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NEC3 - Compensation Events and Earlier Completion Date

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Ian van Aardt
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Hello PP members,

I need a little bit of help with understanding how to deal with Compensation Events under the NEC3 ECC (Option B) were the PM is assessing CE's now, knowing that there will be a design change as a result of some post-award value engineering which could reduce the time required for completion.

In this scenario there are legitimate CE's with extensions of time which if implemented with change the Completion Date to approxiametly 2 months later.

However as a result of value engineering by the PM, a substantial time saving can be made by implementing a revised design that will allow a portion of the works to commence earlier than planned at the tender and award stages.

How should the PM deal with the assessment of CE's that award extension of time now, knowing that a change in the works information will lead to saving in time later.

We have debated this quite extensively within the project team and so far the options discussed are:

1. PM assesses the CE's, awards the extension of time and later requests an acceleration quote - this puts the project at risk if the Contractor then submits an unreasonable quotation which the Employer &/ PM cannot accept. (the redesign will also reduce the costs, but it is the time saving which is the main motivation to pursue the alt. design)

2. PM assesses the CE's, but includes an assumption that the later redesign will negate the extension of time and does not implement the time effects of the CE's.

3. The PM assesses the CE's, awards the extension of time now, but when later CE for redesign is implemented the resultant 'terminal float' gained will then become the PM's float (this doesn't seem contractually correct?)

 

Additional Notes:

- Design is being done by the Designer seperately contracted by the Employer - therefore design is the Employers

- The PM is contracted by the Employer and also serves as the Supervisor

- Guidance notes on Clause 63.3 "No Compensation Event can result in a reduction in the time for carrying out the works." this seams to clsoe the door on dealing with the redesign time savings through a later CE (?)

 

Any thoughts would be most welcome. Especially if you have successfully dealt with a similair scenario on previous contracts...

Replies

Robert Gerrard
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I agree with Gary.  The PM is obliged within quite strict timescales to deal with CE's on a sequential basis. At this moment in time the value engineering is not a certainty, you never know it may just not happen or be quite as good as first thought. So if the Completion Date is changed for the earlier CE's so be it. There's now a new Completion Date which may not be to the liking of the Employer. If Completion must be earlier then ask the Contractor to quote for acceleration; the Contractor is not obliged to quote and the amount may be considered to be unreasonable so this may not give the PM/Employer (or even the Contractor) the outcome they all desire.

Probably the more sensible route is to introduce the value engineering (which actually will just simply be an instruction to change the Works Information as it derives from the PM) notify it as a CE and instruct a quotation. If this has an effect on the critical path then the saving in time-related costs should be fed into the quotation. As others have said, the Completion Date cannot be brought forward through the CE process. So you now have a saving in the CE but terminal float is generated (which is the Contractor's), the revised programme (assuming the quotation is accepted) will show planