due at each assessment date is detailed in the three bullets of clause 50.3. The
clause states that it is the Price for Work Done to Date, plus other amounts to be paid to the
Contractor, less other amounts to be paid by the Contractor. Clause X16.1 makes it clear that
12
you deduct retention from the Price for Work Done to Date less the retention-free amount.

54
 Chapter 5: Payment

It is not deducted from the other amounts in the other two bullets of clause 50.3. You 1
therefore calculate the Price for Work Done to Date, then deduct the retention. After that,
the delay damages are deducted under the third bullet of clause 50.3. The Project Manager
therefore deducts retention before applying the delay damages.
2

69. Retaining money due to non-compliant programmes (clause 50.3)

3

QUESTION

We have a query on an ECC Option C contract related to the Accepted Programme. At

the outset of the contract we had a programme identified in Contract Data part two. This 4
was further developed by the Contractor to provide more detailed information; that is, it
went to a lower level to identify the deliverables associated with the associated tasks. This
programme was then used by all Parties as the managing tool, and was updated and issued
on a monthly basis as required under clauses 32.1 and 32.2. 5

The project has now been going for some 2 years, and in this period the programme
has only been formally rejected twice. There has never been a formal acceptance of any
programme. While the programme issued under clause 32 and the one in Contract Data
6
part two have been used by both Parties, they have never strictly complied with the
requirements of clause 31.2.

The Client is now proposing to retain 25% of the Price for Work Done to Date in accordance
with clause 50.5. While we appreciate that this should be retained only in relation to the 7
first programme, can this still be applied, as the programme is not in accordance with clause
30.1 and has never been formally accepted?

ANSWER

The simple answer is no, the Client cannot do that. Clause 50.5, which deals with the 9
possible retaining of 25%, is very clear. It starts with the words ‘If no programme is
identified in the Contract Data’. As there is a programme identified in the Contract Data,
clause 50.5 simply does not apply at all.
10
It is quite surprising that the Client is even suggesting doing this. For the last 4½ years the
Contractor has done what the contract requires of it, in that it has produced and submitted
programmes for acceptance at the interval stated in the contract. In contrast, during that
time the Project Manager (which works on behalf of the Client) has failed almost completely
to do what it is supposed to do under the contract. The Project Manager is supposed either 11
to accept or reject each programme within two weeks of issue (clause 31.3). Instead, it has,
for the most part, ignored the submissions, which are breaches of contract on its part that
have resulted in a whole series of potential compensation events under clause 60.1(6). To
suggest that the Contractor should now be punished for some theoretical wrong at this late 12
stage does not seem to be sustainable.

55
 NEC4 PRACTICAL SOLUTIONS

1 In addition, that failure now puts the Client in a very weak position when it comes to
disputes as to time. To suggest later that the programmes issued by the Contractor for
acceptance were somehow ‘wrong’ will be very difficult, given that, with two exceptions,
the Project Manager has never rejected them, as the contract requires it does if they
are wrong, and then those supposedly ‘wrong’ programmes were used by both sides to
2
manage the works.

3 70. Application for payment (clause 50.4)

QUESTION
4
Is there an obligation for the Contractor to submit an application for payment in the
ECC? If so, what happens if it does not – does the Project Manager still need to make an
assessment?
5

ANSWER
6
Yes, there is an express obligation for the Contractor to submit an application for payment.
Under clause 50.4 the Contractor is required to make an application for payment. If it fails to
do so, the amount due is the lesser of
7
• the amount that the Project Manager assesses as due at the assessment date
• the amount due at the previous assessment date.

The first bullet addresses any potential negative adjustment in payment – to take account of
8 the delay damages, for example.

The ECC therefore contains a direct obligation and incentive for the Contractor to submit
an application for payment. Without such there will be no further positive adjustment to
9 payment.

10
71. No compliant programme is ever submitted (clause 50.5)

QUESTION
11
Clause 50.5 of the ECC states that

If no programme is identified in the Contract Data, one quarter of the Price for Work
Done to Date is retained in assessments of the amount due until the Contractor has
12 submitted a first programme to the Project Manager for acceptance showing the
information which the contract requires.

56
 Chapter 5: Payment

My question is, what happens to the retained money should the Contractor fail to submit 1
a compliant programme (or indeed, a programme of any kind) throughout the contract
period? In anticipation of the possible reply that a Project Manager should not allow the
contract to continue without an Accepted Programme, in our case the Client is unlikely
to want termination on the grounds that the Contractor has not provided a programme –
2
particularly when the works are seen to be progressing in an apparently organised manner.

3
ANSWER

Without an Accepted Programme the contract cannot be properly managed. A number of

compensation events rely on an Accepted Programme (clauses 60.1(2), 60.1(3) and 60.1(5)).
4
With no Accepted Programme, how can you make clause 63.5 work in respect of moving
the Completion Date?

The lack of a programme is indicative of one of two things. Either the Contractor is
disorganised, despite appearances to the contrary, and it has no way of knowing whether 5
or not it is going to finish by the Completion Date. Or the Contractor has a programme that
it does not want to show you so that it can do things the ‘old-fashioned’ way; that is, make
one up afterwards, once it knows where the delays have occurred, to ensure that the critical
path runs through all of those delays that you caused, and none that the Contractor caused. 6
Neither is good news for your project, and both should be avoided at all costs.

On the other hand, the Project Manager should not use the list in clause 31.2 as a ‘rule
book’. As long as it is satisfied that the programme is achievable and has all the information
it needs to administer the contract on behalf of the Client (such as where the critical path 7
is and what resources have been assumed), then it should accept it, and release the 25%
being retained. Without an Accepted Programme, the assessment of all compensation
events is taken out of the hands of the Contractor altogether. The Project Manager is
required not to accept any compensation event quotations and make its own assessment 8
of the compensation event (third and fourth bullets of clause 64.1). And that assessment
must be made using the Project Manager’s assessment of the programme for the remaining
works (clause 64.2).
9
As for when the 25% is released, the contract is silent, because it did not envisage that any
Contractor would allow this situation to continue for any length of time, given that cash
flow is the life blood of any Contractor’s business. Because there is no date for release other
than the production of a programme, there is an argument that says that the Client keeps it,
10
although it may not get a sympathetic ear from some adjudicators if the Contractor were to
dispute that.

We would strongly suggest that the Project Manager actively manages this situation.
Without a programme there is a real risk that Completion will be delayed. The Project 11
Manager should notify an early warning to the Contractor, ideally attending an early
warning meeting as soon as possible with senior members of the Contractor’s organisation
in order to sort this problem out.
12

57
 NEC4 PRACTICAL SOLUTIONS

72. Retaining monies when a programme is not accepted (clause 50.5)

1

QUESTION

On an ECC contract we have an initial programme; however, we have since had

2 compensation events for which we believe we have not received adequate particulars
covering additional cost or programme alterations. The latest revised programme shows a
period of time risk allowance having been used up, and the effects of the compensation
events are still unknown. We consider this programme is not acceptable. Can the Project
3 Manager therefore deduct 25% of the monies owed to the Contractor for this, or does this
provision apply to the first programme only?

ANSWER

If the initial programme was supplied and referred to in Contract Data part two under
5 the heading ‘The programme identified in the Contract Data is …’, then you cannot apply
the 25% retention. This is because clause 50.5 makes it clear that it only applies if no
programme is identified in the contract data. However, if

• there was a programme issued with the tender that was not referred to in the Contract
6
Data, and
• the programme you now have is the first one issued for acceptance since the contract
came into existence, and
7 • the programme does not show all of the matters listed in clause 31.2,

then you can apply the 25% retention.

There are, though, two other things you need to be aware of. Firstly, this retention does not
8 depend on the Project Manager accepting the programme. As long as it has been submitted
and shows all the information it should, then the retention is not taken even if the Project
Manager thinks it is wrong for some other reason. Secondly, this is only a retention, not a
deduction, and eventually it will have to be paid back.
9

73. Pay less notices and delay damages in the ECSC (clause 50.3)
10

QUESTION

Under the ECSC, can delay damages be deducted without any need for a pay less notice to
11
be issued?

12

58
 Chapter 5: Payment

ANSWER 1

We cannot give legal advice, so we are limited in what we can say on this matter. This will
come down to a legal interpretation of legislation. Looking at clause 50.3, the deduction
of delay damages is part of the amount due (third bullet). However, this contract works on
2
the trigger for payment being the Contractor’s application (clauses 50.2 and 50.4). And the
contract requires that you must notify the Contractor before you pay if you are not going to
pay the amount in its application (clause 51.1). We assume that you did not do that, which
is a problem, because now you are in breach of contract. However, it could be argued that
you did not need to provide a pay less notice for this, because it was not part of the amount 3
due, and therefore you were not deducting it, you were just not paying it. That would be an
argument that may be looked at sceptically given that you have not done what clause 51.1
requires.
4
We would therefore strongly recommend that you always provide a notice of what you are
going to pay if it is not what the Contractor has applied for, with details of what deductions
you are making and why.
5

74. Error in the ECSC Price List (clause 50.3)

6

QUESTION

I have a query regarding the ECSC. If a tenderer makes an arithmetical error in the Price List,
should this error be corrected when the tenders are opened, and the revised figure inserted 7
in the Contractor’s offer? Or can the tendered sum not be changed?

ANSWER

It is entirely up to you how you deal with this at the tender stage. You have no contract at
the tender stage so there are no rules that are relevant within the contract (the same as 9
other contracts). It will also depend on what your client’s policy is on the matter, and what
the instructions to tenderers said you would do in the circumstances. Some clients adjust
the total, other clients ask the tenderer if it wishes to stand by its total, and if so what
adjustments it wants to make in the prices in the Price List. Some clients would leave the 10
figures as they are but use the correct total to assess the tenders. There is no wrong or right
approach. As to what happens if you accept the tender with this error in it, the contract is
clear. The Contractor is paid the Price for Work Done to Date (clause 50.3). The definition of
Price for Work Done to Date is in clause 11.2(12), and you will see it is based solely on the
11
figures in the Price List. So, the Contractor will get paid the correct total, not the incorrect
figure they added it up to be at the tender stage.

12

59
 NEC4 PRACTICAL SOLUTIONS

75. Difference in payment periods between the ECC and ECSC (clause 51)
1

QUESTION

Clause 51.2 in the ECC states that the Client must pay the Contractor within three weeks of
2 the assessment date. Clause 51.1 in the ECSC states that the Client must pay the Contractor
within seven weeks of the assessment day. Why are these so different?

ANSWER

We disagree with your opinion that the ECSC provides for a seven-week payment provision.
4 It provides for three weeks after the next assessment day. Clause 50.1 states that the
Contractor has to make an application before each assessment day. So, as long as the
Contractor gets its assessment of the amount due to the Client by the day before the
assessment day, it will be paid three weeks later. However, if it misses that deadline and
5 does not get it in until the day after, then it will likely have to wait until the following month
to receive any monies (clause 50.4). So, as long as the Contractor does what clause 50.1
of the contract requires, it will be paid in three weeks. If it does not do what is required, it
will probably have to wait another month. So, there is no difference between the ECC and
6 ECSC, as long as the Contractor follows the requirements of the contract.

7
76. Can the Contractor owe money to the Client? (clause 51.2)

QUESTION
8 In the ECC, should the Contractor be required to pay damages from one of the secondary
Option clauses or amounts for uncorrected Defects, and is the Project Manager required to
certify as per the requirements of the core clauses in section 5 by reducing the amount due
by the relevant amount, and therefore creating a situation in which the Contractor would
9 owe the Client that amount due?

To add some context to this, we have a situation in which damages and uncorrected Defects
may create a situation where the Contractor has to pay the Client. The Project Manager
has decided that it can just demand payment almost immediately and without any form
10
of certification; we state that the provisions and payment times are dictated by the core
clauses in section 5.

11

12

60
 Chapter 5: Payment

ANSWER 1

The only way that payment becomes due from one Party to the other is through the
operation of the valuation and certification process set out in section 5 (‘Payment’) of
the contract. The Project Manager is required to issue a certificate for the amount due in
2
accordance with clause 50. The timing is set out in clause 50.1, and runs all the way until
the issue of the Defects Certificate (or the Project Manager issues a termination certificate).
The amount due is set out in clause 50.3. The sums that you are referring to would fall
under the third bullet of clause 50.3 ‘less amounts to be paid by or retained from the
Contractor’. The Project Manager then has to certify in accordance with clause 51.1. 3

If that certificate reduces the amount due from that previously paid by the Client, then
clause 51.1 requires the Contractor to make the payment within the timescales set out in
clause 51.2. If you do not pay by that date, interest becomes due to the Client at the rate in 4
the contract, just as it would become due to you if the Client does not pay on time.

When deductions can be made depends on what they are being made for. The earliest
that the defect correction period can run from is Completion (clause 44.2), and so there
can be no deductions for your failure to correct Defects until after Completion. The same 5
applies to delay damages. If the Project Manager wants to recover these from you, then it
has to assess and include them in the next assessment that it is due to make under clause
50.1. That will usually be monthly. The Project Manager then follows the processes in
clauses 50 and 51, and you pay in accordance with clauses 51.1 and 51.2. By the way, if you 6
do not intend to pay, you must issue a pay less notice in accordance with clause Y2.3 (or
whatever other part of the contract complies with the Housing Grants, Construction and
Regeneration Act 1996). The requirement for such a notice falls on whichever Party is not
intending to pay, not just the Client. 7

77. Payment in the ECSC (clause 51.2) 8

QUESTION
9
We are currently working under an ECSC contract. The Client has stated that, under
clause 51.1, it can take up to a further three weeks to pay after the next assessment day,
which would be, say, four weeks later. This would be a total of seven weeks from the
original assessment day. Our normal terms under the ECC, for example, are that the Project
Manager certifies within a week of the assessment date, and that the certified payment is 10
actually made within three weeks of the assessment date (clause 51.2). The ECSC Guidance
Notes state that payment relates to an assessment day, which we always assumed was the
original date, but did not think it would be the next one. Can you advise?
11

12

61
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

It seems that the Client has misunderstood the contract. The ECSC uses the principal of
an assessment day, which is set out in the Contract Data (on p. 2). It could be ‘the last
day of the month’ or the ‘28th of the month’ or ‘the last Friday of each month’, or any of
2
those sorts of descriptions. You will need to check that. You are then required to make an
application for payment in each period (clause 50.3) before each assessment day (clause
50.1). You will then be paid three weeks after the next assessment day following receipt by
the Client of your application (clause 51.1).
3
Let us say that your assessment day is the 28th of each month, and we are looking at April.
If the Client receives your application by 27 April, then the next assessment day is 28 April,
and you will therefore be paid three weeks after 28 April. If the Client does not receive it
4
until 29 April, then the next assessment day is 29 May, and you will be paid three weeks
after 29 May. That means that as long as the Client receives your application before the
assessment day, you will be paid within three weeks of that assessment day. If you miss that
assessment day (even by a day), you have to wait until the following month (clause 50.4).
5

78. Can we add corporation tax to the Fee? (clause 52.1)

6

QUESTION

Under ECC Option E can corporation tax be added to the Fee provision?
7

8 ANSWER

The ECC does not work like that. The contract defines what you will be paid for as Defined
Cost (clause 11.2(24)), and then states that any other cost you incur or any other monies you
9 want to recover have to be included in your Fee (clause 52.1). Corporation tax is clearly not
included within the SCC, and is therefore not paid as a part of Defined Cost.

It is entirely up to you what Fee percentage you insert in the contract and what allowances
you want to include within your Fee percentage and at what level. You can add whatever
10
you want to the Fee percentage, and once it is set in the contract that is the end of the
matter, and the Client cannot audit it in any way.

The ECC Guidance Notes point out what is not included within Defined Cost and what you
11 need to think about when assessing what Fee to quote. The guidance is not saying that
you should or should not allow for any of the listed items in your Fee, because that is a
commercial decision only you can make. However, if you do not allow for them, you will not
get paid for them anywhere else.
12

62
 Chapter 5: Payment

79. What to include in the Fee? (clause 52.1)

1

QUESTION

I am a Contractor’s estimator pricing an ECC Option C contract and cannot see where I price
nor where we would be reimbursed for the likes of catering supplies, bidding costs, head 2
office overheads and profit.

ANSWER

Simply, Defined Cost is the cost of the components in the SCC less Disallowed Cost
(11.2(26)). So, as an estimator you will need to research items of cost that you can recover 4
under the SCC.

Any costs not defined will need to be included in the Fee: ‘All the Contractor’s costs which
are not included in Defined Cost are treated as included in the Fee’ (clause 52.1) – that is, 5
they are ‘deemed’ to be in the Fee.

The items you refer to, among others, are certainly not part of Defined Cost, so these will
need to be included in your Fee.
6

80. Passing on discounts (clause 52.1)

7

QUESTION

We are the Contractor on an ECC Option B contract. A compensation event has arisen 8
that includes some Subcontractor works (the Subcontractor is already on Site). We have
previously agreed a 2.5% main Contractor’s discount with the Subcontractor for prompt
payment. Are we contractually required to pass this discount on to the Client?
9

ANSWER
10
The simple answer is yes (clause 52.1: ‘with deductions for all discounts rebates and taxes
which can be recovered’). However, when assessing compensation events in Option B,
you must follow the provisions of the SSCC (see the definition of Defined Cost in clause
11.2(23)).
11

12

63
 NEC4 PRACTICAL SOLUTIONS

1 FURTHER THOUGHTS AND TOP TIPS

• Encourage the Contractor to make sure that it does not fall foul of clause 50.5 by
submitting a first programme showing the information that the contract requires.
2 • The Project Manager should be aware that it has to determine the amount due at each
assessment date.

• When interest is due, this does not have to be asked for by the receiving Party – it should
3 be included in the next assessment.

10

11

12

64
 Chapter 6: Compensation events

CHAPTER 6

Compensation events
1

2
81. Omitting work under ECC Option A (clause 60.1(1))

QUESTION 3

If we omit work from the Scope under ECC Option A does this result in a negative
compensation event?
4

ANSWER
5
Any change to the Scope (under clause 14.3) is a compensation event (with the exception of
the two bullets under clause 60.1(1)). If you omit work, then the forecast cost saving will be
assessed in accordance with clause 63.1.
6

82. Inconsistencies in the Scope (clause 60.1(1))

7

QUESTION

We have just entered into an ECC Option C contract and immediately encountered a
problem with the Project Manager. The Scope prepared by the Client (part 2) requires that 8
the heating system is on two zones whereas our price and our Scope (part 1) states one
zone. From our point of view, what we have offered has been accepted and therefore that
is what we believe to be the basis of the contract. The Project Manager disagrees. Can you
confirm our understanding? 9

ANSWER 10

Unfortunately, your understanding does not accord with the contract. Essentially what we have
is an inconsistency between the Scope prepared by the Client and the Scope prepared by the
Contractor. This needs to be notified under clause 17.1. The Project Manager will then decide 11
which is preferred. A change to the Scope is then instructed under clause 14.3. The answer
is in the second bullet of clause 60.1(1) – this states that a change to the Scope prepared by
the Contractor (your part 2), which is required in order to comply with Scope prepared by the
Client (your part 1), is not a compensation event. So, the Project Manager is right, you will
12

NEC4 Practical Solutions ICE Publishing: All rights reserved 65

.
 NEC4 PRACTICAL SOLUTIONS

1 need to install two zones and you will not be entitled to a change in the Prices or Completion
Date. The cost, however, will be a shared risk under Option C, dependent on the share ranges.

2
83. Why is accepting a Defect not a compensation event? (clause 60.1(1))

QUESTION
3

I do not understand the first bullet under clause 60.1(1) of the ECC – why is acceptance of
Defect not a compensation event?

ANSWER

5 A Defect (as defined in clause 11.2(6)) may be accepted under clauses 45.1 and 45.2. It is
not a compensation event as it does not follow the assessment methodology defined under
clause 63.1 and other clauses.

6
A quotation for reduced Prices or an earlier Completion Date or both is submitted to the
Project Manager for acceptance. This is effectively a commercial offer, and, from the Project
Manager’s viewpoint, needs to address future maintenance costs. For this reason it is not
subject to the same assessment methodology as a compensation event.
7

84. Are compensation events claims? (clause 60.1)

8

QUESTION

This may seem like a basic question but, being new to the ECC, what are compensation
9 events? Are they claims?

10 ANSWER

This is a good question – compensation events are a defined list of events, and, should they
occur, the Contractor can be compensated potentially in terms of both time and cost. Within
11 any contract we need to define the limit of risk. The ECC defines 21 (in the core clauses)
events that are defined as compensation events. Additional compensation events are also
found in the main and secondary Options.

Compensation events broadly fall into three main categories – we have changed our mind,
12
we have not done something we said we would, and finally a risk has occurred over and
above a reasonable risk limit of a competent contractor.

66
 Chapter 6: Compensation events

The whole premise of compensation events is that the Contractor should be no better 1
or worse off after the compensation event. You will see within the assessment clauses
that both time and cost are assessed. The other key difference between the ECC and
most traditional contracts is that compensation events are assessed and what is termed
‘implemented’ within defined timescales.
2

85. Stopping the work (clause 60.1(4))

3

QUESTION

We are working on a petrochemical site and are under Option A of the ECC. The Project 4
Manager, due to other projects on the Site, has on a number of occasions told us to stop work
and on other occasions prevented us from doing work. There was nothing mentioned in the
Scope about this – and we have incurred cost as a result. Is this a compensation event?
5

ANSWER
6
Firstly, it is important to note that you need to obey these instructions (clause 27.3), which it
sounds like you have: the Project Manager has the authority to give such instructions. And
you are right – this is a compensation event under clause 60.1(4). It should be notified by
yourselves under clause 61.3 (if not already done by the Project Manager). This will start the 7
compensation event process and enable the disruption to be assessed.

8
86. Dealing with Others (clause 60.1(5))

QUESTION
9
We are delivering a complex engineering project under Option C of the ECC. The Client will
be involved in reviewing our design as a Contractor. The work also encroaches on a railway
line, and so will involve the rail operator. We also have potential archaeological issues and
utility connections. How do we define the interaction of all these key players? 10

11
ANSWER

The answer to this is that it is all in the programme! The programme is at the ‘heart’ of the
ECC. Clause 31.2 requires the Contractor to chart (fourth bullet) the order and timing of the
Client and Others. The Others are defined (clause 11.2(12)), and basically cover organisations 12
that are not employed by the Contractor; that is, they are the Client’s responsibility.

67
 NEC4 PRACTICAL SOLUTIONS

1 Failure of the Client or Others to work within the times shown on the Accepted Programme,
failure to work within the conditions stated in the Scope or the carrying out of additional
work would all fall under the realm of a compensation event (clause 60.1(5)). It is important
that the programme is managed collaboratively and that the interaction of all these
organisations is clearly defined. A suggestion would be to meet with the Project Manager
2
and discuss the programme before submission – this will ensure it is accurate and agreed.

3
87. Late decisions (clause 60.1(6))

QUESTION
4
I am a Project Manager on an ECC Option A contract. I am aware of the need to make
decisions within defined timescales but the Client I am working for is notorious for not
delegating and taking too long to make decisions. I am delivering a board presentation to
5 the Client team and want to highlight the key risks – can you advise what the impact of late
decisions would be?

6
ANSWER

You are right that the ECC requires effective decision-making – this is fundamental to
7
any project management approach. Ultimately, failure to respond to a communication is
a compensation event (clause 60.1(6)). Let us look at three examples. Failure to respond
to a design submission will stop the job – the Contractor does not proceed with the
relevant work (clause 21.2). Failure to respond to proposed Subcontractors will prevent the
orders being placed – again, having a material impact. However, failure to respond to the
8
programme (clause 31.3) does not ‘stop the project’ – the Contractor would still be obliged
to continue. In all these instances, however, the Project Manager should respond within the
period required by the contract. This is a key message to get across to your board. The ECC
assumes that full authority is placed with the Project Manager.
9

88. Objects of interest (clause 60.1(7))

10

QUESTION

11
We have a situation on our project in which we found an object of historical interest,
but it was in a corner of the Site that did not affect the Contractor. So, in principle, it is a
compensation event but there was no time or cost impact. How do we close this off? As the
Project Manager I do not want to leave things open ended for someone else to deal with
later or for new people having different interpretations.
12

68
 Chapter 6: Compensation events

ANSWER 1

What you need to do is notify the compensation event under clause 61.1 and instruct
the Contractor to submit a quotation under clause 61.2. This gives the Contractor the
opportunity to assess the time and cost impact. Subject to this coming back as no time/
2
cost impact, this will be implemented as such (first bullet of clause 66.1), and this is not
then revised (clause 66.3). You are right to close things off, as instructions from the Project
Manager are not subject to the clause 61.3 time bar.

89. Not accepting the design (clause 60.1(9))

4
QUESTION

I am trying to understand clause 60.1(9) and think of an instance when this could apply –
can you advise? 5

ANSWER 6

Let us say that we have asked a Contractor to build a new football stadium. In the Scope we
have asked it to design all of the works (clause 21.1 refers). We then require it to submit the
steelwork design (clause 21.2). In the Scope we do not impose any constraints or mention
7
the potential for future expansion to the football stadium. When the steelwork drawing
comes through, we then realise, based on the structure, that it would prevent future
expansion. Our only two reasons for not accepting the design under the ECC (mentioned
under clause 21.2) are that it does not comply with the Scope or the applicable law – we
therefore cannot ‘not accept’ based on those two reasons in this instance, so we have to 8

‘not accept’ for ‘a reason not stated in this contract’. We can do so, but then, as is fair, this
would give rise to a compensation event.

90. Tests and inspections that the Scope requires (clause 60.1(10))

10
QUESTION

I am a frustrated Supervisor on an Option C ECC project! The Contractor is hardly doing any
tests and inspections – only the bare minimum required by law, and I suspect that there may 11
be Defects. What can I do? Can I request to search for suspected Defects?

12

69
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

This all comes back to drafting the Scope professionally at the outset – it sounds like you
were not given the opportunity to input into this. Clause 41.1 states that the test and
inspection clauses only apply to those required by the Scope or applicable law.
2
You can get the Project Manager to change the Scope (clause 14.3), but this will be a
compensation event (clause 60.1(1)). An alternative approach would be to get the Project
Manager to notify an early warning and get involved in discussions about the potential
3 impact of such a change.

If you do suspect Defects, then you have the power as the Supervisor to instruct a search.
However, if none is found, it is a compensation event.
4 The best approach here is to deal with things proactively and perhaps change the Scope to
reflect the tests and inspections that you feel are appropriate (this needs to be by means of
the Project Manager). Clause 41.3 then requires the Contractor to notify these before they
are undertaken and also the result afterwards.
5

91. Unnecessary time for tests and inspections (clause 60.1(11))

6

QUESTION

We are a Contractor on a sports centre project, and the Supervisor is taking what we
7
believe to be an unnecessary amount of time to do its tests and inspections. Where do we
stand with this?

ANSWER

Ideally the Scope would have stated the tests and inspections that are required (clause
9
41.1) and also how long they will take. The tests and inspections normally fall into three
categories – those that the Contractor is required to undertake, those undertaken by the
Supervisor and those that the Supervisor wishes to witness. If a timescale is not stated in
the Scope, then it may come down to interpretation and common practice. If you feel that
10 this is a compensation event, then we would notify as such (clause 61.3 requires this to be
undertaken within eight weeks of becoming aware). As it seems to be a repeat problem/
trend, we would also notify an early warning and try to resolve proactively.

11

12

70
 Chapter 6: Compensation events

92. Interpreting physical conditions (clause 60.1(12))

1

QUESTION

We have a Contractor on Site under ECC Option A. The work involves driving along a quay,
down a ramp and onto the beach – it is undertaking jetty repairs to one of our docks. It 2
has recently notified a compensation event under clause 60.1(12) for a ‘max. headroom’
goal post steel frame, which prevents certain-sized Equipment using the ramp. We did not
mention this in the Site Information, but the Contractor was allowed to undertake a Site
visit as part of the tender. Can you advise where we stand with this? 3

ANSWER 4

The two clauses that need to be in conjunction with one another are clauses 60.1(12)
and 60.2. Clause 60.2 explains that ‘in judging the physical conditions’ the Contractor is
assumed to have taken into account information obtainable from a visual inspection. So, 5
just what is contained in the Site Information is not the whole picture. If something could
have been seen from a visual inspection (and we are sure that the steel frame could), then it
would not be a compensation event.
6

93. Underground mine workings? (clause 60.1(12))

7

QUESTION

We are a local authority about to use an Option A ECC contract to procure the installation
of a flood wall in a coastal area of Scotland. The area is notorious for underground mine 8
workings but we do not have accurate records as they were not kept in the past. We do not
want, on discovery of underground mine workings, this to be a source of debate nor do we
want the tenderers to price for this and for it still to be debated as a compensation event.
Do you have any suggestions? We want to be a fair procurer and not force undue risk onto 9
the tenderers.

10
ANSWER

Two options exist – you could either introduce an Option Z clause to clarify the definition
or add an additional compensation event in Contract Data part one. The additional 11
compensation event is perhaps best in this situation. This could be stated as ‘Discovery of
underground mine workings’ (or perhaps clearer wording). If this occurs, it would then be a
compensation event under clause 60.1(21). This will ensure that the Contractors do not price
this liability in the tender – the only disadvantage is that if the liability occurs it will be a
12
compensation event. The main principle is that it is clear and, as per your objective, fair.

71
 NEC4 PRACTICAL SOLUTIONS

94. What are physical conditions? (clause 60.1(12))

1

QUESTION

In an ECC contract, what is the accepted definition of ‘physical conditions’ in clause

2 60.1(12)? The Institution of Civil Engineers (ICE) Conditions of Contract referred to ‘artificial
obstruction’, I think, which would cover uncharted utilities. Are there circumstances in which
physical conditions under the ECC could cover uncharted services?

ANSWER
4 A glance at a dictionary says that ‘physical’ in the sense used here means ‘of material
things or nature’. An artificial obstruction is a ‘material thing’ in the same way as a natural
obstruction or the ground itself is. It is not clear why the now defunct ICE conditions used
both ‘physical conditions’ as well as ‘artificial obstructions’ in its clause 10 because the latter
5 is already covered by the former. Maybe it was just a matter of emphasis or belt and braces.
Either way, it is not needed nor used in the ECC, because physical conditions would include
artificial obstructions. A pipe or cable, whether charted or uncharted, is a physical condition,
and we have never heard anybody seriously suggest otherwise.
6

95. Weather risk (clause 60.1(13))

7

QUESTION

We are a large contractor and want to understand the risk as defined under clause 60.1(13)
8 of the ECC. Can you clarify?

9
ANSWER

Scientific assessment of weather is included in the ECC. First of all, the weather
measurements are those detailed in Contract Data part one, so these need to be reviewed
10 for each tender (note that wind is not included by default). Only the weather measurements
detailed in Contract Data part one are relevant in assessing a compensation event. Each
month is considered in isolation, so bad weather spanning 2 months would be reviewed
separately as two compensation events. The weather measurements are also only relevant
11 if taken before the Completion Date for the whole of the works – so if you record data late,
then all weather is the Contractor’s risk.

Depending on who is providing the weather data (which will be defined in Contract Data
part one), it may be calculated in different ways. If it is the UK Met Office, then a long-term
12
30-year period is typically assessed, and the worst three measurements averaged to give

72
 Chapter 6: Compensation events

the weather shown to occur ‘on average less frequently than once in ten years’. This is 1
also known as the 1 in 10 return value – details of ECC weather data and how they are
calculated are on the Met Office website. The good news is that weather can be scientifically
assessed both at tender and for compensation events. The background risk, however, is not
insignificant, and so needs to be considered carefully in your tender programme and price.
2

96. Take over (clause 60.1(15))

3

QUESTION

We are delivering a server centre and need to get into some of the rooms to store kit that 4
has arrived early. This is under ECC Option C. Are we allowed to start using parts of the
building before the Contractor has finished?

ANSWER

Yes, clause 35.2 allows the Client to use part of the works before the Completion Date – so 6
you have the authority. However, this will be a compensation event (clause 60.1(15)). As
soon as the Client begins using the works, then take over is said to have occurred – this is
then certified by the Project Manager within one week.
7
Also, from take over, loss or damage then becomes the Client’s liability (clause 80.1).

97. Assumptions made by the Project Manager (clause 60.1(17)) 8

QUESTION
9
We have some complex compensation events on our ECC Option C project. As the Project
Manager I do not want the Contractor’s assessments to be full of risk – how can I deal with this?

10

ANSWER

At a macro level, Client’s risks (Contract Data part one) change the risk profile of the 11
contract as a whole. On a compensation-by-compensation event basis we can add
assumptions as a Project Manager under clause 61.6. The original compensation event is not
then revised if an assumption is wrong (clause 66.3). This becomes a separate negative or
positive compensation event to correct the assumptions (clause 60.1(17)). 12

73
 NEC4 PRACTICAL SOLUTIONS

1 This an excellent process of getting better value from compensation events, fair risk
allocation and enabling complex compensation events to be assessed.

2
98. Prevention (clause 60.1(19))

QUESTION
3
Does Subcontractor insolvency come under clause 60.1(19) of the ECC?

ANSWER

5 Clauses 19.1 and 60.1(19) need to be carefully considered. They define an event that
stopped the Contractor completing the works or completing the works by the date shown
on the Accepted Programme, and also that neither Party could predict or prevent. The
wording also states that it would have been unreasonable for the Contractor to have
6 allowed for the event.

Subcontractor insolvency may not fall into this category – it happens relatively frequently,
unfortunately. This clause is designed not to pre-empt a defined list of issues but rather
describe the scenario. In order for a compensation event to be successful under clause
7
60.1(19) it would need to pass all of the tests contained within the clause.

8 99. Poor Site Information (clause 60.2)

QUESTION
9
What happens if the Client’s Site Information is ambiguous or inconsistent?

10

ANSWER

11
Site Information is produced by the Client. If it is found to be ambiguous (vague) or
inconsistent (contradictory), then the Contractor is favoured (clause 60.3) when judging a
clause 60.1(12) physical condition.

12

74
 Chapter 6: Compensation events

100. Mistakes in a Bill of Quantities (clause 60.6)

1

QUESTION

We have an ECC project under Option B. There is a requirement in the Scope for video
surveys. There is not a Bill of Quantities item for video surveys. Are we entitled to a 2
compensation event by way of the following process?

1. Inform the Project Manager of an ambiguity or inconsistency in or between the

documents in accordance with clause 17.1. 3
2. The Project Manager must correct mistakes in the Bill of Quantities under clause 60.6,
and such corrections are compensation events.
3. Clause 60.7 says that when assessing such a compensation event, the Contractor is
assumed to have taken the Bill of Quantities as correct. 4

4. Therefore, we are entitled to a compensation event for the cost of the video surveys plus
the Fee.

Note: all of this has just arisen, and there has been no correspondence to date with the 5
Project Manager on the issue.

6
ANSWER

Clause 60.6 only applies to certain ‘mistakes’; that is, when they are departures from the
rules and divisions set out in the method of measurement. The answer to your question 7
therefore depends entirely on what the method of measurement says about such videos.
If they are included, either explicitly or implicitly, as part of the item coverage, then there
is no mistake. If they are not covered, or are mentioned as being required to be measured
separately, then there is a mistake. 8

Clause 60.7 only applies to how the compensation event is valued, not whether or not it is
a compensation event in the first place. So, if it is a compensation event under clause 60.6,
then, under clause 60.7, it is valued assuming that you did not allow for it in your Prices and
programme. 9

101. Error in the Bill of Quantities caused by the Contractor (clause 60.6) 10

QUESTION
11
In a project using ECC Option B the bill of quantities was issued to tenderers to price. The
successful Contractor returned the priced bill of quantities (which of course became the Bill
of Quantities) but in a different format so that it aligned with its subcontract packages. In
rearranging the bill of quantities items the Contractor missed off some measurable works,
12

75
 NEC4 PRACTICAL SOLUTIONS

1 according to the method of measurement. The Scope has not changed, but is it correct to
assume that this becomes a compensation event under clause 60.6, even though it is an
error originally made by the Contractor?

ANSWER

You are correct – this would be a compensation event under clause 60.6. Furthermore,
3
when assessing this compensation event, the Contractor is assumed to have taken the
Bill of Quantities as correct (clause 60.7). In the circumstances, the changes made by the
Contractor to the Bill of Quantities were, in effect, a qualification to its tender. Your client
should have treated it as such and checked it very carefully before accepting the tender.
4 Once accepted, the risks of such errors pass to the Client.

5 102. The difference between clauses 61.1 and 65.1

QUESTION
6
What is the difference between a compensation event under clauses 61.1 and 65.1?

ANSWER

Clause 61.1 deals with the requirement of the Project Manager to notify certain
8 compensation events in certain instances. If this has arisen due to, for example, a clause
14.3 Project Manager’s instruction to change the Scope, then the Contractor must obey
this instruction under clause 27.3 and put this change into effect. This is a clear ‘green
light’ to undertake whatever has been requested. An instruction to provide a quotation will
9 be included in the notification of this compensation event (clause 61.2), and this will then
follow the compensation event assessment process.

Clause 65.1 is not a compensation event – it is an instruction to submit a quotation for a

10
proposed instruction. The proposed change is thus not put into effect – we are effectively
requesting a quotation, and then we shall decide in due course.

An obvious comment, but these notifications need to be clearly communicated (citing the
correct clauses) in order to avoid confusion.
11

12

76
 Chapter 6: Compensation events

103. The time bar under clause 61.3

1

QUESTION

As a Contractor under an ECC Option B contract we have notified the Project Manager of
poor ground conditions under clause 15.1. Should it notify a compensation event or do we? 2

3
ANSWER

Early warnings and compensation events are completely separate procedures. The easiest
way of thinking about these is that there is no time nor money in early warnings – only risk
reduction. If, as a Contractor, you wish to be compensated with time and/or money, then 4
the only way to do this is through a compensation event. Clause 61.3 clarifies that, if you do
not notify within eight weeks of becoming aware, you will lose entitlement. This is referred
to as the time bar. The exception to the time bar is if the event arose from the Project
Manager or Supervisor giving an instruction, issuing a certificate, changing an earlier 5
decision or correcting an assumption.

The clue to which of the 21 core compensation events may be time barred is the wording.
For example, clause 60.1(1) would not be time barred as it would arise from an instruction
from the Project Manager. However, clauses 60.1(2) and 60.1(12) would be, and so on. 6

104. Project Manager’s failure to respond (clause 61.4) 7

QUESTION
8
We have a situation in which the Project Manager is not responding to our notifications
of compensation events under Option A of the ECC. As a Contractor we need to get the
financial and programme impact of compensation events agreed. What can we do to
progress these?
9

ANSWER 10

Clause 61.4 provides one week for the Project Manager to respond to a notified
compensation event (or longer time if agreed with the Contractor). Ultimately, if the Project
Manager does not respond, the Contractor may (which means it is discretionary) notify
the Project Manager of its failure. If the Project Manager fails to respond within a further 11
two weeks, its failure is treated as an instruction to provide a quotation.

It is always best to agree collaboratively if at all possible – perhaps consider notifying an

early warning and bring the backlog to a head? 12

77
 NEC4 PRACTICAL SOLUTIONS

105. Link between early warnings and compensation events (clause 61.5)
1

QUESTION

Our Contractor failed to notify an early warning for a matter that was ultimately a
2 compensation event. While undertaking refurbishment work in our office block, it
discovered a damp patch in a number of ceiling tiles. Without an early warning, it took it
upon itself to replace the whole ceiling. However, we are frustrated as the ceiling was going
to be taken out by another contractor in our employment and a painted finish applied to the
3 services – effectively doing away with the suspended ceiling. Where do we stand with this –
do we have to pay?

ANSWER

There are a number of clauses that are linked here (clauses 15.1, 61.5 and 63.7). Clause 15.1
5 obliges the Contractor to notify an early warning. Clause 61.5 states that, on notification
of a compensation event, if you believe that an early warning should have been given, then
you notify this decision. This is then linked to clause 63.7, which states that, if notified under
clause 61.5 (so this becomes a condition precedent), it is assessed as if the early warning had
6
been given. So, in your case you would assess the compensation event as nothing, as your
other contractor would have dealt with it. You have not stated which main Option you are
using, but if you are using Option C, D, E or F, then the excess cost will also be disallowed
(Option C–E clause 11.2(26) and Option F clause 11.2(27)).
7

106. Compensation events after Completion (clause 61.7)

8

QUESTION

Our Contractor has successfully completed a new school for us. We certified Completion
9 3 months ago, and the defects date is 52 weeks after Completion. Are we able to get it
back to do additional work as a compensation event?

10

ANSWER

In short, yes! Clause 61.7 allows for compensation events to be notified up to the defects
11 date. Any instruction given under clause 14.3 must be obeyed under clause 27.3. The only
down side is that the cost will be more expensive than when they were on Site. The clause
63.1 forecast of cost will include any mobilisation costs, for example.

12

78
 Chapter 6: Compensation events

107. Additional work after Completion (clause 61.7)

1

QUESTION

I am a Project Manager on an Option B ECC project. The project achieved Completion

3 months ago for which I issued the Completion certificate. The Client now wants some 2
additional work undertaken but I cannot find a clause that allows me to instruct this?

ANSWER

The ECC provides provision for this by the usual clause 14.3 instruction to change the Scope.
Under clause 61.7 a compensation event can be notified at any point up until the defects 4
date. The only disadvantage of notifying compensation events after Completion is that the
defects date will not be extended and the compensation events will be more costly – clause
63.1 explains that they will be on the basis of a forecast cost. Inevitably, the cost to the
Contractor will typically be greater once it has left the Site. 5

108. Obtaining different quotes for the same compensation event (clause 62.1) 6

QUESTION
7
We have a compensation event on an Option D ECC project. Are we able to get different
quotations for different methods of dealing with a particular problem?

ANSWER

Yes, clause 62.1 enables the Project Manager to obtain different quotations for the same
9
compensation event. The wording used is ‘After discussing with the Contractor different
ways of dealing with the compensation event’, so it requires the Contractor and Project
Manager to work together closely and develop sensible, practical approaches.

10

109. Updating for remaining work (clause 62.2)

11
QUESTION

I am a bit concerned on our ECC Option A project. Clause 63.5 states that we use the latest
Accepted Programme and then assess the impact of the compensation event on planned
12

79
 NEC4 PRACTICAL SOLUTIONS

1 Completion. However, our problem is that the Project Manager has not accepted the
programme for 6 months. Surely this cannot be right, as we are looking at the impact on an
out-of-date programme?

ANSWER

3
The ECC clauses cannot be read in isolation, and this instance is a classic example. Clause
62.2 needs to be read in conjunction with clause 63.5. Clause 63.5 requires the latest
Accepted Programme to be used, for this to be then updated for ‘remaining work’ (clause
62.2) and then the impact assessed on planned Completion (back to clause 63.5). Both
clauses are used by the Contractor to assess a compensation event. The same methodology
4
is used if it is the Project Manager that assesses – clause 64.2 requires the programme to be
updated for ‘remaining work’.

5
110. Proposed changes to which programme? (clause 62.2)

6 QUESTION

We are the Client and using ECC Option C. A Project Manager’s instruction has been
issued changing the Scope. The Project Manager has also notified the Contractor of the
7 compensation event and instructed the Contractor to submit quotations at the same
time, as required in clauses 61.1 and 61.2. The Contractor submitted a quotation for the
compensation event within three weeks. The Project Manager has instructed the Contractor
to submit a revised quotation (clause 62.4), which the Contractor has also submitted within
three weeks. The Contractor has included within its quotations for the proposed changes
8
to the Prices and delay to the Completion Date (as planned Completion is delayed). In
accordance with clause 62.2, the Contractor has included alterations to the Accepted
Programme in its quotation.

9 Should the Contractor base the proposed change to the Completion Date on (a) the
Accepted Programme at the time of issue of the Project Manager’s instruction and request
to submit quotations or (b) the Accepted Programme at the date of the Contractor’s
alternative quotation submission?
10

ANSWER
11
This is one of the problems with delaying the process; things have now moved on. The
Contractor should have used the Accepted Programme as (a), because that was what was
current at the dividing date (clause 63.5).
12

80
 Chapter 6: Compensation events

111. Accepting quotations in a timely manner (clause 62.3)

1

QUESTION

We are the Contractor under an ECC Option C contract. We have submitted a number of
quotations to the Project Manager, and we have agreed to relax the response period for the 2
Project Manager to accept our quotations. We now find ourselves in a position in which we
are agreeing quotations with our Subcontractors before we have received acceptance of our
quotations. There have been a number of occasions where the Project Manager assessed
compensation events at a lesser value than we had already agreed with the Subcontractor. 3
What should we do? Also, if a Subcontractor’s actual Defined Cost is greater than how the
Project Manager assesses our compensation event, is the difference a Disallowed Cost?

ANSWER

The first point is to question why you made such an agreement with your Project Manager. 5
If it causes such problems, then insist the Project Manager deals with your quotations within
the timescales set out in clause 62.3. If the Project Manager fails to do so, then notify the
Project Manager of that failure under clause 62.6.
6
If the Project Manager continues to fail to reply for two weeks after that notification, then
your original quotation will be treated as accepted (clause 62.6) and therefore implemented
(clause 66.1), after which only the Adjudicator can change it. The timescales in the ECC are
deliberately written so that you should not need to get yourself in this position.
7
The answer to the second question is that this excess amount is not a Disallowed Cost, simply
because it is not stated within the list of Disallowed Cost items listed in clause 11.2(26).

112. Failing to respond (clause 62.3)

9
QUESTION

Our Project Manager on an Option A ECC bypass project constantly fails to respond to
compensation events that we have quoted. What should they do on receipt of a quoted
10
compensation event, and what are the remedies in the contract if they do not respond?

11
ANSWER

In order to avoid the indecision and drawn out ‘final accounts’ of old, the ECC is very explicit
in this respect.
12

81
 NEC4 PRACTICAL SOLUTIONS

1 On receipt of the Contractor’s quotation the Project Manager has three options only (clause
62.3). It is required to accepted the quote, request a revised quote (stating reasons as per
clause 62.4) or decide to make its own assessment. It needs to make one of these three
decisions within two weeks.
2 Failure of the Project Manager to respond to the Contractor may (discretionary) result in the
Contractor notifying it of its failure (clause 62.6). Failure of the Project Manager to respond
within two weeks of this is then treated as acceptance of the quotation. This is not revised
(clause 66.3). The ultimate remedy in the contract is that continued failure of the Project
3 Manager to respond will result in the compensation event being ‘implemented’.

The Project Manager and Contractor should really be working closely in order to gain
agreement before submission and resolve queries. Regular meetings are a practical way of
4
keeping on top of the process.

113. W
 hat programme should we use when assessing the impact of compensation
5
events? (clause 63.1)

QUESTION
6

In assessing the impact of a compensation event on planned Completion, the ECC states
the latest programme is to be used. How do we work out what is the date of the latest
programme? Is it the date when the Contractor became aware of the event itself, or the
7 date when the Contractor notified the compensation event?

8
ANSWER

The answer to your question lies in the last part of clause 63.1 read together with clause
63.5. If it was a compensation event that the Project Manager should have notified (see
9 clause 61.1 for these events), then it is the Accepted Programme current at the dividing
date that is the date of that communication (e.g. the instruction) by the Project Manager.
For all other compensation events, the dividing date is the date of the notification of the
compensation event by the Contractor, and you use the Accepted Programme current at
10 that date. You need to bear in mind with the latter that compensation events are subject to
an eight-week time bar in clause 61.3.

11

12

82
 Chapter 6: Compensation events

114. Using the SSCC for Subcontractor’s costs (clause 63.1)

1

QUESTION

Our queries relate to a project using the ECC Option A. When assessing compensation
events involving Subcontractors we understand you use their costs including their mark up 2
for their overheads and profit.

Our questions are

3
1. Do you have any thoughts on this?
2. What process should be followed if the Contractor has not used the NEC subcontracts?

ANSWER

For question 1, you need to consider the (forecast) payments to Subcontractors for work 5
that is subcontract (item 41 of the SSCC). Of course, this needs to be an open-market or
competitively tendered price in accordance with clause 52.1, which applies for all such
Defined Cost where these are not stated in the Contract Data.

With regard to question 2, you follow exactly the same process, in that you have to forecast 6
what the effect will be on Defined Cost. If the Contractor has chosen not to use an NEC
subcontract, that means it may be paid on an entirely different basis to that which it pays its
Subcontractor – which may or may not be beneficial to the Contractor. That is its concern,
not yours. You (and the Contractor) must forecast the cost by using the rules in the SSCC. 7

115. Forecasting the Defined Cost (clause 63.1) 8

QUESTION
9
How should compensation events be valued? Is it based on the actual cost incurred by the
Contractor plus Fee? What happens if the estimate is wrong – is it revised based on the
actual cost?

10

ANSWER
11
This aspect of the contract causes a lot of confusion in practice.

Clause 63.1 states that the compensation assessment is based on a mixture of actual
Defined Cost of the work done by the dividing date, forecast of the work not done by the
dividing date plus the resulting Fee. 12

83
 NEC4 PRACTICAL SOLUTIONS

1 Note that Defined Cost is a defined term and therefore means different things in different
main Options. The ‘switch’ between actual and forecast is not when the individual assessing
gets around to doing it. It is based on the statements in clause 63.1.

If the compensation event results from the Project Manager or Supervisor giving an
2 instruction or notification, issuing a certificate or changing an earlier decision, the dividing
date between actual versus forecast is the date of that communication (note that the
compensation event may be notified after this point). That is, in all other cases the date of
the notification of a compensation event becomes the switch from actual to forecast – so as
3 soon as the Contractor notifies a compensation event, this would require the assessment all
to be a forecast from that point.

Compensation events under the ECC are therefore based on largely a forecast/estimate
4
rather than on actual cost. There are other clauses that need to be taken into consideration,
such as clause 63.8, which allows the Contractor to include time and cost risk allowance. It
is all about having a reasoned/fair estimate.

116. Using the fee percentage (clause 63.1)

6
QUESTION

We are working with the Contractor to agree costs for compensation events and
early warnings under ECC Option A. Under clause 61.3, the Contractor has notified a
7 compensation event after acceptance of a revised programme by the Project Manager.
The Contractor’s quotation for the compensation event includes Defined Cost for the
extended programme, which includes Site accommodation and running costs, key personnel
(Contracts Manager, quantity surveyor, Site Engineer, etc.), Site hoarding and so on. After
8 calculating this, the quotation includes a fee percentage uplift. Can this uplift be used and
would not this cost normally be included in the Fee anyway, as per clause 52.1?

9
ANSWER

We are not sure why you consider that all of these costs should have been included in the
Fee because clause 52.1 does not support that view. Defined Cost is a defined term – for
10
Option A see clause 11.2(23). That in turn refers you to the SSCC, which sets out what will
be paid for as part of Defined Cost. A compensation event is assessed by its Defined Cost
and then the Fee is added (clause 63.1). If it can therefore be shown that one of the costs in
the SSCC has been increased because of the compensation event, then it will be assessed in
11 the way set out in the SSCC. Conversely, only if a cost is not listed in the SSCC will it not be
part of Defined Cost, and therefore be considered to be part of the Fee under clause 52.1.

So you need to look at the SSCC in detail to decide which of these costs are paid. For
12 example, the cost of people is included in the People Rates in SSCC item 11, as long as this

84
 Chapter 6: Compensation events

meets one of the three criteria in item 1. If, for example, the quantity surveyor spends two days 1
a week on Site and the other three days working in head office, then two days of that person’s
People Rates is allowed. Equally, from SSCC item 2 the cost of the Contractor’s Equipment,
including accommodation, is included along with Site hoarding, which is also Equipment. The
Contractor is correct to provide its quotation based on a forecast of what these costs will be
2
(clause 63.1). In NEC contracts you do not wait until the costs have been spent – you forecast
what they should be assuming that the Contractor acts promptly and competently (clause 63.9)
and allowing for risks that have a significant chance of occurring (clause 63.8).

What does worry us here, though, is that you say that the Contractor has notified a 3
compensation event because the Project Manager has accepted a revised programme. That
cannot be the case. The list of compensation events is set out in clause 60.1, and there is not
one that says ‘the Project Manager has accepted a programme that shows late Completion’.
That is putting the cart before the horse! On the other hand, if a listed compensation event 4
means planned Completion is now later than planned Completion shown on the Accepted
Programme, then the Completion Date will be extended (clause 63.5). That will, however,
be because of the underlying compensation event, not because the Project Manager has
accepted the subsequent programme. 5

117. Recovering the cost of additional Site staff (clause 63.1)

6

QUESTION

As the Contractor with a compensation event arising in an ECC Option B contract, are we 7
able to claim for additional site staff costs (e.g. contracts manager and quantity surveyor) to
cover the pricing and delivery of a compensation event, even when the overall duration has
not increased?
8

ANSWER
9
With regard to the pricing of the compensation event, this might be recoverable if you
can demonstrate that the compensation event has an effect on the Prices (clause 63.1).
Compensation events are assessed based on their effect on Defined Cost (clause 63.1), but
remember that Defined Cost is a defined term (see clause 11.2(23) and the SSCC). 10

In the SSCC you will see you only get paid for people when they comply with one of the
three bullets in item 1, and only if your cost of them has increased. Just because your site
agent or perhaps foreman worked on them does not mean that your cost increased if
11
they were going to be there anyway. They just maybe worked a bit harder. On the other
hand, if the time you are on Site was extended because of the compensation event, then
their Defined Cost would increase. Or if the compensation event was such as to require
an additional foreman to run it, again the cost of that would be included. Just because
somebody works on it does not mean your cost increases. 12

85
 NEC4 PRACTICAL SOLUTIONS

118. Charging for staff time in a compensation event (clause 63.1)

1

QUESTION

I have the following questions about an ECC Option A contract:

2
1. Can a Contractor charge for its quantity surveyor’s time in preparing a compensation
event quotation?
2. Can a Contractor charge for its quantity surveyor’s time in sorting out quotes and
3 placing orders necessary for a compensation event quotation?
3. Can a Contractor charge for its Site foreman’s time in working on a compensation event
in its quotation for a compensation event?

ANSWER
5 The answer to your first question is ‘possibly’, if you can demonstrate that there is an effect
of the compensation event upon the Defined Cost (clause 63.1).

The answer to your other two questions is a bit more complicated, and will depend on
6 the circumstances. The value of the compensation event is based on its forecast effect
on Defined Cost (clause 63.1). So, the Contractor has to show that Defined Cost for
these people increased. If they worked on them and were going to work on Site anyway,
then the Contractor cannot show that Defined Cost for them has increased. All that has
happened perhaps is that the people have worked a bit harder. On the other hand, if the
7
compensation event delays Completion by, say, a week, then the Contractor and these
people will be on Site for another week and their Defined Cost will increase, and that
increase is included in the valuation of the compensation event. Equally, if the compensation
event is of such a size that it is forecast that an additional foreman will need to be brought
8
in to manage it, then again that will increase Defined Cost, and that will be included in the
valuation of the compensation event. So, the answer to the second and third questions is ‘it
depends’.

119. People costs in a compensation event quotation (clause 63.1)

10
QUESTION

As part of an ECC Option A contract, when assessing compensation events, the Contractor
11
is including time for its quantity surveyor, who is based in its head office (and so outside the
Working Areas), and its senior engineer, who is based full time at the Site. The Contractor is
tending to charge a nominal amount of two hours for the quantity surveyor and four hours
for the senior engineer for every compensation event. Can you confirm if the Project
Manager’s following interpretations of the contract are correct:
12

86
 Chapter 6: Compensation events

1. Under SSCC item 1 (people), the first category of people excludes Contractor’s staff 1
who are working at the head office. Therefore the Contractor cannot claim time for the
quantity surveyor, as their time is covered by the Fee.
2. SSCC item 1 includes people whose normal place of working is within the Working
Areas, so the senior engineer is a role that can be charged. However, in this instance the 2
senior engineer is already assigned full time to the contract, so the Client is already paying
for 100% of their time. Therefore, if the senior engineer is directly working on an activity
that is the subject of a compensation event, the Contractor can claim for their time.
3. If the senior engineer is not directly working on an activity that is the subject of a 3
compensation event but the compensation event delays planned Completion, the
Contractor can claim the cost of its time for the delay period only.
4. If the senior engineer is not directly working on an activity that is the subject of a
compensation event and the compensation event does not delay planned Completion, 4
the Contractor cannot claim the cost of their time.

5
ANSWER

The assessment of a compensation event is based on what effect it is forecast to have on

Defined Cost. The answer is not quite as simple as you have set out. The first thing to say is 6
that the cost has actually to increase. If the Contractor has an engineer or quantity surveyor
on Site anyway and it uses that person to manage the compensation event, then Defined
Cost has not increased, so it is not included. Of course, if the compensation event is such
as to lead it to need another engineer on Site (either because it is large in itself, or there
7
have been a lot of other changes and this one ‘breaks the camel’s back’), then that will be
included. Or if it delays its work so that the engineer is on Site for longer than they would
ordinarily have been, then that will be allowed for. With regard to people working outside
the Working Areas, they are not included as part of the definition of Defined Cost, and,
under clause 52.1, they are assumed to be included in the Fee. So, your interpretation 1 is 8
correct; 2 is only correct to the extent that its cost can be shown to be forecast to increase;
and 3 is correct, as is interpretation 4.

120. Are compensation event quotations based on actual cost? (clause 63.1)

10
QUESTION

Our queries relate to a project using the ECC Option A:

1. Clause 63.1 states, ‘For a compensation event that arises from the Project Manager or 11

the Supervisor giving an instruction or notification, issuing a certificate or changing an

earlier decision, the dividing date is the date of that communication’. If the Contractor
does not submit a quotation until well after the works are complete, should the
quotation be based on the actual cost or on forecasts of the actual cost of the works? 12

87
 NEC4 PRACTICAL SOLUTIONS

1 2. If the Project Manager does not instruct the Contractor to submit quotations until after
additional works were carried out, due to them not being brought to its attention by the
Contractor until after they were complete, should the quotation be based on the actual
cost or on forecasts of the actual cost of the works?
2

ANSWER
3
The answer to question 1 is that you assess using a forecast, no matter when that
assessment is being done. And that forecast assumes the Contractor acts promptly and
competently (clause 63.9) and allows for risks that have a significant chance of occurring
(clause 63.8).
4
With regard to question 2, the answer will depend on the reason for the compensation
event. If it arises from a Project Manager’s instruction to change the Scope, then the
obligation is on you to notify the compensation event and instruct a quotation (clauses
5 61.1 and 61.2). So, you will use a forecast because the dividing date is the date of that
communication (the instruction, clause 63.1). If it is one that the Contractor should notify,
then you first have to consider whether the time bar in clause 61.3 applies. If it does not,
then the dividing date is the date of notification of the compensation event, and you would
6 probably use actual Defined Cost in this instance (clause 63.1), but again by assuming the
Contractor acted promptly and competently.

7
121. Compensation event quotations and Subcontractors (clause 63.1)

QUESTION
8

We are using ECC Option C and have a quotation for a large compensation event for
additional steelwork, which we are worried is excessive. We are looking for confirmation
on using a transparent method to review the proposed costs and accept them (or not) in
9 accordance with the contract. The quotation includes both costs for manufacture and large
amounts for Site labour, which we cannot see any justification for. We understand the vast
majority (if not all costs) stem from the steelwork fabrication Subcontractor, which will both
supply the steelwork and fit it on Site. The quotation includes large sums under people
10 costs. Looking at the SCC descriptions and guidance, we consider that this should only be
the Contractor’s directly employed staff, not subcontracted people. We do note that the
SSCC people costs do, however, allow for Subcontractor people costs on Site.

Should the Contractor be using the SCC for quotations involving Subcontractors’ costs or
11
should we be agreeing to use the SSCC to break down all compensation events involving
Subcontractors? Or should it simply give me the Subcontractors’ quotations to accompany
its own quotation and add on its Fee percentage for Subcontractors? If the latter, how can
we have sight of where the costs are going so that we can consider whether the costs are
12 justified? Can we ask that the steelwork fabricators quotation be broken down – and if so
to what level of detail?

88
 Chapter 6: Compensation events

ANSWER 1

This compensation event is valued using Defined Cost plus Fee (clause 63.1). The definition
of Defined Cost in ECC Option C is set out in clause 11.2(24). Here, you will see that for
subcontracted work the combination of clauses 63.1 and 11.2(24) and the SCC means that
2
it is based on what the Contractor is forecast to pay its Subcontractor, to which is added the
fee percentage. The definition of a Subcontractor is set out in clause 11.2(19). The SSCC is
completely irrelevant here. From the information in your question we are having difficulty
understanding exactly what work is subcontracted and what is not, so it is difficult to
comment in detail. If, for example, the fabrication and erection work was being carried out 3
by one Subcontractor, then do not use the SCC at all for that element. On the other hand,
if the steel was being fabricated by one supplier and erected by a (different) Subcontractor,
then you would use item 6 of the SCC for the fabrication and then item 4 of the SCC to
determine the erection costs. As to the amount the Contractor pays its Subcontractor, that 4
will depend on the terms of the subcontract it is under, which you should have seen when
accepting that Subcontractor (clause 26). If, for example, the subcontract values variations
based on rates, then those rates are used, and both the Contractor and you are stuck with
them and cannot ask for any further substantiation. On the other hand, if the contract is 5
based on assessing Defined Cost, then you are both stuck with that.

In all of this it is necessary for the Contractor to provide enough information to satisfy you
that that is what it is going to pay. Remember that this is an ‘open book’ contract, so you
are entitled to see whatever the Contractor has on that (clauses 52.2 and 52.3). You are 6
also entitled to see, in the case of a subcontract value based on Defined Cost, that that
assessment has been carried out at open market or competitively tendered rates (clause
52.1). This may well require a detailed breakdown. It is not possible to tell you how much
information you will need in order to do that, as it will depend on the circumstances. This is 7
something that you need to discuss with your Contractor.

8
122. People not working in the Working Areas (clause 63.1)

QUESTION 9

The Working Areas in our ECC contract are ‘the Site’. We are applying for compensation
events as per the SSCC, which includes project managers, quantity surveyors, buyers
and so on. The Project Manager is stating that as these individuals are working from the
10
head office and not on Site, they are included within the Fee and cannot be separately
charged for.

Our queries are, first, as these individuals are listed in the SSCC through the People Rates,
can they be charged for even if they are not working in the Working Areas? Second, it is 11
my understanding that the process with compensation events is to put you in a position
that you would have been in had the compensation event never occurred in the first place.
Therefore, I believe I should be entitled to charge for individuals who assisted in preparing
quotations for and undertaking compensation events. 12

89
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The Project Manager is correct for two reasons. The first is the one it has given you: people
are only paid for when and if they are working in the Working Areas (see the bullets in item
1 of the SSCC). Any other costs are assumed to be in your Fee (clause 52.1).
2
In answer to your second question, the contract is intended to be neutral on this, but it
assumes that you have allowed enough in the Fee you quote to cover what you are not
going to get paid for. If you have underpriced the Fee, then this will be at your risk. A further
3 reason is that the value of compensation events will be based on what your Defined Cost has
increased by (clause 63.1). Just because an employee works on something does not necessarily
mean that has increased your Defined Cost if you would have employed that person anyway.

123. Extensions of time (clause 63.5)

5
QUESTION

How are extensions of time claims dealt with in the ECC? Do you compile these at the end
of the project when you know the overall impact of all the variations?
6

ANSWER
7

In short – absolutely not! The ECC is very different from traditional forms of contract. Each
compensation event needs to be assessed within professional timescales, and both the time
and cost impact are assessed jointly. The Contractor has three weeks to assess both (clause
8 62.3) or a later period agreed with the Project Manager (clause 62.5).

The latest Accepted Programme is adopted (clause 63.5), then updated for remaining work
(clause 62.2). Whether planned Completion (i.e. when the Contractor plans to complete)
9
is affected is next assessed. If it is affected, then by whatever duration is added to the
Completion Date. The ECC provides very clear rules for assessing the programme impact
within the core clauses. There is no room for assessing at the end of the project – clause
66.3 clearly states that assessments are not revised, and this is applied to both time and
cost, so there is a 3-week window to assess and ensure that this is accurate.
10

124. Dominant cause of delay (clause 63)

11

QUESTION

12 A design and build project is being carried out under ECC Option A. The project is linear,
involving access onto adjoining green field lands owned by different people to construct

90
 Chapter 6: Compensation events

a roadway. Although there are sectional Completion Dates, there is only one access date 1
included in the contract. The clause 60.1(13) compensation event for weather has been
deleted.

The project has suffered an overall delay of 10 weeks. Firstly, three weeks of this delay
was experienced due to inclement weather. Shortly afterwards, the Contractor progressed 2

the works such that access was required from one piece of land onto another. The Client
advised the Contractor to demobilise, as agreements had not been fully concluded with a
particular land owner, and centred around more land-take now required than had previously
been planned. Due to this, a further delay of seven weeks followed where the Contractor 3
was in delay due to the stand-down.

The Contractor maintains that had there been no weather delay the non-access delay would
have been realised earlier, yet still not resolved until the time it actually was. The basis for 4
this point of view is the fact that the Contractor’s design drawings, and revisions thereto
at the request of the Project Manager, were submitted in good time (and accepted) well
ahead of the planned start of works onto the affected lands; therefore, the Client had every
opportunity of agreeing any additional land-take required with the land owner in good time
5
to obviate the subsequent delay and ahead of the weather delays. The Contractor maintains
that the dominant delay is the non-access. Currently, the Project Manager recognises the
seven-week delay only as a direct effect of the non-access, but is holding the Contractor
liable for the three-week weather delay and delay damages.
6
Is the Project Manager correct in this approach, and what is the protocol for establishing the
dominant delay?

ANSWER

Delays that the Contractor knows about have to be dealt with in each programme that the 8
Contractor issues for acceptance. We assume here that they are to be submitted monthly.
The Contractor therefore should have included in its next programme issued for acceptance
the effect that this three weeks has had on the actual progress and the order and timing of
the remaining work. That may show planned Completion being moved back by three weeks 9
or it may show the remaining works being reprogrammed to catch up the three weeks.
Once this programme is accepted it becomes the Accepted Programme (clause 11.2(1)) and
is used to assess future compensation events, including this one.

If you did this, then the answer will depend as to what happens when this further delay 10
is added to the programme, and the answer will normally be, given the facts you have
set out, that the date for planned Completion will be moved by seven weeks. In that case
the Completion Date will be moved by seven weeks (clause 63.5). This will be the same
whichever way you dealt with the initial three-week delay in your programme. And if you 11
did not provide the programme for acceptance that you should have, then the Project
Manager can reject your assessment of the compensation event (third bullet of clause 64.1)
and make its own assessment based on what it thinks the programme should be (clause
64.2), including, of course, the effect of the first three-week delay. 12

91
 NEC4 PRACTICAL SOLUTIONS

1 Delays are therefore dealt with in the order that they are known about. The term ‘dominant
delay’ comes from the case law on other contracts, which have very different requirements as
to extensions of time. Even with those contracts the law would say that both are ‘dominant’
at different times, so the outcome would be the same. The Project Manager appears to
be correct to assess this delay due to the compensation event as being seven weeks, not
2
10 weeks.

3
125. Dealing with multiple programmes that have not been accepted (clause 63)

QUESTION
4
During the execution of an ECC Option C contract, programmes were submitted on
a regular basis, and these were accepted by the Project Manager. However, the Client
changed the Project Manager, and over the next 5 months no programmes were accepted.
5 Most of the revised programmes were ignored and others not accepted for reasons not
stated in the contract under clause 31.3. The contract does not appear to deal with this
scenario other than, in clause 60.1(6), to state that no reply by the Project Manager within
the period required is a compensation event.
6
In order to agree the effect that each compensation event had on planned Completion, a
delay analysis has been produced, by working from the last Accepted Programme, inputting
the time impact of the ‘critical path’ event, to establish a revised programme and planned
Completion. This new programme (although not accepted) is then used to assess the
7 delay of the next compensation event, and so on, forming a step-by-step process and a
series of non-accepted programmes with the delays clearly identified and the new planned
Completion demonstrated. These delays are identified within the appropriate compensation
event quotation. Although this situation should not have arisen, can you advise how the
8 contract envisages such a situation will be dealt with?

9 ANSWER

If the Project Manager fails to reply within two weeks to the programme, that will be a
compensation event under clause 60.1(6). Equally, if the Project Manager does not accept
10 the programme for a reason not stated in the contract, that will again be a compensation
event, this time under clause 60.1(9).

So the contract deals with both scenarios, and you should have notified these compensation
events at the time and in accordance with the contract. If there is a dispute between you
11
as to what the Accepted Programme was or should have been, then the Adjudicator will
have to decide that. The Adjudicator may well start from the premise that the programmes
you submitted at the time were correct, as they were not rejected for reasons within the
contract by the Project Manager. It is important to understand that clauses 63.1 and 63.5
12 require that the assessment is made using forecasts made with the foresight the Parties
had at the time, not the hindsight they have now. So, you use the Accepted Programme

92
 Chapter 6: Compensation events

to assess the compensation event, then revise the Accepted Programme (at the intervals 1
in the contract) to take into account all of the delays up until then, including your own, as
well as the compensation events) to come up with what the Accepted Programme should
then have looked like, and so on. So, it is not just a case of feeding the delays caused by
compensation events in each month, you need to allow for your own delays and the like.
2
That is our view as to how the matter should be dealt with. However, it does not follow that
every adjudicator would agree, and for that reason we are unable to offer detailed advice,
and suggest that you should get further legal advice if you are still unsure.

126. Which programme to use when assessing compensation events (clause 63.5)
4

QUESTION

I am a Contractor assessing a substantial compensation event. I am confused as to which

programme I should be using to assess a compensation event and the methodology. Is it the 5
latest Accepted Programme or the one relevant at the time of the compensation event?

6
ANSWER

Clause 63.5 is clear on which programme to use – it is the Accepted Programme current at
the ‘dividing date’. The ‘dividing date’ is detailed in clause 63.1. 7

127. Including risk in compensation events (clause 63.8) 8

QUESTION

I am a Project Manager on an ECC Option B project. My question is about compensation 9

events and whether risk should be included in the Contractor’s quotation? If so, where does
it say this in the contract?

10

ANSWER

Under clause 63.8 both time and cost allowances need to be assessed for risk within each 11
compensation event. The clause states that they need to have a significant chance of
occurring. We tend to find that if the Client has amended the compensation event section
by way of Z clauses, then it may get a nasty surprise here, as the compensation events, quite
rightly, will be more expensive and include more time risk allowance (as the Contractor’s 12
risks are greater).

93
 NEC4 PRACTICAL SOLUTIONS

1 Pouring a concrete slab in the UK in December in an exposed location would naturally

include time and cost risk allowance to account for the impact of bad weather. If the
concrete pour was internal/protected, then this would not be appropriate. This aspect
is best discussed between the Project Manager and Contractor in order that they can
understand each other’s logic and thought processes and ensure that compensation events
2
are managed in a timely fashion. The way we look at this is that everybody has a duty to
their respective organisations to manage professionally and inform them of the time and
cost impact of compensation events.

128. Inconsistencies in the Contractor’s Scope (clause 63.10)

4

QUESTION

On our hospital project under ECC Option C all of the design responsibility is with the
5 Contractor. We have signed the contract, but since discovered that its building drawings
contradict the mechanical and electrical details in a number of instances. For example, one
drawing shows three light pendants whereas another shows five. We want five, and the
Contractor is telling us that this would be a compensation event. Where do we stand?
6

ANSWER
7
The answer is quite simple and is contained in clause 63.10. Presumably, in the Scope you
have clearly stated which aspect of the design the Contractor is responsible for (as per
clause 21.1). We therefore have an inconsistency – this should be notified under clause
17.1. The Contractor should then be instructed to correct its Scope (clause 14.3) in order to
8
correct the inconsistency.

The answer to whom the inconsistency is found most favourable to is contained in clause
63.10; it is found most favourable to the Party that did not provide the Scope – you. So, it
9 is not a compensation event, as the Contractor proposed three and elsewhere stated five
pendants (its inconsistency); if you want five, then there is no time and cost impact. If you
actually wanted three, then it would be a negative compensation event.

10
This also works the other way, because any inconsistency or ambiguity in the Client’s Scope
is found most favourable to the Contractor.

The moral of the story is therefore (before contract signature) to ensure that each other’s
Scope is free of ambiguity and inconsistency.
11

12

94
 Chapter 6: Compensation events

129. Unclear Scope (clause 63.10)

1

QUESTION

An ECC Option A contract was tendered in which there were a number of reinforced
concrete headwalls. There were no reinforced steel bar bending schedules accompanying 2
the tender documents – a small reference box was included on the reinforcement tender
drawings stating ‘estimated reinforcement quantities for structures shown on this drawing
for tender purposes only – 164.71 tonnes’. The contract was awarded in September with
a starting date of November. The contract documents state that the steel bar bending 3
schedules are included in the contract, and will be provided on award of the contract; but
the contract drawings still contain the reference box with the estimated quantities.

The Project Manager changed the Scope and notified a compensation event in February, 4
stating that ‘Estimated steel quantities were used at the tender stage of the contract but the
actual amount of reinforcing required is different from the tendered amount.’ The net effect
is that the amount of reinforcing has been reduced by 38.21 tonnes.

Would estimated quantities on a tender drawing be deemed to be in the Scope? 5

6
ANSWER

The tender drawings should be exactly the same as the contract drawings. If you are later
asked to enter into a contract based on a Scope (including, of course, the drawings) that
is different from that which your activity schedule is based on, you should refuse, as that 7
could be a major problem! If you are not careful, the formal contract will be whatever you
agree to at the time, and you might be stuck with a different Scope and activity schedule.
However, for the reasons below, this does not appear to be the case here. The answer to
your question is yes – as it is the contract Scope that you will have assumed was taken into 8
account when pricing the work. So, what exactly was in the Scope in the contract – did
it include both the drawings and the bending schedules, or were the bending schedules
issued afterwards? If the answer is that both were in the contract Scope, then that is an
inconsistency that the Project Manager should issue an instruction to resolve (clause 17.1).
9
Presumably, the Project Manager instructed you to use the bending schedules? If so, that
was a change to the Scope, in the sense that the Project Manager instructed you to ignore
the drawings. That is a compensation event under clause 60.1(1). And that compensation
event will be valued using the principle set out in clause 63.10. As the Scope was provided
10
by the Client, then it is assessed in your favour; that is, you are assumed to have allowed for
in your price the lower quantities set out in the bending schedules. There is therefore no
reduction, and the compensation event has no effect on cost or time.

On the other hand, if the bending schedules were not in the contract Scope, then your price 11
is assumed to be based on what is on the drawings – after all there is no inconsistency is
there? When the Project Manager subsequently issues the revised schedules, that will be
a change to the Scope, which is again a compensation event under clause 60.1(1). And it
will be valued using the principles in clause 63.1; that is, in general terms, how much did 12
the change affect the Defined Cost for carrying out the work plus the Fee? And if that is a
negative figure (as it is in this case), the total of the Prices is reduced (clauses 63.3 and 63.4).

95
 NEC4 PRACTICAL SOLUTIONS

130. Contractor not assessing compensation events (clause 64.1)

1

QUESTION

We are becoming very frustrated on our ECC Option C project as the Contractor is not
2 assessing compensation events within the three-week period. In some instances we have
extended the timescales under clause 62.5 in order to give the Contractor more time, but
still it fails to assess.

3 The Client is increasingly annoyed as it wants to know where it stands. What provisions are
in the contract for dealing with this?

4
ANSWER

The contract is clear on how this is dealt with. Clause 64.1 provides four reasons/scenarios
5 in which the Project Manager must step in and make its own assessment of a compensation
event.

Note that the opening sentence states that ‘the Project Manager assesses’ – it does not say
‘may’ (which is discretionary). So, you have to step in and make your own assessment –
6 this is your obligation in the contract. It is very important to note that you need to act as
stated in the contract (clause 10.1), and act in a spirit of mutual trust and co-operation
(clause 10.2). Even if it is now up to you to assess, we would still be seeking to meet with
the Contractor and ensure that the assessment is accurate. You also need to take account of
7 other assessment clauses in the contract.

8 131. When is a compensation event ‘implemented’? (clause 66.1)

QUESTION
9
When does a compensation event become agreed/accepted on an ECC project?

10

ANSWER

We have a clearly defined process for managing compensation events under the ECC (i.e.
11
change control). This consists of a four-stage process: notify, quote, assess, implement. It is
important to use the correct terminology – we do not agree/accept as such. A compensation
event achieves the status of having been implemented based on three potential reasons, as

12

96
 Chapter 6: Compensation events

defined in clause 66.1: the Project Manager accepts the Contractor’s quotation, the Project 1
Manager notifies its own assessment or the Contractor’s quotation is treated as having been
accepted (refer to clause 62.6).

If any of those three scenarios occurs, then it has achieved the status of being ‘implemented’.
2

132. What is an implemented compensation event? (clause 66.1)

3

QUESTION

Can you define what an implemented compensation event is under the ECC? For example, 4
does it mean when it is acknowledged by the Project Manager as the Client’s liability,
or when a quotation has been agreed? Would it be reasonable to suggest that liability
for a compensation event could/should be agreed at ongoing early warning meetings,
allowing the programme to be updated regularly and remain meaningful, even though
5
the compensation event may not have been priced? If you agree with this approach, how
should this agreement be recorded ideally?

ANSWER

The way that compensation events are implemented is set out in clause 66.1, and the
7
consequences in clause 66.3. Early warnings and early warning meetings have nothing
directly to do with compensation events. They are about matters that may occur (i.e. a risk)
in the future, and are about managing that risk, whoever’s it is. Compensation events are
about things that have happened or will happen, and are at the Client’s risk because they
are listed as a compensation event. Not all early warning notifications are about future 8
compensation events, and not all compensation events can have an early warning.

We recommend that you keep the processes for dealing with risks of things that may
happen separate from dealing with compensation events. And again, updating programmes 9
is something different. The programme has to show both the Completion Date (contractual)
and planned Completion (practical) (clause 31.2). The latter is linked through the activities in
the programme, the former is not. The latter can move for all sorts of reasons, the former
can only move because of a compensation event. If you know something is going to happen
10
that you think is a compensation event, then its effects go on the programme straightaway
and affect planned Completion.

11

12

97
 NEC4 PRACTICAL SOLUTIONS

133. Having your cake and eating it! (clause 66.3)

1

QUESTION

We have a Project Manager on our ECC Option C contract that, every time our cost is lower
2 than the compensation event quotation, is assessing based on actual cost. Conversely, when
our costs exceed our quotation it uses the quotation. The saying ‘having your cake and
eating it’ springs to mind here.

3 What is the correct manner of assessing compensation events and which specific clauses do
we need to refer to?

4
ANSWER

There are a number of clauses that define how compensation events should be assessed.
5 Clause 63.1 states that this is largely a forecast of cost; clause 63.8 ensures that time
and cost risk allowances are included (as appropriate); clause 63.9 also states that a
compensation event is based on the assumption that the Contractor reacts competently and
promptly, for example.
6 The key clause in this question is clause 66.3. This states that an implemented compensation
event (both time and cost) is not revised except as stated in these conditions of contract
(such as by the tribunal).

7 The compensation events process under the ECC ensures that a reasoned estimate becomes
the basis of the compensation – not what the actual cost/time was. The actual figures are
academic and not relevant – it is all about having a reasoned estimate and that becoming
the basis of change to the Prices, Completion Date and Key Dates as appropriate.
8

134. Can you change an accepted quotation for a compensation event? (clause 66.3)
9

QUESTION

Given that the intent in the ECC is that a compensation event is quoted for, the quotation is
10 agreed and the work carried out, and the issue therefore closed, is there any provision for
amending a quotation if it is found later to contain significant costs that should not have
been accepted?

11

12

98
 Chapter 6: Compensation events

ANSWER 1

The first thing to say is that most compensation events should be assessed on a forecast of
Defined Cost, not actual Defined Cost (see the last part of clause 63.1). With that in mind,
the answer to your question is no, it cannot be revised. Once the Project Manager has
2
accepted a quotation for a compensation event, it is implemented (clause 66.1). It cannot
subsequently be revised if the forecast on which it is based is later shown to be wrong
(clause 66.3).

FURTHER THOUGHTS AND TOP TIPS

• Compensation events do not manage themselves – agree at the project start on how 4

these will be managed. Consider a fortnightly meeting to keep on top of this.

• Follow the process in the contract. Do not skip stages.

5
• Include the planner – both cost and time need to be assessed jointly. Time is money!

• Remember clause 63.1 – compensation events are largely a forecast. Time and cost risk
may be included.
6
• Use the ability to make Project Manager assumptions under clause 61.6. This is an
excellent means of allocating risk and obtaining better value for money.

10

11

12

99
 Chapter 7: Title

CHAPTER 7

Title
1

2
135. Does title mean ownership? (clause 70)

QUESTION 3

We have been advised that the ECC does not contain entitlement to payment for Plant
and Material materials on or off Site. We note that clause 70.2 states that title passes to
the Client for Plant and Materials brought within the Working Areas. Does ‘title’ mean 4
‘ownership’, and if so how can this pass if no payment is made?

ANSWER
6
Things are never quite as simple as they seem, and ‘title’ is not quite the same as
‘ownership’. Payment and title do not have to be directly linked, as title can pass without
payment being made, and payment can be made without title passing. It will all depend
on the terms of the contract that the Parties have entered into. In the case of the ECC, title
can pass without payment being made. It is, by the way, the same with most standard- 7

form construction contracts, as they will generally state that title will pass as soon as such
material arrives on Site. You will often find, though, that payment is actually rarely made
in advance or at that time and will often be made some time afterwards. Even then it will
often only be at 80% or so until the materials are actually incorporated into the works. 8

For the ECC, it is also not the case to say that in all Options the Contractor will not be paid
for Plant and Materials on Site. In Option A, it will depend on how the Activity Schedule
has been completed. For example, if there is an activity that says ‘Item x delivered to Site’, 9
then the Contractor will be paid that amount in the assessment after item x arrives. Equally,
if an item in the Activity Schedule says ‘Complete manufacture of item x’, then when it is
complete the Contractor will be paid in the next assessment even if the Plant and Materials
are not on Site. See clauses 70 and 71 for the safeguards in that case. With Options C, D
10
and E, the Contractor will often be paid Defined Cost before it actually pays for such Plant
and Materials, and that will include for Plant and Materials wherever they are (clauses
11.2(31) and 11.2(24) and item 3 of the SCC).

11

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 101

.
 NEC4 PRACTICAL SOLUTIONS

136. Vesting Plant and Materials (clause 70.2)

1

QUESTION

On an ECC Option A contract, does the inclusion of clause 70.2 avoid the need for vesting
2 documentation for Plant and Materials on Site if the area for storage is included in or added
to the Working Areas under clause 16.3?

ANSWER

We are limited in what we can say because the question of vesting certificates is a legal
4 question. Once any Plant and Materials (not Equipment) are brought within the Working
Areas, whatever title the Contractor has to it passes to the Client (clause 70.2). However,
the law around this is always complex, and, as a general rule, the Contractor cannot pass to
you title it does not have, whether by the operation of clause 70.2 or by the signing by the
5 Contractor (as opposed to the title holder) of a vesting certificate.

With regard to storage, it is important to understand that the definition of the Working
Areas can only include areas that are being used solely for work on the contract (second
bullet of clause 11.2(20) and also clause 16.3). Therefore, the area will and should be under
6
the direct control of the Contractor. The more remote from the works the Working Areas
are, the more risk there is to the Contractor and Client when it comes to Plant and Materials
being removed for whatever reason. This is a risk that the Client will need to manage.

137. Title to materials from excavation (clause 73.2)

8
QUESTION

On an ECC Option D contract, who has title to surplus materials from any excavation works?
9

10 ANSWER

Clause 73.2 states that the Contractor has title to materials from excavation and demolition
unless the Scope states otherwise. The default, therefore, is that it will be the Contractor
11 that has title to such materials unless stated otherwise in the Scope. This will, of course,
demand careful thought at the tender stage to decide what is best for a particular project.

12

102
 Chapter 7: Title

FURTHER THOUGHTS AND TOP TIPS 1

• Make sure when drafting the ECC Scope that it contains an appropriate statement if you
wish the Client to have title to materials from excavation and demolition.
2

10

11

12

103
 Chapter 8: Liabilities and insurance

CHAPTER 8

Liabilities and insurance

1

2
138. Weather … it’s a compensation event (clause 80.1)

QUESTION 3

I am trying to understand risk under the ECC. Clause 80 seems to be quite clear as to who
bears liability for what. Assuming that the Client does not amend Contract Data part one to
add to the standard Client’s liabilities under clause 80.1, why for example does an abnormal 4
weather event become a compensation event under clause 60.1(13)? Surely, if weather is
not included in Contract Data part one, then it is the Contractor’s liability – full stop? So,
how can there be compensation?
5

ANSWER
6
It is important to understand that the liabilities in clause 80.1 merely cover things such as
liabilities to physical damage and third-party responsibilities. They do not cover the financial
risks for carrying out the work itself. That financial (and time) risk is set firstly by the list of
compensation events. Compensation events are always at the Client’s risk. The other major
7
factor with regard to the remaining financial risks (although not time risks) for carrying out
the works is the choice of the main Option. With Options A and B, most of the financial
risks for carrying out the works lie with the Contractor. In Options C and D, most of them
are shared between the Parties. In Options E and F, most of them lie with the Client.
8

139. A hypothetical situation (clause 80.1)

9

QUESTION

Clause 80.1 states that ‘The following are Client’s liabilities. Claims … and costs payable to 10
Others which are due to … use or occupation of the Site by the works or for the purpose
of the works which is the unavoidable result of the works’. Would it be correct to say that
in a hypothetical situation, if a contract required a large number of heavy goods vehicle
movements to import a very large volume of stone, and if the 3.5 m access road that formed
11
the access to the Site, and was within the limits of the Site, started breaking up, that the
costs associated with the remediating of the access road would fall within the coverage of
the stated part of clause 80.1 and hence be the Client’s liability?

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 105

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

Nice try but … no! ‘Unavoidable’ means that it could not be avoided no matter what you
did, and we cannot see how this damage could be called ‘unavoidable’. You could have
avoided it by carrying out the stone placing in a different way – using smaller lorries, or
2
dumpers and stockpiles. Or you could have put a protective mat over the road, or you could
have constructed a different temporary road and used that instead. All of those would have
avoided this damage, so it cannot be said to be ‘unavoidable’. All would cost much more,
but that is irrelevant. ‘Unavoidable’ does not mean the same as ‘not economically viable’.
3

140. Copper theft! (clause 80.1)

4

QUESTION

We have been employed by our client, which has undertaken that the contract we are
5
working under is ECS Option A – which is back to back with the Client. The question is that
when working on Site we had to leave materials (copper fittings) in the building, and I was
under the understanding that the Site should be safe and secure. There was a theft and I
would like to know who is responsible for this?
6

7 ANSWER

The first point we need to make is that NEC contracts cannot be entered into just by
reference to them. There is an important document called the Contract Data that needs to
be completed. In your case, assuming you are using the ECS, the Contractor (your client)
8 needs to have filled out Contract Data part one, and you need to have filled out Contract
Data part two. Without that information the ‘contract’ is simply too uncertain to be valid.
Assuming that you do have a valid ECS contract, then the answer is normally that you are
entirely responsible for the security of the Plant and Materials (a defined term) left on Site,
9 and you have to insure against their loss (see the Insurance Table in clause 83.3). Under
the ECS this is thus your liability (clauses 80.1 and 81.1). You therefore have to look to your
insurers to recover these costs. The only possible exception is that if the theft was as a result
of the fault of the Contractor (your client) or the Client (the Contractor’s client), for example
10 if either had left the Site unlocked at night when it should not have. Then that may be the
Contractor’s liability (second main bullet of clause 80.1). If that is the case, then it would be
a compensation event under clause 60.1(14) of the contract. Compensation events are the
only way that you will get paid any more money or allowed any more time under the ECS.
11
The process involved is set out in clauses 60 to 66. It is important for you to understand the
processes involved – for example, you must notify a compensation event within seven weeks
of becoming aware of the event, otherwise you lose your entitlement (last sentence of
clause 61.3).
12

106
 Chapter 8: Liabilities and insurance

141. Is terrorism a compensation event? (clause 80.1)

1

QUESTION

Terrorism is not referenced as a Client’s liability within the ECC under section 8. Does this
mean that, by default, acts of terrorism are a Contractor’s liability and something that 2
should be included in the Contractor’s insurance policy? Or should the contract be specific
and ask the Contractor to take out specific insurance cover for acts of terrorism? If no
specific request is made, then will it be a Client’s liability and treated as a compensation
event under clause 60.1(14) if an act of terrorism occurs? 3

4
ANSWER

As you rightly say, the answer to this will be in section 8 of the contract. You are also right
to say that terrorism is not specifically mentioned in the list of Client’s liabilities in clause
80.1. However, there are items such as civil war, rebellion, revolution, insurrection, riots and 5
civil commotion. Whether these cover any or all acts of terrorism is a legal question. We can
only suggest that you get some specialist legal advice on this. If this is covered, then it is not
your liability and you do not need to insure against it. However, if terrorism is not included
within clause 80.1, then clause 81.1 of the contract clearly makes it your liability. You will 6
therefore be required to provide against it for the insurances set out in the first two rows of
the Insurance Table.

142. Take over versus Completion (clause 80.1)

8
QUESTION

I am confused by the terms ‘take over’ and ‘Completion’ under the ECC. We have a situation
in which the Contractor achieved Completion one week prior to the Completion Date.
Completion was certified but a member of the public damaged the works. Who is liable? 9

ANSWER 10

The first thing to remember is that take over and Completion are two different concepts
and are not directly related. Completion is about the state that the works are in (clause
11.2(2)), whereas take over is about who becomes responsible for the works (clause 80.1). 11
As you rightly say, the Contractor remains responsible for the works (and has to insure them)
until take over, not Completion, has happened. And take over can occur before, at or after
Completion. To add to the mix, you also need to remember that the Completion Date is
the date by which the Contractor is obliged to achieve Completion (clause 30.1). And again, 12
Completion can actually be achieved before, at or after the Completion Date. Of course, if it
is the last of those three, the Contractor will be in breach of contract.

107
 NEC4 PRACTICAL SOLUTIONS

1 The ‘normal’ position is that take over actually occurs two weeks after Completion, whether
the Client wants it to or not (second sentence of clause 35.1). So, if the Contractor achieves
Completion six weeks before the Completion Date (i.e. six weeks ‘early’), then take over
occurs two weeks afterwards (i.e. four weeks before the Completion Date). However, for
some projects this may not be convenient for the Client – for example, its staff may not be
2
ready to occupy it early. In that case the Client may, before making the contract, make it
clear to the Contractor that it does not want to take over the works before the Completion
Date. That is done by inserting an optional entry in Contract Data part one. So the
Contractor then knows that when it is pricing the work that if it finishes early it will still be
3
responsible for the works until the Completion Date, and can price that risk accordingly. In
that case (and only in that case), the first sentence of clause 35.1 applies.

In addition to all of this, the Client may, if it wants to, start to use all or any part of the works
4 at any time, which can be before, at or after Completion has been achieved (first sentence of
clause 35.2). If it does so, it takes over those parts of the works (second sentence of clause
35.2), unless the exceptions listed in the bullets of clause 35.2 apply. So, if the Client starts to
use the works as soon as Completion occurs, take over occurs at that point. Also, take over
5
before Completion has been achieved will be a compensation event unless it happens after
the Completion Date (clause 60.1(15)). Whenever take over occurs, the Project Manager is
required to certify it (clause 35.3). Usually, Completion and take over occur on the same date,
because the Client is keen to start using the works. In that case, the Project Manager issues
two certificates for that day – one for Completion and one for take over.
6
In your case, assuming there is no optional statement in the Contract Data, if the Client had
not started using the works and if the damage occurred within two weeks of Completion,
then the Contractor is liable for this damage.
7

143. How to define take over (clause 80.1)

8

QUESTION

I work for a local authority and we are procuring some highways repair work under the ECC
9
to a motorway.

I want to make it clear that the various take overs (as the work is under way, by members of
the public in order to ensure traffic flow) are not our liability. I want to avoid a situation in
10 which damage caused by a car accident, for example, could be construed as a Client’s risk.
How do I clarify this in the contract documents?

11

12

108
 Chapter 8: Liabilities and insurance

ANSWER 1

The answer lies, as it often does, in careful drafting of the Scope. If you follow the ECC
Guidance Notes on writing the ECC Scope (which is advisable), then you are directed to the
manner in which this should be drafted. The guide draws attention back to clause 35.2 of
the ECC. This states that the Client may use any part of the works before Completion has 2

been certified. If so, take over begins when it begins to use it. However, the clause goes on
to state ‘except’ (first bullet) for a reason stated in the Scope.

So, if you describe the reasons clearly within the Scope, then (as per your aim) the 3
Contractor will remain responsible.

4
144. Insurance of existing buildings (clause 83.3)

QUESTION
5

I am currently drafting an ECC form of contract and would be grateful if you could advise
whether insurance of existing buildings (to be retained and refurbished as part of the works)
must be taken out by the Client, or is included within the insurance provisions contained in
the Contract Data? 6

7
ANSWER

If you look at the Insurance Table in clause 83.3, the first row of the table covers insurance
against loss of or damage to the works, Plant and Materials. This covers such loss and
damage to the new works themselves. 8

The third row of the table details insurance against loss of or damage to property (except
the works, Plant and Materials and Equipment). This covers, for example, property other
than the works itself.
9

The Contractor is thus obliged to provide both of these insurances unless otherwise stated
in Contract Data part one (clause 83.2).

It may be that the Client has an insurance policy in place that would cover the existing 10
buildings and their refurbishment. If the Client has not got such insurance, then the default
contractual position is Contractor-provided insurance as stated.

11

12

109
 NEC4 PRACTICAL SOLUTIONS

145. Damage caused during a search (clause 84.2)

1

QUESTION

Using the ECC, I understand that if the Supervisor asks the Contractor to search for a Defect
2 and no Defect is found, then a compensation event arises. Conversely, if a Defect is found,
the Contractor remedies this at its own cost (depending on the main Option chosen). What
happens when the Contractor damages a part of the works and essentially creates a Defect
while carrying out the search? Is the Contractor entitled to recover the remedial costs as
3 a compensation event or can the Contractor argue that creating a Defect was a risk of
carrying out the test?

ANSWER

The answer is going to depend on the circumstances. If the test or inspection made the
5 damage inevitable, it should be paid for as part of the compensation event because it
was not accidental damage. So, for example, if the Contractor had to break out the newly
constructed asset to test or inspect something underneath, then breaking it out and
reinstating it is all part of the Defined Cost for carrying out the test or inspection.
6
On the other hand, if the damage was accidental in the sense that it could have been
avoided but was not, then the Contractor is required to insure against such damage (see the
first row in the Insurance Table in clause 83.3). The Contractor will have to look to its insurer
to cover such costs, and, if they are below the policy excess, that is the Contractor’s liability.
7

146. Accepting insurance policies (clause 85)

8

QUESTION

9 I am a Project Manager on an Option C contract. I want to ensure that I do everything

correctly but am concerned about by liability if I ‘accept’ a submitted insurance policy by the
Contractor. Clause 84.1 requires that I ‘accept’ the policy but I am no expert in the insurance
field. Where do I stand with this?
10

ANSWER
11
The easy things to check for are that the amounts are compliant with the Insurance Table in
Contract Data part one. You can also check that the certificates are signed by the Contractor’s
insurer or insurance broker (clause 84.1). However, reference to clause 14.1 should put your
mind at rest, as your ‘acceptance’ does not change liability. Finally, it is recommended that
12
communication is undertaken in accordance with the published ECC communication forms in
volume 4 of the ECC Guidance Notes. This will ensure a clear audit trail and record.

110
 Chapter 8: Liabilities and insurance

147. Failing to provide insurance certificates (clause 84)

1

QUESTION

What happens if the Contractor does not provide insurance certificates as required by the
ECC, and what is the remedy? 2

3
ANSWER

The ECC requires (clause 84.1), before the starting date and on renewal of the insurance
policy, the Contractor to submit certificates to the Project Manager for acceptance. If it does
not, then the Client may take out these insurances, and the money is retained (clause 85.1). 4

This also works the other way – the Project Manager is required to submit the same for risks
that the Client is required to insure against. If it does not, then the Contractor can take out
the insurance, and the cost is paid by the Client. 5

FURTHER THOUGHTS AND TOP TIPS 6

• Make sure that the Insurance Tables and amounts are appropriately completed at the
tender stage.
7
• Seek professional advice if at all unsure.

• Ensure that insurance details are provided to both Parties. Make a note of the renewal
dates.
8
• Adding additional Client’s liabilities is an excellent way of allocating risk fairly and
obtaining better value for money.

10

11

12

111
 Chapter 9: Termination

CHAPTER 9

Termination
1

2
148. Is there a standard ECC termination certificate? (clause 90)

QUESTION 3

Is there a standard ECC termination certificate template available?

ANSWER
5
The NEC does not provide a termination certificate template, as the provided templates are
only for the most commonly used actions under a contract. Termination rarely happens,
and if it does, we strongly recommend that you take advice to ensure that the contract
requirements are followed. It is not something that should be done lightly.
6

The request for a certificate is issued by one of the Parties. The certificate will be issued
by the Project Manager if it is satisfied that the reason applies and it complies with the
contract. The certificate does not need to be any particular format; it just needs to comply
with clauses 90.1, 13.1 and 13.6. 7

149. Is there a standard TSSC termination certificate? (clause 90.1) 8

QUESTION
9
We are using the TSSC and are looking to terminate in accordance with the provisions of
clause 90.1 (for reasons 2 and 3 stated in clause 90.3). The clause suggests that we have to
issue a termination certificate. Can you advise whether there is a standard form for this, or
whether it is anticipated that this will be a formal letter headed ‘termination certificate’?
10

ANSWER 11

There is no standard form for this. The communication must be ‘received in a form that can
be read, copied and recorded’ (clause 13.1) and must make it clear what it is.

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 113

.
 NEC4 PRACTICAL SOLUTIONS

1 Note that this is a two-part process. First, the Client needs to notify the Contractor that it
wishes to terminate, and then it issues a certificate if the reason given complies with the
contract. You must also bear in mind with reasons 2 and 3 of clause 90.3 that you must first
give a notification of the default and then allow the Contractor two weeks to stop defaulting
before you can notify your intention to terminate.
2

150. Can you terminate due to poor performance? (clause 91)

3

QUESTION

4 We are looking to terminate an ECC Option C contract due to a number of reasons; the
main ones being poor performance in relation to programme and quality. How do we put
this into effect?

ANSWER

6 Termination in the ECC terminates the Contractor’s employment under the contract,
rather than terminating the contract itself (clause 90.1). In the wording of clause 90.1, you
are terminating ‘the Contractor’s obligation to Provide the Works’. The procedures for
termination and the amounts to be paid on termination are set out in clauses 90 to 93.
7 Note that the procedures and amounts will depend on who is terminating and for what
reason (see the Termination Table in clause 90.2). Assuming that you are the Client here, it
is essential that you provide a valid reason for termination (clause 91) and then scrupulously
follow the procedures set out in the contract. We suspect that clause 91.2 or 91.3 would be
the most relevant to you, but in that case you need to notify the Contractor of the default
8
and then allow it four weeks for correction, before terminating.

We are unable to advise you whether or not the particular ‘poor performance’ would
meet the requirements of being ‘substantial’ required by these clauses, because it is in fact
9 sensitive and will be a matter of law. You should therefore take legal advice on that point
before proceeding.

10
151. Can we use R21 termination for a minor earthquake? (clause 91.7)

11 QUESTION

On an ECC contract, if we suffer a minor earthquake during construction of the works, can
we as Contractor terminate under clause 91.7 (R21)?
12

114
 Chapter 9: Termination

ANSWER 1

The simple answer is no, this right is only given to the Client as stated in the first line of
clause 91.7. In any case, there are a few hurdles to clear for this reason to be valid – one of
the first two bullets in clause 91.7 must be satisfied along with both of the last two bullets.
The operative word in the first two bullets is ‘stops’ – not makes more difficult, delays 2

or disrupts. The event that has occurred has to have stopped the Contractor completing
the works (basically in its tracks, first bullet) or completing the whole of the works by the
date for planned Completion shown on the Accepted Programme and be forecast to delay
Completion by more than 13 weeks (second bullet). The clause goes on to test that neither 3
Party could have prevented the event and finally that an experienced contractor (not the
Contractor) would have judged it at the Contract Date to have such a small chance of
occurring that it would have been unreasonable to have allowed for it. When broken down,
you can see there are actually quite a few hurdles to clear in clause 91.7 before the Client 4
could exercise the right to terminate.

5
152. Can you terminate for corruption? (clause 91.8)

QUESTION 6

When using ECC Option C, could you confirm that the Client can terminate for a corrupt act
carried out by the Contractor?

ANSWER
8
Yes, that is exactly what clause 91.8 provides for. You just need to check that it is a Corrupt
Act by the definition in clause 11.2(5).

FURTHER THOUGHTS AND TOP TIPS

• People will often refer to ‘terminating the contract’, whereas in fact under the ECC they
are ‘terminating the Contractor’s obligation to Provide the Works’. There is a difference. 10

• Termination is a very specialist area, and great care should be taken to ensure that the
exact provisions of the contract are followed.
11

12

115
 Chapter 10: The Options

CHAPTER 10

The Options
1

2
153. Do I use Option W1 or W2? (Options W1 and W2)

QUESTION 3

I am completing the Contract Data for a new-build schools project and we are using Option
A of the ECC. My question is, which dispute resolution procedure do I use?
4

ANSWER
5
Assuming you are in the UK, the work you describe will be covered by the Housing Grants,
Construction and Regeneration Act 1996. This will mean that you will need to use Option
W2 – this has been specifically written to comply with the act. You will also need to use
Option Y(UK)2.
6

154. Option W1 or W2 – which applies? (Options W1 and W2)

7

QUESTION

I am involved in the construction of a major drainage project in Hong Kong. I am a bit 8

confused as to which dispute resolution procedure applies – is it Option W1 or W2?

ANSWER

You could use either. Option W2 has been specifically drafted to comply with the UK’s
Housing Grants, Construction and Regeneration Act 1996. The main difference between 10
Options W1 and W2 is that Option W1 contains time limits for the notification of a dispute.
Many users prefer this option, as you know where you stand in many respects.

11

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 117

.
 NEC4 PRACTICAL SOLUTIONS

155. Subcontracting and inflation (Option X1)

1

QUESTION

We are the Client under an ECC Option C contract incorporating secondary Option X1 price
2 adjustment for inflation. The Contractor has placed its subcontracts under its own bespoke
form of subcontract, which does not flow down from the NEC contract we have with the
Contractor. All of the subcontracts let are fixed-price lump sum plus any variations, and
there is no mention of any escalation applying.
3
The Contractor is not paying any escalation amounts within its interim or final payments
to its Subcontractors. The Defined Cost of Subcontractors is therefore exclusive of any
escalation amounts. The question is, when assessing the Contractor’s price adjustment
4
factor amounts under X1, should the amounts for these Subcontractors not be included
within the Price for Work Done to Date?

5
ANSWER

The amounts should be included, because the Price for Work Done to Date includes the
costs of these Subcontractors (clauses 11.2(31) and 11.2(24)). Of course, the answer you
6
come up with for the price adjustment is not added to the Price for Work Done to Date,
instead it is added to the total of the Prices (i.e. the ‘target’) (clause X1.4).

Option X1 is just a convenient way of calculating an assessment of what the inflation may
7 be, but there are all sorts of ways that the actual inflation can vary from that assessment.
However, the risks, or rewards, of those variations are shared between the Parties through
the share mechanism.

8
In reality, just because there are no inflationary increases within a particular subcontract,
it does not mean that the Contractor will not be paying for inflation. In that case, it
could well be (and probably is) the case that there is an allowance for inflation within the
Subcontractor’s prices.
9

156. Indices calculations (Option X1)

10

QUESTION

We have an Option B ECC contract with Option X1 price adjustment for inflation. I am
11 confused by clause X1.5 – why do we need to alter the compensation event assessment to
the base date?

12

118
 Chapter 10: The Options

ANSWER 1

At first read this is slightly confusing; however, the logic here is that each compensation
event is adjusted back to the base date (i.e. at tender). Clause X1.3 then adjusts the amount
due by the indices calculation. If compensation events were not adjusted in this way, then
2
the inflation would be double counted.

157. Adjusting for the price adjustment (clause X1.5) 3

QUESTION
4
We are using X1 on our ECC Option C contract. If I am reading clause X1.4 correctly, it
seems to be calculating the inflationary amount based on cost, and not the Prices as you
would under Option A or B. Am I correct in this interpretation, and what is the logic behind
this? 5

ANSWER 6

Yes, you are correct. The calculation under Options C and D uses the Price for Work Done
to Date. Under these Options this is Defined Cost (the SCC). Although it is almost impossible
to assess correctly the actual amount of inflation that has been incurred on a project, this
7
calculation attempts to be more realistic and derive the inflationary amount from the cost
incurred as opposed to the Prices. In turn, this derived assessment is added to the Prices
(clause X1.4).

158. I think I’ve found a drafting error! (Option X2)

9
QUESTION

I am completing the Contract Data on our ECC project but there is no detail for Option X2 –
is this a drafting error in the contract? 10

ANSWER 11

Drafting error? No such thing! Option X2 is simply in or out, so no additional information is

needed to complete Contract Data part one. The opening paragraph of Contract Data part
one will determine whether this Option is used or not. 12

119
 NEC4 PRACTICAL SOLUTIONS

159. Is this a change in the law? (Option X2)

1

QUESTION

With reference to changes in national insurance in the UK, the Contractor has notified a
2 compensation event under Option X2. I would appreciate a commentary on admissibility in
the light of the facts that the relevant statutes were known of at the time of tender. Also,
can this be a negative adjustment?

ANSWER
4 With regard to Option X2 the position is clear – it is a compensation event if the law
changes after the Contract Date. It is irrelevant whether or not that change of law had been
announced many months or years before. So the question is, when did the law change –
not when was the change announced? That means that the Contractor is entitled not to
5 allow for the effect of any change in the law that has been announced but not yet enacted.
On the other hand, if the law itself had changed before the Contract Date but was not to
take effect until a later date, then that will not be a compensation event. We do not know
the exact arrangements for bringing in these changed national insurance contributions, so
6 you will need to get expert advice on that. However, if the effect of this law change is to
reduce employers’ payments, then that needs to be taken into account in the valuing of the
compensation event; that is reduce it (final sentence of clause X2.1). But note here we are
referring only to the Client’s contributions to national insurance, not the employee’s.
7

160. Applying Option X2 (Option X2)

8

QUESTION

We are having a debate with our Project Manager on our ECC Option A contract. Option
9 X2 was included but the Project Manager is saying that we should have predicted changes
to legislation prior to the Contract Date and they should have been included in the tendered
total of the Prices. Is the Project Manager correct?

10

ANSWER

11 No, the Project Manager is not correct. Clause X2.1 clearly states that a change in law is
a compensation event if it occurs after the Contract Date. Whether you could predict this
occurring or even categorically knew it would occur is not relevant here. If a change in
law occurs after the Contract Date, then it is a clear compensation event. This could either
12 increase or reduce the Prices.

120
 Chapter 10: The Options

161. Paying in different currencies (Option X3)

1

QUESTION

We are embarking on a processing plant in Yorkshire and we need to pay partly in Swiss
Francs, euros and the pound sterling. I appreciate that Option X3 is most appropriate, but I 2

am unsure how this works – can you explain how I complete?

ANSWER

Yes, it is quite straightforward. You need to define the currency of the contract –
presumably this will be the pound sterling. You will then need to define which items and 4
activities will be paid in other currencies, what each currency is and also the total maximum
payment in that currency. It may be prudent to include an assessment for potential
compensation events as this amount cannot be exceeded.
5
This final aspect to complete is the date when and by whom the indices are published. This
will then allow the Contractor to assess this as part of its tender.

162. Ultimate holding company guarantee (Option X4)

7
QUESTION

We need to include an ultimate holding company guarantee on our ECC project but cannot
find how to complete this in the Contract Data – can you advise on the wording of the
ultimate holding company guarantee? 8

9
ANSWER

The NEC does not provided a sample ultimate holding company guarantee as this is
something that is typically drafted on a bespoke basis by each Client. You will need to seek
specialist advice on this. The wording of this should then be included in the Scope – this 10
avoids any debate on the wording upon award. The ultimate holding company guarantee
is then either provided at the Contract Date or within four weeks of the Contract Date.
Note that this documentation is important to have in place – this is reinforced by virtue of
clause 91.2 (R12). This states that the Client may terminate the Contractor’s obligation to 11
Provide the Works if this is not provided within the four weeks. ‘May’ means that this is
discretionary, so the Client has the option.

12

121
 NEC4 PRACTICAL SOLUTIONS

163. Is there a standard ultimate holding company guarantee form? (Option X4)
1

QUESTION

We are in discussion about a project using the PSC, and there is a requirement for a parent
2 company guarantee under Option X4. Is there a form provided by the NEC for this?

3
ANSWER

There are no standard forms for such a guarantee, as each organisation tends to use its own
version. The version of the guarantee required by your potential Client should be set out in
4 the Scope: see the wording of clause X4.1 – ‘in the form set out in the Scope’. If there is no
form in the Scope, you will need to agree the wording with the Client.

5
164. Defining sectional Completion (Option X5)

6 QUESTION

We need to have a sectional Completion on a project we are procuring under Option A

of the ECC. The project involves the building of a new office block (for which we need
sectional Completion), and the Contractor will undertake office refurbishment once we have
7
vacated. We are incurring cost for every day we are renting the existing offices, so I both
want to incentivise the Contractor to complete early and protect ourselves against the cost
of delay if it is late.

8 My query is, how should we draft this in the contract to meet our objectives?

9
ANSWER

This is straightforward to incorporate into the ECC. Secondary Option X5 should be

selected, and the description of the section carefully drafted. You need to describe
10 Completion of the section and the Completion Date. You may wish to consider using Option
X6 (bonus for early Completion) and Option X7 (delay damages) to provide the incentive of
early Completion and protection against additional costs if the Contractor is late. Under UK
law the damages need to be a genuine pre-estimate of loss.
11
Finally, it is advisable to follow the Scope guidance in volume 2 of the ECC Guidance Notes –
this provides support in establishing precisely the definition of sectional Completion.

12

122
 Chapter 10: The Options

165. How is sectional Completion confirmed? (Option X5)

1

QUESTION

We are currently using an ECC contract on a project that contains sectional Completion, all
as outlined within secondary Option X5 of Contract Data part one. 2

Could you confirm how and in what form sectional Completion is to be confirmed?

ANSWER

You deal with sectional Completion in exactly the same way as Completion (clause X5.1). 4

Completion is a defined term (clause 11.2(2)), and that definition applies to Completion
of any section of the works if Option X5 is used. The Project Manager decides the date
when Completion (as defined in the contract) of any section occurs and certifies it within
5
one week of that date (clause 30.2). Certificates have to comply with clauses 13.1 and 13.6.

166. Sectional Completion – effects of delay (Option X5) 6

QUESTION
7
We are a Contractor under an Option C contract that contains Options X5 and X7. The delay
damages for the relevant section are £9000 per day. We planned to meet the sectional
Completion Date some seven days early but have been delayed by another Contractor
(employed by the Client) not providing us with information that we stated on the Accepted 8
Programme. The Project Manager is stating that this float is ‘shared’, and as such it can use
it. Can you advise where we stand with this and the appropriate clauses?

ANSWER

This is exactly the same situation as if you planned to complete the whole of the works early
10
and then you were delayed – this would be a compensation event. Clause X5.1 confirms
that each reference to Completion (unless stated as the whole of the works) applies
equally for the whole of the works or any section. This is a compensation event under
clause 60.1(5). Clause 63.5 then confirms how this is assessed. If you planned to achieve
11
Completion earlier than the sectional Completion Date and you were delayed by Others,
then by whatever amount this is added to the sectional Completion Date.

12

123
 NEC4 PRACTICAL SOLUTIONS

167. Defects date running from Completion of the whole of the works (Option X5)
1

QUESTION

I attended an NEC training course and I am sure that it was mentioned that you do not have
2 different defects liability periods running from sectional Completion. However, I cannot find
where this is mentioned in the contract. Can you advise?

ANSWER

That is correct – the NEC does not have multiple defects dates running from each sectional
4 Completion. Contract Data part one states a period between Completion of the whole of
the works and the defects date (typically 52 weeks).

5
168. How to calculate the bonus (Option X6)

6 QUESTION

We are a major supermarket client and are about to use the ECC for the first time. I note
the ability to insert a bonus for early Completion, which would fit with our objectives as the
Client.
7
Is there a defined method of calculating the bonus for early completion or can it just be a
figure that we come up with?

ANSWER

9 The bonus for early Completion (Option X6) can be any figure you wish. Obviously, for
internal probity/governance this will need to align closely with the benefit you get from early
Completion.

10
Related to this is the need to have a clear definition of Completion. The default is that the
Contractor has corrected Defects that prevent the Client using the works and Others from
doing their work. It is recommended that you follow volume 2 of the ECC Guidance Notes
on how to write the Scope. This allows you in section WI 405 to define precisely what you
expect at Completion. This may include operational and maintenance manuals, refrigeration
11
units being tested, as-built drawings being handed over and user training on the new
facility, for example.

12

124
 Chapter 10: The Options

169. Applying delay damages (Option X7)

1

QUESTION

I am a Project Manager on an ECC Option B contract. The Contractor is 20 days late on Site
and we have delay damages of £3000 per day. The Contractor has been extremely effective 2

on the project, and we do not want to take the damages from it. Am I able, as the Project
Manager, not to deduct the damages?

ANSWER

As a Project Manager under the ECC you are obliged to act as stated in the contract (clause 4
10.1). This covers everything, and, unfortunately, you cannot select which clauses to follow
and not to follow. If delay damages are included and the Contractor achieves Completion
after the Completion Date, then delays damages are paid by the Contractor at the amount
stated in the Contract Data multiplied by the number of days. 5

The only thing you can do is recommend to the Client that damages are not taken. Under
clause 12.3, if the Parties (i.e. the Client and Contractor) agree, then it can be put in writing
and signed that delay damages are not deducted – but this is not something that, as the
6
Project Manager, you can decide yourself.

7
170. Dealing with late Completion (Option X7)

QUESTION
8
Under an ECC Option A contract, how would the Project Manager deal with a Contractor
finishing late when no compensation events are apparent? Under the Joint Contracts
Tribunal (JCT) contracts, the Contract Administrator would issue a Certificate of
Non-Completion. Is this the case with the ECC also? 9

ANSWER 10

The ECC mandates the Parties to notify and deal with compensation events as they are
known about. The processes and timescales are set out in clauses 61 to 66. And, as you
seem to realise, the only way that the Completion Date can be extended to a later date is 11
through that compensation event procedure.

We will assume that you have included the delay damages Option X7 in your contract. There
is no such thing as a Certificate of Non-Completion in the ECC, because none is needed.
That is because, unlike the JCT forms of contract, it is the Project Manager that deducts 12
delay damages as part of its assessment of the amount due to the Contractor (clauses X7.1

125
 NEC4 PRACTICAL SOLUTIONS

1 and 50.1 and the third bullet of clauses 50.3 and 51.1). So, all that is needed is that, in
the certificates issued after the Completion Date, the Project Manager deducts the delay
damages accordingly.

We would also recommend that the Project Manager notifies an early warning, calls an early
2
warning meeting (if this has not already happened) and tries to set about solving the problem
of delay, if at all possible. Completion is a defined term (clause 11.2(2)). The Project Manager
decides when Completion is achieved and certifies that date (clause 30.2). In addition, the
Project Manager must decide when take over has occurred and certify that as well (clause 35).
3

171. Delay damages and take over (Option X7)

4

QUESTION

5 We are a Contractor on an Option D project. The delay damages are £90 000 per day. We
were three days in delay when the Client started to take over and began using part of the
works. How does this affect the delay damages and how should this process be recorded
and managed?
6

ANSWER
7
For the first three days the full £90 000 per day will clearly apply (clause X7.1). The Client
is entitled to take over any part of the works before Completion has been certified. The
Project Manager certifies this within one week of the date. If the Client takes over before
both Completion and the Completion Date, then this would be a compensation event. This
8
is not the case on your project, as you have gone past the Completion Date.

The bad news is that the Client taking over is not a compensation event. However, the
good news (if we may call it that) is that the delay damages are reduced by the proportional
9 benefit obtained by the Client in taking over. This is assessed by the Project Manager, and
typically may represent a significant reduction in the damages, as most clients take over
those parts of the works that offer most benefit.

10

172. Delay damages and gain share (Option X7)

11
QUESTION

We have an ECC Option C contract. The Contractor has achieved Completion after the
Completion Date. The delay damages are £300 per day but the Contractor has also achieved
12 a gain share. How do we calculate this – do we deduct damages from the cost first, then
calculate the gain share?

126
 Chapter 10: The Options

ANSWER 1

No, the calculation is based on the difference between the Prices and the Price for Work
Done to Date (clause 54.2). The Price for Work Done to Date (clause 11.2(31)) under Option
C is based on Defined Cost (clause 11.2(24)). The amount due (clause 50.3) is a mixture of
2
the Price for Work Done to Date, plus amounts to be paid to the Contractor (i.e. the share)
less amounts to be paid by the Contractor (i.e. the delay damages). So, to answer your
question, work out the share first then deduct the damages after.

173. Undertakings to the Client or Others (Option X8)

4
QUESTION

As a Client we often need to amend contracts to address collateral warranties. How is this
dealt with in the ECC? 5

ANSWER 6

This is dealt with under secondary Option X8, and referred to as ‘Undertakings to the Client
or Others’. Others are defined under clause 11.2(12).
7
The undertakings are defined in both the Contract Data and Scope. Under clause X8.4
the Client prepares the undertakings and sends them to the Contractor for signature. The
Contractor then returns them to the Client within three weeks (clause X8.4).

As this is a specialist field, we would advise that legal advice should be sought when 8
drafting the undertakings.

9
174. Applying collaboration principles (Option X12)

QUESTION 10

We want to incentivise our Contractor to surpass the basic contract requirements on our
ECC Option C project. We are also a strong advocate of collaborative working. I presume
that Option X12 is the appropriate Option to use – and can you provide guidance on how
this should be completed? 11

12

127
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

Option X12 does not seem like the most appropriate Option for you. It is for arrangements
in which multiple partners are involved – such as on complex projects when the Client wants
perhaps its consultants, the main Contractor and key members of the supply chain to work
2
together closely. An incentive schedule is completed and a Core Group is established to
focus effort.

In circumstances when you just want to provide incentive to the Contractor (i.e. no other
3 partner is involved), then Option X20 is the most appropriate. You will need to append an
incentive schedule – this needs to clearly define Key Performance Indicators, how these will
be measured and what the incentive mechanism is.

175. Getting performance bonds in place (Option X13)

5
QUESTION

As a local authority our standard tendering documents require that we include a

performance bond. Where should the wording for this be included and how do we ensure
6 that the bond is provided after contract award, as we tend to find that contractors are
reluctant to provide this once the tender has been won.

ANSWER

It is recommended that you follow volume 2 of the ECC Guidance Notes on how to draft
8 the Scope. Specialist legal advice will need to be sought as to the wording itself.

In terms of making sure that this is signed, you could get this signed on contract award.
Failing that, there is a strong provision in the contract – clause 91.2 (R12) states that if the
9
Contractor does not provide a bond that the contract requires, the Client may terminate the
Contractor’s obligation to Provide the Works. In accordance with clause X13.1, ‘may’ implies
discretion, so it is up to the Client whether it exercises this right.

10

176. Paying in advance (Option X14)

11
QUESTION

We are using Option X14 (advanced payment to the Contractor) on a nuclear project in the
UK. We recognise that the Contractor has to make significant investment up front in order
12 to meet the project timescales. Our question is, does the amount include VAT and what
paperwork needs to be in place before the advanced payment is made?

128
 Chapter 10: The Options

ANSWER 1

You need initially to define the advanced amount – it should be made clear whether this
includes VAT. If due on amounts to be certified later, then it would also be due on advanced
payments. You will also need to define the instalments for repayment by the Contractor.
2
Finally, you will need to establish whether a bond is required or not (clause X14.1). The
bond should normally be provided before the Contract Date. The advanced payment can be
delayed until not later than four weeks after the Client has received the bond.
3

177. Delayed advanced payment! (Option X14)

4

QUESTION

We are a Contractor on an Option A ECC project. We have just started on a high-value

5
shopping centre complex. The contract includes an advanced payment, but due to
administration problems within the Client’s organisation the advanced payment is late in
being made by a month. Where do we stand with this – are we entitled to interest, and
what about the disruption this has caused us?
6

ANSWER 7

Clause X14.2 states that any delay to the advanced payment is a compensation event, and
as such would be subject to the same assessment rules as any other compensation event –
that is, the cost and time both potentially need to be assessed. In addition, interest is due on
the corrected amount (clause 51.3). 8

178. Design liability (Option X15) 9

QUESTION
10
I am completing Contract Data part one on our ECC Option B project. This is a civil
engineering project with some tunnel design required by the Contractor. I understand that
the inclusion of Option X15 is appropriate. What does the period for retention mean, and
how long should this be?
11

12

129
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

Clause X15.4 states what the Contractor should retain for the period for retention. This
could include things such as drawings and reports. It is up to the Client how long these
items should be kept for – there is no hard and fast rule here.
2

179. Reasonable skill and care (Option X15)

3

QUESTION

4 We are a Contractor delivering a complex prototype project in the nuclear sector (ECC
Option C). Part of the works is unique and, to the best of the knowledge of both ourselves
and the Project Manager, has never been undertaken before – and Option X15 applies. In
one aspect of the design, both ourselves and the Project Manager agree that reasonable
skill and care has been exercised by us in the design, yet a Defect has still occurred. Our
5
question relates to how this is dealt with – is this a compensation event?

6
ANSWER

Under Option X15.1, unless you failed to carry out the design using the skill and care
normally used by professionals designing works similar to the works, the Contractor would
7
not be liable for a Defect.

8 180. Subcontractor retention (Option X16)

QUESTION
9
The Project Manager that we are dealing with on an ECC option C contract is not
including the amounts of retention we have deducted from payments to Subcontractors
in its assessments of the Price of Work Done to Date as it says we are confusing the term
10 ‘retention’ when phrased in the main contract clause 11.2(24) as having some connection
with ‘retention’ in the subcontract. The Project Manager believes that these are entirely
different concepts resulting from entirely different contracts. The Project Manager states
that Defined Cost at a main contract level should not have main contract retentions
deducted, as main contract retention is deducted from the Price of Work Done to Date if
11
Option X16 is used. However, the Project Manager has also stated that any subcontract
retentions should not be included in Defined Cost, as these are an entirely different concept
from the main contract retentions, and says that we should only be paid the ‘amount of
payments due to Subcontractors’. What do you think?
12

130
 Chapter 10: The Options

ANSWER 1

We believe the Project Manager is incorrect; all that you need to do is to read and
understand clause 11.2(24). The first part of the first bullet makes it clear that ‘payments
due to Subcontractors for work which is subcontracted’ is being referred to here, and the
2
deductions listed subsequently in the sub-bullet points can only refer to deductions made
from those payments.

If you look at the rest of the list, many of them can only apply to the payments you are
making to the Subcontractor, as it is clearly passing on things that you have had deducted, 3
for example the second sub-bullet, or you have supplied to the Subcontractor, for example
the last sub-bullet.

The only way that the Client can deduct retention from you is if it uses Option X16. It cannot
4
introduce it through the back door in this way. The ECC Guidance Notes make it clear that
this is referring to deductions from the Subcontractor’s payment, not the Contractor’s. It
says that they are ‘normally’ deducted, but, in the case of the first one, that will only be the
case if the Client uses Option X16. Just because it has not done what may be ‘normal’ does
not change the meaning of the clause. 5

181. Retention percentage (Option X16) 6

QUESTION
7
We are a Contractor on an Option B ECC project. Contract Data part one states on
the initial page that Option X16 will apply; however, the retention percentage was not
completed by the Project Manager at the tender stage. The Project Manager is now stating
that normally this is 5% or 3% and, giving us the benefit of the doubt, it should be 3%.
8
Where do we stand on this?

9
ANSWER

There is no ‘normal’ percentage as such. The guidance in the Contract Data warns:
‘Completion of the data in full, according to the Options chosen, is essential to create a
10
complete contract.’ If not completed in full you simply have an incomplete contract.

You cannot just fill in the rest of the Contract Data with supposed norms or industry
practice. If legal advice was sought, then perhaps it would be found most favourable to
yourselves as the Contractor, as we have one aspect of the contract mentioning retention 11
and another section not. Perhaps the best way forward is to agree some sensible changes to
the Contract Data to correct the drafting error – this can only be undertaken by the Parties
(i.e. the Client and Contractor). It also needs to be in writing and signed by the Parties
(clause 12.3). 12

131
 NEC4 PRACTICAL SOLUTIONS

182. Exceeding the retention amount (Option X16)

1

QUESTION

We have an ECC Option A contract – this is for the refurbishment of an existing swimming
2 pool in a secondary school. For a variety of reasons the project did not go well. The re-lining
of the pool was ultimately unsuccessful. Completion was certified by the Project Manager
some 3 months ago, and the defects date is 52 weeks after Completion. The original
Contractor is refusing to come back to rectify notified Defects. Our problem now is that the
3 value of the Defects exceeds the 1.5% retention that is currently being held. How do we get
this money back from the original Contractor?

ANSWER

First, it is good that all the correct procedures appear to be being followed – issue of a
5 Completion certificate and Defects being notified. It is important to maintain the notification
of Defects (as per clause 43.2) even if the Contractor is not coming back. The contract
states that (under clause 46.1) if the Contractor does not rectify the Defect within the defect
correction period, then the Project Manager assesses the cost to the Client of having the
6 Defect corrected by other people. The Contractor pays this amount. The contract does
not say that you have to have the Defect corrected, so you could just retain the money –
presumably for a leaking pool the remedial work needs to be undertaken!

In terms of getting your money back, the Project Manager will need to assess the amount
7 due under clause 50.4 at the next assessment date. This is a mixture of Price for Work
Done to Date plus other amounts to be paid to the Contractor less amounts to be paid by
or retained from the Contractor. If the balance of monies is now such that the Contractor
owes you money, then that is what the Project Manager’s certificate will reflect. It is worth
8 noting that clause 51.2 is written in a ‘neutral’ way in that failure of the Contractor to pay
an amount it owes you would accrue interest. You will need to get your finance department
to raise an invoice – if the Contractor fails to pay this, then the normal debt recovery
procedures should be followed.
9

183. Deciding the retention-free amount (Option X16)

10

QUESTION

In using the ECC with Option X16 retention, can you advise on how the retention-free
11
amount is calculated?

12

132
 Chapter 10: The Options

ANSWER 1

The term retention free amount is in italics (and has no hyphen); the italics mean that it is an
identified term (clause 11.1), and the amount is therefore identified in the Contract Data. So,
the amount will be decided by the Client at the tender stage and inserted in Contract Data
part one, under the statements for Option X16. It is entirely up to the Client how much this 2

amount is and how it is calculated.

3
184. Release of retention (Option X16)

QUESTION 4

We have an ECC contract incorporating Options X5 (sectional Completion) and X16

(retention). There are four sections defined, and the retention percentage is 3%, with nil
retention free amount. Three of the four sections are complete and in use by the Client. At 5
present, one-half of the retention has not been released in respect of the three completed
sections. Retention is therefore currently held at 3% on the full value. The Contractor is of
the view that one-half of the retention applicable to the three sections completed should
be released. The reason that the retention has not been released is that clause X16.2 makes
6
reference to the amount retained being halved at Completion of the whole of the works.

The whole of the works will not be complete until the final phase is complete, so, until then,
the retention remains at 3%. Clause X5.1 by reference to ‘unless stated as the whole of
the works’ apparently excludes the application of the retained sum from each section. We 7
think the Contractor’s interpretation perhaps reflects provisions of other standard forms of
contract, but what is your view?

ANSWER

It is completely irrelevant what any other contract says (or not) about retention – it is all about 9
what your particular contract says, and we cannot fault your interpretation. If you simply read
the relevant provisions through with the Contractor, the logical conclusion is that retention is
not released for each section, only at Completion of the whole of the works.
10

185. How to draft low-performance damages (Option X17)

11

QUESTION

We are considering using Option X17 on an Option C ECC project. This is for the
construction of a new energy centre on our healthcare estate. 12

Can you advise how this should be drafted?

133
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The purpose of low-performance damages is to reimburse the Client where the performance
of the works in use fails to reach a specified level due to a design or other fault by the
Contractor. The required output should be clearly specified in the Scope. It is advisable to
2
follow the structure proposed for the Scope in volume 2 of the ECC Guidance Notes.

You will also need to complete the low-performance damages section in the Contract Data.

3
The low-performance damages for say an energy centre could be graded based on certain
levels of low performance.

The deductions for low-performance damages are made in the Defects Certificate.

186. Limiting liability (Option X18)

5
QUESTION

Are delay damages included within the limitation of liability Option? That is, are delay
6 damages capped at a certain level?

7 ANSWER

No, under clause X18.5 there are a number of ‘excluded matters’ (i.e. that are not subject
to a limit of liability); these include (among others) delay damages and low-performance
8
damages.

187. End of liability date (Option X18)

9

QUESTION

10 We are a Contractor bidding for work that includes Option X18. We are trying to
understand the significance of the end of liability date. This is completed at 10 years after
Completion of the whole of the works. Is this the end of all of our liabilities?

11

ANSWER

12 Yes, after this point the Contractor is not liable to the Client for any matter, which would
include a Defect, that is notified after this date.

134
 Chapter 10: The Options

188. Providing incentive (Option X20)

1

QUESTION

We have an ECC Option A project. We are a pharmaceutical client with tough targets to
achieve on our project. We want to provide incentive if the Contractor betters the targets 2

and also provide penalty if it fails to achieve them. Option X20 refers to an incentive
schedule – presumably this is attached and covers both incentive and disincentive?

ANSWER

No, Option X20 is purely there to incentivise. The incentive schedule should be appended 4
to Contract Data part one but should contain only incentives; these could incentivise the
Contractor with, say, additional work on a framework or monetary payments. The Key
Performance Indicators should be clearly defined, as should the method of calculating.
5
If you want to provide a ‘penalty’-type provision, then the correct secondary Option is
Option X17 – low-performance damages. Under UK law these should be a genuine
pre-estimate of loss.
6

189. Using Option X20 (Option X20)

7

QUESTION

Do the Key Performance Indicators in Option X20 have to provide incentive or can they be
used purely for monitoring purposes with potential for future work? 8

ANSWER 9

The intent of Option X20 is to provide the Contractor with an incentive. Some Clients just
use Option X20 purely for monitoring purposes. The Key Performance Indicators are often
aligned with corporate objectives. The Key Performance Indicators do not necessarily have 10
to provide direct financial reward; they could offer potential for, say, future work with the
Client. We suppose we have to respect the fact that the less direct a reward is, the less of a
true incentive it actually provides.
11

12

135
 NEC4 PRACTICAL SOLUTIONS

190. How to build in potential extensions to the Service Period under the TSC
1 (Option X24)

QUESTION
2
We are about to tender for services using the TSC. The initial Service Period is for 5 years
with the potential to extend for two two-year periods based on certain performance criteria
being achieved. How do we achieve this in the TSC?

ANSWER
4
This is provided for in secondary Option X24 in the TSC, so a Client may use this where
appropriate.

Clause X24.1 allows the Client, with the agreement of the Contractor, to extend the Service
5 Period. The Client notifies the Contractor and the Service Manager before a notice date.
Sensibly, the notice date provides advance warning – this could be, say, three or six months.
Each period for extension and notice date is completed when Option X24 is filled out. So, in
your case, there would be two periods for extension – each of two years.
6
Clause X24.2 allows criteria for extension to be identified – these are also completed in
Option X24. These could be, for example, the attainment of minimum key performance
indicator thresholds.

191. How to ‘close out’ each financial year under Option C of the TSC (Option X25)
8
QUESTION

We frequently use main Option C of the TSC but need each financial year to be dealt with
9 separately. As an organisation we need finality each financial year and effectively ‘close out’
each year’s accounts.

How is this dealt with under the TSC?

10

ANSWER
11
This provision is dealt with as a secondary Option under the TSC, so a Client may use this
where appropriate. The Accounting Period may be any period stated, and is completed in
the Contract Data (e.g. April–March or January–December).

12

136
 Chapter 10: The Options

Option X25 (accounting periods) does exactly what you are after. Clauses X25.1 and X25.2 1
require that the Service Manager makes an assessment of the ‘final’ amount due within
13 weeks of each accounting period. This is ‘conclusive evidence’ (clause X25.2) of the final
amount due unless this is disputed.
2
Clause X25.3 covers situations where an item in the Price List straddles an Accounting Period. In
this case, a proportion is assessed that has been completed in that Accounting Period.

Finally, it is worth noting that Option X25 may be used under any of the main Options – A,
C or E. 3

192. Is a ‘day’ a day? (Option Y(UK)2) 4

QUESTION
5
We have recently started using the PSC and would like to know if ‘days’ used in time
periods in the PSC means calendar days or working days?

ANSWER

The PSC only uses days, as opposed to weeks, to describe time periods in two places: the
dispute resolution Option W2 and secondary Option Y(UK)2. Both of these are only used for 7

work subject to specific UK legislation, as set out in the preamble at the beginning of both
Options, and in order to comply with that legislation.

In both cases, clauses within the Options clearly describe exactly what is meant by ‘days’ in 8
the option (clause W2.2(2) for Option W2, and clause Y2.1 for Option Y(UK)2). Although the
wording is slightly different, the meaning is the same.

The only other time you may come across the word ‘days’ is if the Client has used it when
9
describing time periods in the Contract Data or Scope. The meaning will depend on exactly
what the Client has written. If the Client has just used the word ‘days’ without any other
descriptor or qualifier, then it will mean exactly what is says: days. Saturday and Sunday are
days, as are bank holidays, so they all count.
10

193. The purpose of Option Y(UK)3 (Option Y(UK)3)

11

QUESTION

Can you explain the purpose of Option Y(UK)3? 12

137
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

Option Y(UK)3 is only applicable on projects in England, Wales or Northern Ireland. This
secondary Option ensures that only the terms set out in Contract Data part one can be
enforced by those persons, or class of persons, that are named, called a beneficiary. It
2
basically ensures that third-party rights cannot be implied from any other terms of the
contract or Scope.

3
194. Preparing quotations for compensation events (clause 11.2(23))

4 QUESTION

We are using an ECC Option A contract. The contract is silent on whether the Contractor
can recover the cost of preparing quotations for compensation events. Would time spent
5
obtaining quotations for compensation events from Subcontractors be allowed to be
included in a quotation?

6
ANSWER

Yes, obtaining quotations from Subcontractors is part of preparing a quotation, and if you
can demonstrate that this leads to an effect on Defined Cost under clause 63.1, then it can
7
be included in the quotation.

8
195. Increase of resources by the Contractor (Option C)

QUESTION
9
In an ECC Option C contract, the Contractor is in ‘pain’ and will not recover the situation.
The Contractor seems to be undertaking every administration activity possible on Site in
what appears to be a move to make money on staff who would not normally operate on
10 Site. Is it contractually acceptable for a Contractor to relocate staff that would normally be
head office based (e.g. cost control clerk – bought ledger accounts) to the Site to recover
the cost of such people through the SCC?

There also seems to be an increase in the attendance of the Site-based quantity surveying
11
staff from one to three days in order to do the same. There does not seem to be a
proportional increase in performance or output from the surveyor related to our project,
and we believe this is an attempt to increase earnings.

12

138
 Chapter 10: The Options

ANSWER 1

The Contractor is entitled to organise its staff as it sees fit. And it is entitled to be paid for
its people when they are in the Working Areas as long as they are Providing the Works,
which, because of the definition in clause 11.2(15), would apply to these people. Of course,
2
the more the Contractor increases the Price for Work Done to Date, the more it will end up
paying and the greater its ‘pain’. Therefore, this is a shared risk and, in practice, the Client
will claw back much of these Defined Costs at the end of the project.

196. Disallowed Cost (Option C)

4
QUESTION

We have an ECC Option C contract and are in a situation whereby a large metal sliding door
has been delivered to the Site in a damaged condition. Putting to one side the failings of 5
the supply chain and all of the quality control procedures, the Contractor then proceeded to
install the door. The Supervisor, as duly obligated, notified a Defect on becoming aware of
the damage (i.e. after installation). Under the terms of the contract, the cost of rectification
of Defects before Completion sits with the Client. Given that the door was delivered in a
6
damaged condition, does this still apply in this instance? If yes, then if the door had been
rejected at the Site and returned straight back to the supplier for repairs or provision of a
new door, would the Client still be liable for the costs of this? Note that there is currently no
direct sight of the supplier’s terms and conditions, but is this necessary given the condition
of the goods supplied and that the door still performs to its functional requirements. 7

8
ANSWER

We are struggling to understand your suggestion that this problem sits with the Client.
Option C is, in fact, a shared risk contract, and the risk of Defects before Completion is one
of those shared risks. This clearly seems to be a Defect, and the Contractor is obliged to 9
correct that Defect. The question is, who pays what and when? Normally the Client pays the
cost, and therefore that increases the Price for Work Done to Date. However, the target stays
the same (because this is not a compensation event), so the Client recovers some of that
back through the pain–gain mechanism on Completion. However, in this case, if the door 10
was obviously damaged, then the Contractor should have given the Client an early warning
of that under the fourth bullet of clause 15.1. Since it has not, then one of the definitions
of Disallowed Cost (clause 11.2(26)) is any cost incurred only because the Contractor did not
give an early warning that it should have. So, the additional cost of dealing with this problem 11
now rather than before the door was fitted is a Disallowed Cost. Thus, in theory, at least the
cost of returning the door to the manufacturer before it was hung to get it sorted out would
be paid. However, that is going to depend on the terms of the contract that the Contractor
has with its supplier, so you will need to see those. If the door was Defective on delivery,
12
then that will normally be down to the supplier to sort out. The Contractor has to keep those
records and show them to the Project Manager under clause 52.

139
 NEC4 PRACTICAL SOLUTIONS

197. Productivity of resources (Option C)

1

QUESTION

Our contract is an ECC Option C project, and our question relates to the SCC Disallowed
2 Cost. Item 1 of the SCC deals with people in the Working Areas. We have had it put to
us by the Project Manager that our personnel have been (despite not actually providing
the names of any individuals as evidence) taking too long for breaks; that walking to
other areas of the Site, to cabins and/or to clocking stations is taking too long; that they
3 have been standing around; and that they have left the workface early and been waiting
at the clocking stations to clock out for periods of time. The Project Manager has stated
that, in reference to item 11 of the SCC, ‘time not worked’ is therefore not payable. Our
interpretation of matters is that this is part of productivity or potential lack of it, which is
4 catered for in the Contractor’s share. It is also our opinion that the interpretation of the
above is that it gives a greater emphasis to the ‘amounts paid by the Contractor’ (i.e. we get
paid for the amounts we have paid).

A secondary argument put to us is that as the aforementioned activities are ‘not used to
5
Provide the Works’, they are not part of Defined Cost. Again our interpretation is that this
is in fact a resource used to Provide the Works – as perceived lack of productivity is still
Providing the Works, just not as effectively as we would wish.

6 Your guidance would be appreciated on the above, as it would appear that the Project
Manager is attempting to remove substantial costs, which have been paid from the Price
of Work Done to Date, to ensure that this does not even reach the calculation for that
Contractor’s share and that, therefore, the Client benefits in full from these deductions
7 rather than sharing in the construction/productivity risk we believe this form of contract
caters for.

8
ANSWER

Our view is that the Project Manager is unable to do this. To deal with the first argument –
that is, ‘time not worked’ – the first thing to say is that this is misquoted. Item 1 of the SCC
9
in fact refers to ‘the cost of people … proportionate to the time they spend working in
the Working Areas’. This merely conditions who this refers to, and undoubtedly the people
involved fall within that category. It does not say that if they are paid despite not working it
will not be allowed. And that is clear once you see the other matters that are paid for, such
10
as travel time, absences for sickness and holidays, bonuses, incentives and so on, which are
all payments made that do not relate directly to the time worked. In fact, some of them,
such as travel and holidays and sickness, are specifically about ‘time not worked’ – and
yet they are still paid. In addition, you could successfully argue that even if they were not
11 working, then your paying them for not working was a ‘special allowance’. Alternatively,
you could successfully argue that the time taken to get to the canteen or wherever was
a payment made in relation to travel, as it does not specify what travel or to where. The
simple fact is that if you paid these people in accordance with their terms and conditions,
12 and normal construction industry practice, you are entitled to be paid for them as Defined
Cost, and the Project Manager is, frankly, wrong to suggest otherwise.

140
 Chapter 10: The Options

With regard to the second point, again that seems incorrect. These people were used to 1
Provide the Works, and have been paid in accordance with their terms and conditions.
And the costs therefore were incurred to Provide the Works. The only way that the Project
Manager could claim this would be to quote the penultimate bullet point of clause 11.2(26),
concerning Disallowed Cost. However, even that would be a bad point because it is quite
2
clear that you have to allow for ‘reasonable availability and utilisation’. And this simply gets
nowhere near jumping that hurdle. The Project Manager has clearly misunderstood how the
Option C aspect works. As you correctly say, productivity issues such as these are a shared
risk if productivity is low and shared reward if it is high. That is the whole point of using
3
Option C.

198. Accrued cost in an application for payment (Option C) 4

QUESTION
5
I would like some clarification of the inclusion of forecast or accrued costs in an application
for payment. By this I mean costs that will be paid for in the following month, for which
the cost is known but has not been paid yet; for example, for the Site agent who is 100%
allocated to the project. In theory, the Contractor knows the amount that the agent will 6
be paid (in wages), but this cannot be substantiated yet. The same argument applies to the
inclusion of estimated costs as well.

I believe neither cost should be included, because, at the point in time of the application,
the costs cannot be substantiated. Is this correct? 7

8
ANSWER

We assume that you are referring to an ECC Option C, D or E contract. We consider that
your opinion is correct. One of the definitions of Disallowed Cost is any cost that cannot be
justified by the Contractor’s accounts and records. These sorts of costs cannot be justified 9
by those records at the point when the Project Manager is making its assessment, so are
disallowed. Of course, for the next assessment, when the payroll shows the payment, or
the invoice for the estimated costs comes in, they will be allowed, even if they have not yet
been paid (as long as they will be paid by the next assessment of course). This provision 10
covers accruals made in the Contractor’s accounts for items that it has invoiced for (or other
justification such as a Subcontractor payment certificate) but that have not yet been paid.

11

12

141
 NEC4 PRACTICAL SOLUTIONS

199. The use of the Activity Schedule (Option A)

1

QUESTION

The tender documents were sent out and included an Activity Schedule and a suite of
2 drawings. The successful tenderer included a Bill of Quantities in its tender reply, summed
to a summary sheet based on the Activity Schedule. For some reason, the Contractor
priced some bill items that do not appear on the drawings. The Contractor is now asking
for payment of the lump sum for the activity, which includes sums for items of work that
3 have not been undertaken. We are acting as the Project Manager, and consider that if the
Contractor has not done the work, it is not due the money. The Contractor argues that
including the Bill of Quantities in the tender return was a mistake. I consider the bill to be
a proxy for the Contractor’s duty to split the activities (groups of activities) into smaller
4 packages to avoid conflicts of this very sort.

5
ANSWER

Option A is based on an Activity Schedule, and that alone. It has no Bill of Quantities in
it, and there is no use for such an item anywhere. It should not have been included in the
6 contract because it creates ambiguity, although it is not at all clear here about the status of
either the Bill of Quantities or the Activity Schedule. If the Bill of Quantities was not included
in the contract, then it is, in any event, irrelevant.

Having said all of that, the contract is clear – it is the activities and prices in the Activity
7
Schedule that matter, and you cannot look to the Bill of Quantities. It is the latter, and
only that, which states what the Contractor is to be paid once it carries out the works
in Scope. How and what it has allowed to get to that figure is irrelevant. Whether it has
allowed too much or too little for whatever reason is its good or bad fortune. In order
8
to demonstrate that, we would ask you to consider what would have happened if the
Contractor had forgotten to include in its Bill of Quantities (and therefore its Activity
Schedule) work that was in the Scope? If it asked you to pay for them as an extra, we
suspect that you would say no, which would be the correct answer. It is the same the
9 other way round.

10 200. Items on an Activity Schedule not undertaken (Option A)

QUESTION
11
We are working on an ECC Option A contract. During the tender process and after
inspection of the Site, the Contractor allowed for an element of hard breakout that was
perceived as required in order to carry out the works. This amount was acceptable and
included within the Prices with an annotation to describe the works as a description within
12
a pricing document that was subsequently included in the Scope. During the works, the

142
 Chapter 10: The Options

hard breakout was not required, as the assumed slab formation did not exist. Is the Project 1
Manager correct in assuming these works can be omitted from the contract? And if so,
could you advise how this would be measured.

ANSWER

Option A is usually quite clear – it provides for a lump sum price to cover all of the work in 3
the Scope. The main way that the Prices will change is if there is a compensation event. It
is not subject to remeasurement or any ‘provisional’-type items. This clarity seems to have
disappeared in the way you have wrongly set the contract up.

Firstly, how you describe things in the Activity Schedule is irrelevant to what you are 4
required to construct (see clause 20.1 and then clause 55.1). And, secondly, the Scope
does not state what you get paid – only the Activity Schedule does that (clauses 50.3 and
11.2(29)). Further, the words in the Scope only form the Scope if and when they comply
with the definition in clause 11.2(16). Somehow you have managed to muddle the two 5
different documents together, and it is difficult to suggest how this might be interpreted.

The answer may depend on what the words you put into the Scope now say. They could be
interpreted as meaning that if you do the hard breakout, then you get paid, but if not you
6
do not get paid – which is in direct contradiction to the principles of Option A. They could
equally be interpreted as being irrelevant because they do not comply with clause 11.2(16),
so the amount of work would remain your risk (or reward). There is no clear-cut answer
here, unfortunately, and the answer may depend on a legal analysis of the position.
7
Under clause 55.5 the Contractor can correct the Activity Schedule so that the activities on
the Activity Schedule relate to the Scope. This cannot lead to a change in the Prices, though.
It is not clear if the Activity Schedule does or does not relate to the Scope in this instance.
8
Finally, it might be worth asking yourself what you meant when you put the words in there.
And before you answer that, ask yourself whether the answer would be the same if you had
found twice as much hard breakout as was allowed for. The same point should be raised if it
was the Project Manager asking the question. To hazard a guess, you would probably each
9
be using the other’s arguments! If you had wanted to deal with the risk of this concrete
fairly and openly at the tender stage, then you should have not allowed for it in the Prices,
and instead added the provision of a compensation event for finding it. It would then have
been clear whether or not it was found would be at the Client’s risk.
10

201. Additional management staff (Option C)

11

QUESTION

We have two questions listed below that we would appreciate an opinion on. We are using 12
an ECC Option C contract.

143
 NEC4 PRACTICAL SOLUTIONS

1 1. The specification included in the Scope identified a particular type of hinge but the
Contractor qualified its offer at tender for this element, which was not identified
or agreed. The Client requires the originally specified hinge to be installed, and the
Contractor has now installed the hinge but has asked for a compensation event. This has
been declined on the basis that the Scope has not changed – is this correct?
2
2. The Contractor, without an early warning or agreement, brought additional
management staff in addition to the agreed management team. The application for its
cost was declined as a Disallowed Cost on the basis that the resource was not agreed or
necessary – is this correct?
3

4 ANSWER

The answer to the first question may well depend on how and where the Contractor
‘qualified’ its tender. We say ‘may’, because the answer may end up with a legal (as
opposed to contractual) analysis, which we cannot provide.
5
With regard to the second question, the Client has no right to ‘pre-approve’ resources that
the Contractor decides to bring to the Site. Option C is a risk-sharing contract. One of the
risks you share is the Contractor’s incompetence; conversely, one of the rewards you share
6 is the Contractor’s competence. It is for the Contractor to decide how best to manage the
works, not the Project Manager. If these management staff were truly sitting doing nothing,
then they could be a Disallowed Cost (penultimate bullet of clause 11.2(26)), but we doubt
very much that you could show that to be the case. The Project Manager could request
7 their removal and, a reasonable period after that, they would be a Disallowed Cost (see the
wording of the same bullet). However, the Contractor would be right, then, to complain
that the Project Manager is trying to manage the works on its behalf, and that could well,
in itself, resolve into a dispute, so it is a dangerous path to tread. At the end of the day,
8
the cost of these staff, like any benefits they bring, will be shared by the use of the share
mechanism at the end of the contract.

9
202. Revising the Activity Schedule (Option A)

QUESTION
10
A Contractor submits its tender for an ECC Option A contract. The Contractor is not familiar
with the payment mechanisms and only allows for a handful of lump sum activities. Within
the ‘Preliminaries’ section there is only one activity; the procurement and installation of
11 sheet piling over the course of 2–3 months is another. These two activities amount to
approximately one-third of the Prices.

The Contractor’s tender is accepted, and at the start of the project it is advised that it will
only be paid on completion of each activity. Realising that this may create problems with
12

144
 Chapter 10: The Options

cash flow, the Contractor submits a revised Activity Schedule, with the activities broken 1
down over the course of the programme. The Client is concerned about the closure of
one of the Contractor’s regional offices, although this is a major Contractor and a parent
company guarantee is in place. The Client does not believe that it is under any obligation to
allow the Activity Schedule to be revised, and therefore rejects the Contractor’s proposal.
2

Is the Client in breach of clause 10.2 in that it is not acting in the spirit of mutual trust and
co-operation?

ANSWER

Contractually, it is not the Client that makes such decisions, it is the Project Manager. The 4
contract does not allow for the changing of the Activity Schedule, unless it is changed in
accordance with the contract (clause 11.2(21)). The only way it can be changed in Option A
is set out in clauses 55.3 and 63.14, neither of which covers these circumstances.
5
The spirit of mutual trust and co-operation cannot be used to change a contract that
the Parties have agreed to. So, there is no contractual obligation to change this Activity
Schedule.

Having given you the contractual answer, our view is that the sensible and practical answer 6

is somewhat different. In our opinion, it may not be in the best long-term interests of the
Client for the Contractor to have a poor cash flow, with all of the possible problems that will
cause to the Contractor and the supply chain during the lifetime of the project. Our view is
that it may be more sensible for the Client to enter into discussions with the Contractor to 7
see if agreement can be reached on a more sensible Activity Schedule, and then agree to
change the contract in accordance with clause 12.3, but of course the Parties need to agree
this and it must not fall foul of any procurement laws.
8

203. Interest paid to a Subcontractor (Option C)

9

QUESTION

ECC Option C allows for interest to be paid on payments that are late. We are aware
10
that the Contractor has made late payments to the Subcontractor, and subsequently the
Subcontractor has been paid interest. Does this interest payment then become due between
the Contractor and the Client?

11

12

145
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The answer is going to depend on the terms of the subcontract, not the (main) contract.
That is because you are required to pay what the Contractor has actually paid its
Subcontractor (clauses 11.2(24), 11.2(31) and SCC), but only to the extent that it is required
2
by the terms of the subcontract (second bullet of clause 11.2(26)). If the subcontract
conditions require such interest to be paid, and if the Contractor has actually paid that
interest to the Subcontractor, then the answer is yes. However, these are two very big
‘ifs’ – especially the second one. You should check to make sure that this amount has
3 actually been paid, before paying it.

4 204. Open-book problems (Option C)

QUESTION
5
As a Contractor we frequently work under the open-book main Options of the ECC. We
often find that audits are undertaken late in the project and large sums of money deducted
by the Project Manager. This causes significant problems in terms of our company accounts
and commercial reporting.
6
Our view is that regular audits should pick up any disparity. What does the ECC provide for
here?

ANSWER

8 This is a historically recognised problem but should not be if the Project Manager
undertakes regular audits of Defined Cost. The powers of audit of Defined Cost are granted
in clause 52.3, and records to be kept stated in clause 52.2.

Clause 50.9 states that assessments of Defined Cost are treated as correct if not corrected
9
within 13 weeks of the date that the Contractor notifies the Project Manager when a part
of Defined Cost has been finalised. This means that only the last financial quarter would
be subject to any adjustment. It also means that the Project Manager needs to undertake
regular audits rather than at the end of a project. There are three exceptions to this – a
10 discount, rebate or tax that can be recovered. This takes account of year-end and volume
discounts that may be realised at a later date.

This provision should address the problem you described.

11

12

146
 Chapter 10: The Options

205. What are the Contractor’s share payment timings? (clause 53.3)
1

QUESTION

We are using ECC option C on a project. Can you explain the mechanism for payment when
a project is in a ‘pain’ situation. When do any pain payments to the Contractor start, for 2

example?

ANSWER

The timescales for making this payment are set out in clauses 54.3 and 54.4. A preliminary
assessment is made when Completion is achieved, using estimates for the final Price for 4
Work Done to Date and the total of the Prices (i.e. the ‘target’). The final assessment
is made using the final figures. That is included with the final amount due, which is
determined when the Supervisor issues the Defects Certificate or the Project Manager issues
a termination certificate (whichever comes first, see clause 50.1). These dates are the same 5
whether the Parties (not just the Contractor) are in ‘pain’ or ‘gain’.

The method of calculation is set out in clauses 54.1 and 54.2.

6

206. The purpose of Z clauses (Option Z)

7

QUESTION

I hear lots of horror stories when it comes to Z clauses, and recognise that a great deal of
damage can be done through their use. Can you explain the original intent of the Z clauses 8
in the NEC? If I know this, I might be able to better defend their not being used in my own
organisation.

ANSWER

Option Z is intended for when the Client wishes to include additional conditions of contract. 10

The ECC Guidance Notes give a warning that Z clauses should only be used when absolutely
necessary, such as changes required in a particular country.

We find that many Z clauses are used to introduce legislation. This is unnecessary, as 11
clause 12.2 requires the Contractor to comply with the law. Also, many Z clauses introduce
constraints – these should be included within the Scope. So, again, this is unnecessary.

12

147
 NEC4 PRACTICAL SOLUTIONS

1 The index at the back of each contract within the NEC suite provides details on how the
clauses are interlinked. This web/flow of clauses can often be severed by Z clauses – so, if
Z clauses are included it is always a good idea to check whether this interrelationship has
been impaired.
2

207. Deletion of clause 63.10 (Option Z)

3

QUESTION

We are a Contractor involved in an ECC project. There are a number of Z clauses on

4 the project. One clause that has been deleted is clause 63.10, which explains how
inconsistencies in the Scope are dealt with.

Where do we stand on this if there are ambiguities or inconsistencies in the Scope prepared
5
by the Client or, indeed, in our own Scope?

6 ANSWER

This is where Z clauses can cause more problems than they try to solve! Clause 63.10
should, when left intact, work both ways. Ambiguities and inconsistencies are found most
favourable to the Party that did not draft them, so inconsistencies and ambiguities in the
7
Scope prepared by the Client are found most favourable to the Contractor, and vice versa.
If this clause is deleted, then the contract does not resolve the issue. If it then ended up in
the courts, it is likely that the principle in clause 63.10 would apply, as this is a recognised
principle in common law – nothing is certain though.
8

208. Reducing the time bar (Option Z)

9

QUESTION

10 We are involved in a contract in which the eight weeks has been deleted in clause 61.3 and
replaced with two days. The deemed acceptance provisions against the Project Manager
have also been deleted under clause 62.6. Would these be enforceable?

11

ANSWER

Quite simply, if that is what has been signed, then that is what will apply. You can probably
12
guess how the contract is going to be run and how the Project Manager may behave if
those are the amendments that have been made!

148
 Chapter 10: The Options

209. Deleting physical conditions and weather (Option Z)

1

QUESTION

We are involved in an ECC Option C contract in which clauses 60.1(12) and 60.1(13) have
been deleted. Does this literally mean that there will never be a compensation event for 2

physical conditions and weather?

ANSWER

Yes it does.
4
However, there are two instances when it perhaps does not accord with the perceptions of
the drafter. One is that, for every compensation event that occurs, the Contractor (under
clause 63.8) is perfectly entitled to include risk for both time and cost. Is this really what the
drafter of the Z clause intended – compensation events including more time and being more 5
costly?

The second is that the cost will be incurred under Option C anyway, dependent on the share
ranges. In our opinion, the deletion of these clauses is short sighted.
6

210. Complying with the law (Option Z)

7

QUESTION

I have previously been advised by lawyers that a Z clause requiring the Contractor to comply 8
with the law is necessary. Have I been wrongly advised?

9
ANSWER

There is nothing that says you cannot do this, but it is hard to see the justification for it or
how the Parties might suffer if such a clause were not present. 10

As an example, say there is a Z clause stating that the Contractor’s staff shall not exceed
highway speed limits. If one of the Contractor’s operatives speeds on the way to work, what
are you going to do within the contract, given that the Contractor has breached both the
contract and the law? 11

The only justification for requiring compliance with the law as a contract term is that a
breach of the law would also be a breach of contract. If some aspect of the law is so critical
that you want to recover damages for the consequences of a failure to comply, that needs 12
to be spelt out in a Z clause so people understand what is intended.

149
 NEC4 PRACTICAL SOLUTIONS

211. Stepping-down Z clauses (Option Z)

1

QUESTION

Are Z clauses the correct location for ‘step-down’ clauses from a main contract (e.g. an
2 Institution of Chemical Engineers (IChemE) contract) to a subcontract (e.g. the PSC)?

3
ANSWER

Yes, that would be the correct location. However, for the example given, you would need to
decide carefully which process-related clauses from the main contract would be appropriate
4 for the professional services appointment.

You can potentially mix and match NEC contracts with others, but you will need to take
great care to ensure that they fit together as intended. The simplest approach would be
5 to use, say, the ECC as the head contract (which of course can be used for all process
contracts).

Even after your best efforts when using a mix of contracts, you may still end up with one
part of the supply chain using NEC language and processes (early warnings, compensation
6 events, accepted programme) and another using entirely different language covering entirely
different matters.

7
212. Mutual trust and co-operation (Option Z)

8 QUESTION

Surely some Z clauses are not compliant with ECC clause 10.2 requiring the Parties to act in
a spirit of mutual trust and co-operation?
9

ANSWER
10
Some badly drafted or inappropriate Z clauses may indeed compromise the mutual
trust and co-operation requirement, such that an inconsistency or ambiguity might
arise. However, not all Z clauses will introduce inconsistency or ambiguity, nor will they
compromise clause 10.2. Z clauses should only be included by a Client if they are considered
11
absolutely necessary, and then they should be well thought out and well drafted to avoid
compromising standard NEC terms.

12

150
 Chapter 10: The Options

213. Spirit of the contract (Option Z)

1

QUESTION

What is the status of Z clauses that break the spirit of the contract? Case law is against a
Party that badly amends a contract. From the Contractor’s point of view, is it a risk worth 2

signing up to?

ANSWER

There is a point at which the spirit of the contract may indeed be broken by Z clauses.
We would question why any Client would choose a standard form of contract and then 4
decimate it. Tenderers should carefully consider whether Z clauses are acceptable to them,
and act accordingly. Ambiguities and inconsistencies may well be resolved by those who
created them – it is far better to sort such matters out before bidding rather than after.
5

214. Amending a core clause (Option Z)

6

QUESTION

Would it be correct to say that an amendment of a core clause is actually a Z clause?

7

8
ANSWER

That would be correct. Any amendment, addition or deletion of any core clause should be
contained in a Z clause.
9

215. Replacing sentences (Option Z)

10

QUESTION

Instead of Z clauses, can you remove and replace core clause sentences? 11

12

151
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

You can indeed, but what would you call this and how would you make sure that such
changes were properly incorporated into the contract? By pointing to the Z clauses in Contract
Data part one and making sure that all such clauses sit clearly under the heading ‘Option Z:
2
additional conditions of contract’, there should then be no doubt of their inclusion.

3 216. Protecting clients (Option Z)

QUESTION
4
For UK government contracts, Project Managers are prone to add Z clauses that are too
protective of the Client. How do we balance such a tendency?

ANSWER

6 The best way for a Project Manager to protect any Client is to ensure that the contract has
a balanced risk allocation, with each Party retaining the risks it can manage and allow for.
A Project Manager that tends to add Z clauses that result in an unbalanced risk allocation
should be encouraged to focus instead on what is best for the project, which might help
to balance such tendencies. The supply chain has a voice, and this should be used at the
7
latest at the tender stage to offer an alternative view when risk allocation appears to be
unbalanced by Z clauses.

8
217. Using other main Option clauses (Option Z)

9 QUESTION

Can you write a Z clause to amalgamate certain provisions from one NEC contract main
Option into another, for example using progress payment provisions from ECC Option B in
10 ECC Option A? The reason would be to change the usual Option A requirement of requiring
completion of a whole activity prior to payment.

11
ANSWER

Yes, it would be possible to do this. You would, though, need to be clear what benefit this
12
would bring, as presumably the intention would be to pay part-completed lump sums, and
you would have to be sure how this would objectively work in practice. Instead, why not
break down the lump sums into smaller activities in the activity schedule?

152
 Chapter 10: The Options

218. Valid Z clauses (Option Z)

1

QUESTION

We regularly use Z clauses to deal with issues such as professional indemnity insurance
requirements, assignment and collateral warranties. Are these valid uses for Z clauses or 2

should we remove them?

ANSWER

It is important to determine what the perceived inadequacy is within, say, the ECC to
decide whether indeed a Z clause is required. On the face of it, and if they were not already 4
provided for, then these are the sorts of matters that could well be appropriate Z clauses.
That said, professional indemnity insurance is a part of Option X15 when used in the ECC;
assignment is dealt with in clause 28; and as for collateral warranties, are these absolutely
necessary and could the provisions of Option Y(UK)3 be used instead, saving on drafting 5
fees?

FURTHER THOUGHTS AND TOP TIPS

• Be clear on the project objectives and risks. Your selection of main and secondary
Options should be focused on these. 7

• If using Option C, D, E or F, ensure that a proactive open-book audit is undertaken at

project start. This will ensure a clear understanding of cost and avoid differences of
opinion later.
8

• Ensure that the Options are properly completed. If not, we have an incomplete contract!

• Carefully consider the need for Z clauses. If they must be included, check their impact by
reviewing the index (at the back of each NEC contract). 9

• Carefully consider the optional statements and include in the relevant section.

10

11

12

153
 Chapter 11: Schedule of Cost Components

CHAPTER 11

Schedule of Cost Components

1

2
219. Time working within the Working Areas (SCC item 1)

QUESTION 3

With reference to the SSCC in the ECC, and in particular people who are directly employed
by the Contractor, is it envisaged that time spent working away from the Working Areas
would be classed as Defined Cost? If so, what would be considered as the proportion of 4
time working within the Working Areas necessary to constitute the Working Areas being
the ‘normal place of working’?

ANSWER

If a person’s normal place of work is within the Working Areas, then their costs will be
6
included in Defined Cost according to the total time spent working in the Working Areas.
So, if the Site Manager goes to head office once a month for a meeting, the Defined Cost
for that day is not included. However, it must be remembered that the normal place of
working of Site personnel will change regularly. For example, if Completion is achieved and
the Site manager moves to another site, from then onwards that person’s normal place of 7

working will not be the Working Areas.

Other people may have no ‘normal place of working’. For example, a quantity surveyor who
looks after four contracts may visit each site for a day a week and then spend a day in the 8
head office. In that case, the surveyor has no normal place of working at that time. If that
person is on your project, one day of the appropriate People Rate will be recoverable, as
that relates to the time spent within the Working Areas.
9
It is therefore simply not possible to make clear rules on this, and it is going to come down
to an objective view as to whether somebody has a normal place of working and, if they do,
where that is.

10

220. How is cost defined in Option C of the TSC? (SCC)

11
QUESTION

I am used to the ECC but am about to use the TSC on a large maintenance contract for the
first time. How is cost defined in the TSC? Is it similar to the ECC? 12

NEC4 Practical Solutions ICE Publishing: All rights reserved 155

.
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

In the TSC there is a detailed SCC for use under main Options C and E. So, yes, this operates
in the same manner as the ECC.

2 The TSC has Service Areas (clause 11.2(15)) and the ability to add to these under clause 16.4
if required. This is similar to Working Areas under the ECC (clause 11.2(20)).

There is also an SSCC for use under main Option A.

3

221. Can we recover congestion charges? (SCC item 13(a))

4

QUESTION

We are currently working on an ECC Option C contract. Can you advise if the Project
5 Manager is correct in its assessment of disallowing all costs in relation to London congestion
charges? The Project Manager views these are not being incurred in order to Provide the
Works.

6
Can these costs be claimed for under the SCC people item 13(a) – payments made in
relation to people for travel?

7
ANSWER

‘Provide the Works’ is a defined term (clause 11.2(15)). It includes ‘all incidental … actions
which the contract requires’. An ‘incidental action’ that the contract requires is for the
8
people to travel to work, and that will include incurring congestion charges if they travel
into or through the congestion zone.

This cost will therefore fall within item SCC item 13(a), providing it accords with their
9 employment contract. Equally, it could fall within item 13(i) or 13(n). Whichever it falls
within, it is incurred to Provide the Works, as is defined in the contract.

10
222. Meeting the requirements of the law (SCC item 13)

11 QUESTION

We have a Client that is of the opinion that the Construction Industry Training Board (CITB)
Levy we have to pay in regard to our people is not an acceptable part of the SCC and should
be included within the Fee. Can you advise please?
12

156
 Chapter 11: Schedule of Cost Components

ANSWER 1

We assume this query relates to the ECC. As far as we are aware, the law requires you
to pay the CITB levy. We believe it is governed by the Industrial Training Act 1982 and
subsequent Levy Orders issued by the government under that act, but you will need to get
legal advice to confirm that. In that case, this is clearly a payment made in relation to people 2
(but must be in accordance with their employment contract) for contributions, levies or
taxes imposed by law, and is therefore payable under SCC item 13(i).

223. Using estimated staff costs (SCC item 13)

4
QUESTION

We have recently started a contract using ECC Option C, and have an issue regarding
payment of people costs. The Contractor is submitting its direct staff costs for the agent,
5
quantity surveyor and so on, on a pro rata allowance per week basis × actual staff cost. It
is justifying this by stating that the quantity surveyor, for example, is allocated two days a
week for the duration of the project, and these are the costs we are getting submitted in
the monthly applications for payment.
6
We believe this to be an incorrect method of valuing staff costs because the Contractor
is not taking staff time from, say, timesheets of actual time spent in the Working Areas.
On this particular project, the Contractor is charging us a standard allowance per week
regardless of the number of days actually spent. Are we wrong in this? 7

ANSWER 8

The term used in the contract is Defined Cost, and for Option C the definition is set out in
clause 11.2(24). The last part of this requires that you use the SCC to value such cost. SCC
item 1 sets out what people are paid for and when. As this quantity surveyor is not based 9
in the Working Areas, it is the second bullet that applies in their case. And that requires that
such people are paid proportionate to the time that they spend working in the Working
Areas. The quantity surveyor cannot be paid for while they are working anywhere else,
even if that work is on the work involved with your contract. That cost is assumed to be in
10
the Contractor’s Fee (first sentence of clause 52.1). Although you make no mention of it,
you will need to make sure that the costs are paid on the amounts paid as set out in SCC
items 11, 12 and 13. You have the right to see and check such amounts, including looking at
payroll records, under clauses 52.2 and 52.3.
11

12

157
 NEC4 PRACTICAL SOLUTIONS

224. Payment for pension shortfall (SCC item 13)

1

QUESTION

We have an ECC Option C contract. Would the Client have an obligation to pay Contractor
2 pension shortfall (incurred by other means)?

3
ANSWER

The simple answer is yes (SCC item 13(j)), but only the amount that relates to the time
people spent working in your Working Areas. So, if the person was on your Site for a year,
4 but in the pension scheme for 10 years, then you would pay only for your one year of
catching up. How that would be calculated and whether it was lineal or not is something
you will need to discuss with the Contractor.

225. Assessment of compensation events under Options A and B (SCC item 1)

6
QUESTION

As a Project Manager I’m confused as to how I assess people costs under main Options
A and B of the ECC. Is it based upon tendered rates for people or based on the cost of
7
employment (i.e. a payroll cost plus uplift)?

8
ANSWER

The people costs are based on the People Rates (SCC, item 11). These are a defined term
under clause 11.2(28), and inserted by the Contractor in Contract Data part two. These then
9
form the assessment of people costs for a compensation event.

If a compensation event requires a person or category that is not listed in the People Rates,
then these may be agreed or assessed by the Project Manager (clause 63.16). These are in
10 turn added to the People Rates. This covers instances where the nature of the compensation
event requires people who were not originally envisaged.

11

12

158
 Chapter 11: Schedule of Cost Components

226. Dealing with medical expenses (SCC item 13)

1

QUESTION

We are currently running an ECC Option C on Site (£9 million, 30-month programme). Our
Contractor has put through a claim for a staff member medical expense against the contract 2

for £11 000. It seems that the original (private) hospital healthcare bill came to roughly
£13 000, and the Contractor’s insurance company has settled to pay £2000 of the bill. The
Contractor has looked to settle the remainder of the £11 000 bill by adding this as a contract
cost, which it is claiming in relation to people for medical aid under SCC item 13(m). Is this 3
acceptable?

We have no concerns that the cost was incurred and that the person is a full-time staff
member of the project. We also feel that if the Contractor had suitable healthcare insurance 4
that covered the full cost, then we would have been happy that the premium was a contract
cost. However, the excess should have been covered by the individual or the Contractor and
not the Client. This has resulted in £11 000 of unexpected cost to the contract, which was
not allowed for.
5

ANSWER 6

Paying this will be a judgement call, we suspect. Firstly, why did the medical insurance
company only pay for a small amount of this? Was the rest considered to be too expensive
or unnecessary? If that is the case, then you could say that it does not comply with clause
52.1, and should not be paid. Next, what was this for? Was it to enable the person to be 7

cured quickly of something that was going to otherwise keep that person off work or
prevent them working properly (until the National Health Service could eventually cure it)
or was it purely cosmetic? The former is likely to be payable, the latter is not because the
‘market rate’ would be the National Health Service’s cost, which would be nil (again, see 8
clause 52.1). Also, was it a procedure that you would normally expect the National Health
Service to carry out just as quickly and as well? In that case, again clause 52.1 would say that
this was not at the ‘market rate’, which was nil. And finally, what does the person’s contract
of employment say about all of this? In our experience, it is very unusual for the Client (in 9
this case the Contractor) to pick up any excess on medical insurance, or any other amounts
that the insurer will not pay. Most Clients insist that the employee pays those amounts. If it
is not an obligation for the Contractor to pay this, then you should not be required to pay it.
After all, the Contractor (not the employee) has to be shown to have paid this amount, and 10
it has not done so. If all of these questions answer in the favour of the Contractor, then we
think it should be paid by you.

11

12

159
 NEC4 PRACTICAL SOLUTIONS

227. Hand tools not powered by compressed air (SCC item 44)
1

QUESTION

We are using the ECC. Where do we recover the cost of things like a hand tool not powered
2 by compressed air? We are encountering a number of arguments with contractors about
this issue and would like to resolve.

ANSWER

This sort of item falls within the definition of Equipment (clause 11.2(9)), and is recoverable
4 under item 2 of the SCC.

5 228. Is security recoverable? (SCC item 1)

QUESTION
6
We have a contract in place in which the Contractor is seeking payment for the security
staff under SCC item 11. Is this correct or should this be included in the Fee?

ANSWER

8
People carrying out such security work will fit within the provisions of the SCC for people,
providing they meet the requirements of one of the two bullets in item 1 or 14 of the SCC.

9
229. How is a security guard paid for? (SCC item 1)

QUESTION
10
In an ECC Option C contract, if the Contractor employs a security firm to undertake security
work within the Working Areas, paid for on an hourly subcontract basis, how is this paid
for?
11

ANSWER
12
It looks in your case as if these are paid for as people under item 1 of the SCC, and most
likely would probably fall under item 14.

160
 Chapter 11: Schedule of Cost Components

230. What does ‘royalties’ mean in the SCC? (SCC item 53)
1

QUESTION

In the ECC, what does ‘royalties’ in SCC item 53 cover?

2

3
ANSWER

The term ‘royalties’ covers those things such as a payment to an owner for the use of
property, especially patents, copyrighted works, franchises and natural resources.
4

231. Allowing for the SCC Working Areas overheads percentage (SCC item 5)
5

QUESTION

We recall that in the previous edition of the ECC Option C contract a Working Areas 6
overheads percentage as stated in the Contract Data was applied. Where do we now make
provision for the things that this previously covered?

ANSWER

This provision has been deleted in the NEC4 ECC, and therefore all of the matters it was
8
deemed to include are distributed across the other parts of the SCC.

232. Damage to Equipment (SCC item 8) 9

QUESTION
10
We have a query on an ECC Option C contract concerning Disallowed Cost. We are
questioning repairs to a Contractor’s camera, damaged on Site. Is this a valid Defined Cost
or not? We can see the hire is allowable under SCC item 22, but can see no item whereby
the repair is an allowable cost. 11

12

161
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

You have rightly identified this camera as Equipment. The Insurance Table in clause 83.3
requires the Contractor to insure loss of or damage to Equipment. The first bullet of SCC
item 8 makes it clear that you deduct from cost the cost of events for which the contract
2 requires the Contractor to insure, and that includes this event. You do not therefore pay
for this. The fact that the damage will be below the excess on the insurance policy is at the
Contractor’s risk.

233. Damage to vehicles (SCC item 8)

4
QUESTION

We are using ECC Option C. The Contractor has included within Defined Cost the cost of
5
repairing damage to vehicles that have been used by the Contractor’s employees over the
past 2–3 years. The cost of a replacement hire vehicle has also been included. Such costs
have been included within Defined Cost on the basis of SCC people item 13(n), ‘a vehicle’.
The vehicles in question are owned and repaired by another division of the Contractor.
6 The Project Manager considers that the cost of damage repair and hire falls under SCC
insurance item 8, first bullet, and, as such, adequate insurance provision should have been
provided under clause 83.3, row 3 of the listed table. The Project Manager has disallowed
significant repair and/or hire costs on the basis of clause 52.1, which states that any
7 Contractor’s costs that are not included in the Defined Cost are treated as included in the
Fee. Does the cost of repairing damaged vehicles and the cost of replacement hire vehicles
fall under SCC item 13(n) as Defined Cost or should it be treated as included in the Fee?

ANSWER

9 These vehicles are not owned by the Contractor but by a separate legal entity, albeit one
with the same parent company. As such, the Contractor would be liable to that separate
entity for any damage that occurs to its property. Therefore, under the third row of the
Insurance Table, the Contractor is required to insure against such liability. The costs of these
10
accidents could well fall within SCC item 13(n); however, the first bullet of SCC item 8 makes
it clear that such costs are, nevertheless, to be deducted because they are the cost of events
that the contract requires the Contractor to insure against. The Project Manager is therefore
correct not to allow such costs.
11

12

162
 Chapter 11: Schedule of Cost Components

234. Can we recover the costs of transport for people? (SSCC item 1)
1

QUESTION

We are using the ECC and have some compensation events valued using the SSCC. An
item we have claimed for under the Equipment heading is for a work van used to transport 2

people to and from the Working Areas. The Project Manager has struck this cost out in
our quotations. The published list in the Contract Data is the Civil Engineering Contractors
Association (CECA) Schedule of Dayworks. Under item 3, ‘Supplementary Charges within
the General Notes’, it says at point 1, ‘Transport provided by contractors for operatives to, 3
from, in and around the site to be charged at the appropriate Schedule rates’. Is the Project
Manager correct not to include the cost of the van in our quotations, or can we recover this
as a cost?
4

ANSWER
5
You cannot claim for this van as Equipment, because that only covers Equipment used in
the Working Areas, not transporting people to those areas (first sentence of SSCC item 2). It
does not matter what the General Notes in the CECA Schedule says, because you only use
the Schedule to get the rates for the Equipment that is to be paid for in accordance with the 6
SSCC.

The cost of this, however, should have been included as part of the cost of SSCC item 1
(people), and allowed for in the People Rates.
7

235. Cost of people in the SSCC (SSCC item 1)

8

QUESTION

Under the SSCC in ECC Option A there is a provision for ‘People Rates’ in item 1. It is 9
unclear what can be included in the cost of people, and it is our view that it is made up
of the cost to employ the person (SSCC item 11); that is, the salary of the person plus tax,
national insurance and pension contributions, plus any taxable allowances, for example a car
allowance. We do not believe the cost of people includes the cost of such items as travel,
10
subsistence and lodging, as we believe these are included elsewhere. Are our views in line
with the intended application of the SSCC?

11

ANSWER

For People Rates, if they are a cost for employing the person, which they are, then they
12
should have been included in the appropriate People Rates.

163
 NEC4 PRACTICAL SOLUTIONS

236. Which SSCC Equipment rates do we use? (SSCC item 2)

1

QUESTION

We are currently engaged on an ECC Option A contract. At the tender stage, in our Contract
2 Data part two – data for SSCC, we submitted a percentage reduction for Equipment under the
Civil Engineering Contractors Association (CECA) Schedule of Dayworks. We also submitted
a rate under ‘other Equipment’ for a gang consisting of a 7-tonne lorry, a mini-excavator with
rock breaker and a transporting trailer. This gang was dedicated to this particular contract,
3 which involved minor works at dozens of different locations.

We have since submitted the ‘other Equipment’ gang rate in quotations for compensation
events, but the Project Manager has assessed the compensation events at a lower value by
4
breaking our gang down to its constituent parts and applying the CECA Schedule with our
reduction. We can see where the Project Manager is coming from, but we contend that we
submitted a gang rate in our tender, that gang was used for compensation event works and
we are entitled to compensation event assessment at that rate. Could you advise which rate
should take precedence.
5

6
ANSWER

The ‘other Equipment’ is supposed to be used only for Equipment that is not within the CECA
rates, which is why the entry in the Contract Data follows the CECA entries and therefore
refers to only Equipment ‘other’ than can be found in the CECA rates. It is for specialist items
7 of Equipment, such as piling rigs, tunnel-boring machines and dredgers, which are not covered
by the CECA rates. That can be seen when you look at SSCC items 21 and 22. It is clear that
item 21 is used for all Equipment for which a rate can be found in the published list, and item
22 is only used for Equipment ‘which is not in the published list stated in the Contract Data’.
8 Therefore, contractually, the Project Manager is correct in what it is doing.

9
237. Cost of Equipment standing (SSCC item 2)

10 QUESTION

We are using ECC Option B, and would appreciate your thoughts on the following event.
On the first day of the construction project the Contractor had to stand down an excavator,
which lasted a matter of weeks. A compensation event has been notified with the Equipment
11 priced at the rate listed in Contract Data part two to be recovered for the period of delay. It is
our view that Equipment listed in Contract Data part two is meant for incidental works and is
not necessarily intended for use when there may be significant delay. We have subsequently
suggested that the Equipment should be priced at market rates or the equivalent hire cost, as
12 depreciation/fuel costs would be reduced as a result of the stand down.

164
 Chapter 11: Schedule of Cost Components

Secondly, if the Contractor had programmed to bring Equipment to the Site but did not as a 1
result of the stand down, we feel that as the Equipment was not within the Working Areas,
it cannot be charged for. Is this correct?

ANSWER

The contract is clear that you use the rate in the Contract Data (see either SSCC item 21 or 3
22, depending on which applies). Terms such as ‘incidental works’ are irrelevant because
they are not used in this contract. If you thought the rate was too high (or the percentage
was wrong), then the time to raise that was before you accepted the tender. Once you have
a contract, it is clear that what it states is what you pay.
4
With regard to your second point, an initial inspection of the contract would suggest that
you do not pay this cost because the Equipment was not in the Working Areas. However,
it is not as simple as that. The compensation is based on a forecast of the Defined Cost,
not the actual Defined Cost. That is because the last sentence of clause 63.1 makes it clear 5
when you stop using actual Defined Cost, and clause 63.1 also makes it clear that is the date
when you issued the instruction that we are talking about. Once you use a forecast you
do not change it based on what actually happened (clause 66.3). So, would a reasonable
forecast be that the Contractor brought the Equipment to the Site? Given that it will not be 6
paid for unless it does (and it is aware of the circulatory nature of that statement), then we
suspect the answer is yes. If you were to allow for it, we think you have the right to check to
make sure that it was, indeed, standing and not being used somewhere else. In reality, there
is no absolutely definitive answer to this. We suspect that if the Contractor could show that
7
it was not using it, some Adjudicators would allow payment for it – although at what rate is
another matter! Others would stick to the literal meaning of the contract and not pay for it.

238. Using the percentage for people overheads (SSCC item 5)

QUESTION 9

Our query relates to the ECC and Contract Data part two, specifically where Option A or B
is used (although there are similar requirements elsewhere). The previous version of the ECC
stated ‘Data for the Short Schedule of Cost Components’ and asked ‘The percentage for 10
people overhead is …%’.

We have read the NEC4 ECC and the new ECC Guidance Notes and cannot find this
inclusion anymore – where has it gone?
11

12

165
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

This particular provision has been removed in the current ECC, and all of the items this
provision was deemed to cover have been distributed across other provisions of the contract.

239. The cost of internet charges (SSCC item 51)

3
QUESTION

Under an ECC Option A contract, can you advise how we recover the cost of internet
4 charges in respect of compensation events?

5 ANSWER

This is provided as a recoverable cost in SSCC item 51. The difficulty you have will be to
determine how much additional provision and use in the Working Areas arises due to the
6
effects of a compensation event.

240. Using the percentage for design overheads (SSCC item 6)

7

QUESTION

8 Where should we allow for the percentage for design overheads – which was in the
previous edition of ECC Option A? Also, how does this differ from the Fee?

ANSWER

The percentage for design overheads has been removed in the NEC4 ECC and therefore the
10 matters that this was deemed to cover should be allowed for in other parts of your tender –
so you can more sensibly include for such in the appropriate hourly rates in the Contract
Data; alternatively, and probably less sensibly, you could include such in the Fee.

11

FURTHER THOUGHTS AND TOP TIPS

12 • The purpose of both the SCC and SSCC is to assist in the clarity of understanding
Defined Cost. Both will need careful study to aid the tender process and later contract
management.

166
 Chapter 12: Contract Data

CHAPTER 12

Contract Data
1

2
241. What service is in the PSC Scope? (Contract Data)

QUESTION 3

A Contractor has been employed under the PSC to provide overall management of a
programme of service to include whole life-cycle activities from competition to completion.
My question is, does this include the service of an ECC Supervisor or on-Site health and 4
safety auditor, or is this a role that the local authority would procure?

5
ANSWER

The answer will depend entirely on what is written in the relevant PSC Scope. If it says
that the Consultant (the name used in the PSC) provides this service, then it is included.
6
Otherwise the answer will not be clear and will depend on an interpretation of the words
used in the Scope to define precisely what the Consultant does.

7
242. Who is Mr I Judge? (Contract Data)

QUESTION 8

We are about to use the ECC for the first time on a new schools project. We have never
completed the Contract Data previously – could you direct us to any relevant guidance?
9

ANSWER
10
Each of the contracts within the NEC suite has accompanying Guidance Notes. The ECC
Guidance Notes contain advice on how to complete the Contract Data. This is annotated in
order that you can refer back to the relevant section in the Guidance Notes themselves. Do
not copy it exactly, as we have seen a real contract with ‘Mr I Judge’ as the Adjudicator. This 11
was meant to be a joke!

12

NEC4 Practical Solutions ICE Publishing: All rights reserved 167

.
 NEC4 PRACTICAL SOLUTIONS

243. How do you describe the Affected Property? (Contract Data)

1

QUESTION

We are preparing tender documents using the TSC. When an Affected Property is made up
2 of 10–15 buildings (which form an establishment), what can we refer to these as?

3
ANSWER

The first thing you need to decide is exactly what the Affected Property is. Is it 10 or 15, or
any number in between? Once you know that, you can describe it in any way that is sensible
4 and informs the Contractor exactly what buildings it is required to provide services to. So,
you can show them on a drawing and refer to the drawing number in the Contract Data.
Or list them in the Contract Data. Or say ‘all the buildings at XYZ’s site on the High Street,
Anywhere’ in the Contract Data. How does not matter, as long as it is clear.
5
What many people do is produce a table of buildings describing each one and explaining
what is required in each, and what the constraints are for each (such as access). You can
then put that table in the Scope, and the entry in the Contract Data can say something
like ‘The Affected Property is shown in Section 3 of the Scope’. All of this, of course, will
6
depend on exactly what maintenance or operations or facilities management you want the
Contractor to carry out in these buildings.

244. Incomplete Subcontract Data (Subcontract Data)

8 QUESTION

We are a subcontractor under the ECS. The Subcontract Data (first bullet under ‘General’)
states that retention and delay damages will apply. However, this has not been completed –
9 how would this be interpreted?

10 ANSWER

The ECS guidance warns that failure to complete fully will result in an incomplete contract –
this is what you have here. There is no real solution here other than to agree to change the
11 contract by agreement of the Parties (this would be a suitably authorised individual in your
company and also within the main Contractor’s organisation) – this needs to be recorded in
writing and signed by the two Parties (clause 12.3).

12

168
 Chapter 12: Contract Data

245. Do we need to name the Project Manager? (Contract Data)

1

QUESTION

I note in the ECC Guidance Notes on completing the Contract Data that individuals are
named. Should this be the case or can we name a department? Also, what happens if the 2

named individuals move on or need to delegate?

ANSWER

Yes, you should name the individuals – the ECC is all about having absolute clarity with
communication and clear lines of authority. If those individuals are replaced, then clause 4
14.4 requires that the Client notifies the Contractor of the name of the replacement.

Any delegation of duty by the Supervisor or Project Manager should be notified in

accordance with clause 14.2. This should be clearly articulated – it is recommended that this 5
is on a clause-by-clause basis.

Note that both of these clauses use the term ‘notify’. In accordance with clause 13.7,
this means that the communication should be undertaken separately from other
communications. Again, it is about clarity. 6

246. Scope versus the works (Contract Data) 7

QUESTION
8
I am completing the Contract Data for an ECC project – can you advise on the difference
between the works (second bullet) and the Scope?

ANSWER

The works should be a clear and succinct description of the works required – for example,
10
the design and construction of a new oncology facility at the Newtown site.

The detail is contained in the Scope. The Scope is a defined term under the ECC (i.e. it has
a contractual meaning). This is defined in clause 11.2(16) – it specifies and describes the
works. It also states any constraints on how the Contractor Provides the Works. 11

12

169
 NEC4 PRACTICAL SOLUTIONS

247. Best practice in drafting the Contract Data (Contract Data)

1

QUESTION

We want to ensure that we comply with best practice in drafting the Contract Data for the
2 ECC as a Client team. What do you suggest to ensure that we incorporate best practice and
any relevant guidance?

ANSWER

The Scope is one of the most important documents referenced from the Contract Data.
4 There is very helpful guidance in the ECC Guidance Notes. It is recommended that the
structure and drafting guidance is followed. This should ensure that the right terminology is
used and that this accords with ECC drafting principles.

5 Good practice in terms of the Contract Data would typically include striking through items
(e.g. secondary Options and optional statements) that you do not intend to use. When
circulating to a wider team, this will highlight which options are not being used and may
stimulate debate. Once a final version has been agreed, these should be deleted in order to
provide a ‘clean’ copy for the Contractor.
6

248. The period for reply (Contract Data)

7

QUESTION

8 Can you explain the period for reply – when is this applicable? As far as I am aware, some of
the clauses in the ECC have timescales – does the period for reply take precedence?

ANSWER

Clause 13.3 is perhaps the best starting point to explain the period for reply. Clause 13.3
10 states that, unless a timescale is stated in the contract, the Supervisor, Contractor and
Project Manager all respond within the period for reply. Typically this is two weeks –
sometimes this is less on projects that perhaps are fast track.

It is worth noting that differing periods for reply may be introduced: for example, for design
11
acceptance the Project Manager may give itself more time (e.g. three weeks). It also may be
contained in the Scope. A note of caution – too long a period could make the project very
difficult to deliver, so a pragmatic approach is required.

12

170
 Chapter 12: Contract Data

249. Responding quicker than the period for reply (Contract Data)
1

QUESTION

What happens if the Contractor needs a decision quicker than the period of reply? Is the
ECC Project Manager obliged only to respond within the period for reply? 2

3
ANSWER

The maximum time period for the Project Manager to respond (unless a timescale is defined
in the contract) is the period for reply. In a spirit of mutual trust and co-operation, this
should be seen as the maximum. 4

If the Contractor requires a quicker turn around, then the correct procedure in the contract
is to notify an early warning. In a spirit of mutual trust and co-operation, it is anticipated
that the Project Manager would then make all efforts to make a decision more quickly. 5

250. Contractual significance of the Early Warning Register (Contract Data) 6

QUESTION

Can you explain the relevance of items that will be included in the Early Warning Register 7

versus Client’s liabilities in the ECC? What status do they have, and how do they affect other
risk allocation?

ANSWER

Items that will be included in the Early Warning Register should be listed in the Contract 9
Data by both the Contractor and Client at the tender stage. They do not change the risk
allocation. These simply comprise a proactive list of matters that, once the contract is
signed, will be entered into the Early Warning Register and mitigation plans developed.
10
Items that are listed as Client’s liabilities do change the risk allocation. If included and then
they occur, these become a compensation event under clause 60.1(14).

The Early Warning Register is a defined term (clause 11.2(8)). It merely needs to include a
description of the matter and the mitigation plan. Many teams overcomplicate this and lose 11

track of practical mitigation measures.

So, matters included in the Early Warning Register do not change risk allocation – additional
Client’s liabilities do. 12

171
 NEC4 PRACTICAL SOLUTIONS

251. The defects date versus the defect correction period (Contract Data)
1

QUESTION

Can you explain the difference between the defects date and the defect correction period?
2 Also, why are there potentially a number of defect correction periods in the ECC?

3
ANSWER

The defects date is a defined number of weeks after Completion of the whole of the works,
such as 52 weeks (note: not after sectional Completion).
4
Effectively, this is the period within which the Supervisor would need to notify any Defects
found and the Contractor is obliged to rectify within the defect correction period.

The defect correction period is therefore a defined period of time within which the Defect
5
should be rectified. The Contractor cannot stockpile these and rectify in week 51 of 52 in
order to gain retention release – they need to be dealt with on a case-by-case basis and
within defined timescales.

252. Does the defects date change? (Contract Data)

7
QUESTION

We are using an ECC Option A contract on a develop-and-construct project. If an

8 instruction for additional works is given after the Completion Date, and the instruction
changes the Scope and is a compensation event, what effect does this have on the defects
date?

ANSWER

10
Assuming Completion of the whole of the works has been achieved, the instruction will
have no effect on the defects date. This is because the defects date is defined as being
‘x’ weeks after Completion of the whole of the works in the Contract Data part one. Of
course ‘x’ is the number of weeks inserted in the Contract Data in your particular contract.
Completion is not affected, as it has already been certified. The value of the compensation
11
event will have to reflect the additional Defined Cost to the Contractor of carrying out and
managing isolated works after its resources have left the Site.

12

172
 Chapter 12: Contract Data

253. Optional statements – what are they? (Contract Data)

1

QUESTION

What are optional statements in Contract Data part one of the ECC and when should we
consider these? 2

3
ANSWER

The optional statements are exactly that – you can decide to include them or not. These
decisions should be in keeping with your contract strategy and cover ‘what if’ scenarios. For
example, what if the Contractor achieves Completion prior to the Completion Date – are we 4
willing to take over? If you are not, the optional statement should be included; if you are,
then there is no need to include it.

Other optional statements relate to payment timescales, additional Client’s liabilities, Key 5
Dates and insurances and, among others, the secondary Options.

These need to be carefully considered and should reflect project risks and key drivers/
objectives.
6

254. Defining key persons (Contract Data)

7

QUESTION

Do we have to let the Contractor define the key persons or can we have a say in who they 8
should be?

9
ANSWER

Although Contract Data part two is completed by the Contractor, it can be altered by the
Client. You could, for example, define who the key people are, for example the site agent,
10
planner, commercial manager, health and safety representative, and design manager.

You could also go further and define their qualifications and experience. This may be very
important on some projects.
11
This has the advantage of defining what you see as the key attributes of a successful team
on your project and also a level of consistency across the competing tenderers.

12

173
 NEC4 PRACTICAL SOLUTIONS

255. Modelling the Contract Data part two rates and percentages (Contract Data)
1

QUESTION

How should we evaluate the financial submission from the Contractor under Option C of
2 the ECC? Should we just review the tendered total of the Prices or should we develop a cost
model to assess other rates and percentages?

ANSWER

You should most certainly evaluate the rates and percentages in a cost model as you
4 suggest. This provides sensitivity analysis and a rounded picture as to the most economical
Contractor.

For example, Contractor A may submit a tendered total of the Prices at £1 million but its
5 rates and percentages are treble those of Contractor B whose tender comes in at £1.01
million. If we estimate £300 000 of compensation events, then Contractor B would be
the most efficient. The ECC Guidance Notes provide a sample cost model that could be
developed for any main Option.
6 In order that all of the tenderers are aware of the cost model, this would need to be defined
in the tender documents.

7
256. Optional statements (Contract Data)

8 QUESTION

Can you explain the optional statement in Contract Data part two of the ECC – when would
the Contractor provide the Scope for its design. Also, what happens if this is inconsistent
with the Client’s Scope?
9

10 ANSWER

The Contractor may be required to provide the Scope for its design if tendering procedures
require this.
11 If the Scope prepared by the Contractor for its design is of a lower quality than the Scope
prepared by the Client, then, under clause 17.1, the Contractor and Project Manager are
required to notify each other as soon as they become aware; the Project Manager will then
decide the outcome. Assuming its instruction is for the Contractor to change its Scope in
12 order to comply with the Client’s, then this will not be a compensation event (clause 60.1(1),
second bullet).

174
 Chapter 12: Contract Data

257. Completing the Contract Data (Contract Data)

1

QUESTION

We are using the ECC and are unsure about how the SCC and SSCC are implemented in
the contract. For example, the data for the SCC and SSCC appear to be added at the end of 2

Contract Data part two by the Contractor.

My understanding is that these data relate to elements of the works outside the Working
Areas (such as design and fabrication) and for, say, Equipment that is purchased. However, 3
if our understanding is correct, we would also expect to see some words in Contract
Data part two along the lines of ‘The SCC is in the document …’ and ‘The SSCC is in the
document …’. There would then be a list of rates for various people and Equipment and
so on working on the Site; however, this does not appear to be the case. In short, we are 4
unsure what the Contractor puts where, for example, a labourer costs £20 per hour or an
excavator costs £35 per hour.

ANSWER

Both the SCC and the SSCC form part of the conditions of contract. They are incorporated
6
into the contract by the wording of the first bullet point of Contract Data part one. What
main Option you are on will determine which you use and what you use it for. The SCC (or
SSCC in Options A and B) covers all Defined Cost and sets out what will be paid and how
it will be paid. The information set out in the Contract Data provides the information that
is needed to make the SCC work, and is not just about work outside the Working Areas. 7

People are paid for at what they cost in the SCC and at the People Rates stated in the SSCC.
Equipment is also paid at cost in the SCC (item 2), whereas in the SSCC it is paid for at the
rates in the schedule referred to in Contract Data part two, with the percentage adjustment
also set out there (SSCC item 2). 8

258. Changes to the Contract Data part two percentages (Contract Data) 9

QUESTION
10
Under ECC Option C, is there any mechanism to implement a change to the fee percentage
to reflect a significant change in the Contractor’s resource profile on a project? In our case,
there has been a significant increase in the use of direct labour to carry out work originally
identified as being subcontracted.
11

12

175
 NEC4 PRACTICAL SOLUTIONS

1 ANSWER

The simple answer to your question is no. It is a figure that is included in the contract and
which neither Party is able to change. Whether the Client or the Contractor thinks it is too
high or too low is irrelevant – they are both contracted to it. If you are concerned about this,
2
we would ask you to give an honest answer to the following question: if the Contractor had
come to you after the contract had been signed and said ‘we are going to use a lot more
Subcontractors than we thought so our fee percentage is too low and we want to increase
it’, what would your answer have been? Logic says that your answer (yes or no) should be
3 the same as for your scenario.

In reality with Option C, this balance is part of the risks that the Parties have agreed to
share. You may pay the Contractor more in the way of the Price for Work Done to Date,
4
but the target does not increase, so you recover a proportion of that additional payment
through the share mechanism (either more pain or less gain) at the end of the contract. How
large that proportion is will, of course, depend on the share percentages and share ranges
in the contract.
5

FURTHER THOUGHTS AND TOP TIPS

6
• Ensure that the Contract Data is completed in full. If incomplete, you have an incomplete
contract!

• Carefully select the main and secondary Options and optional statements, and ensure
7
that they fit with the project risks and objectives.

• Develop a cost model that evaluates the Contract Data part two rates and percentages.
Ensure that this is clearly defined in the tender documents.
8
• Ensure that the Scope (ECC), Service Information (TSC) or Scope (PSC) are appropriately
drafted – look at the appropriate Guidance Notes that provide a clear structure and tips
on drafting.
9

10

11

12

176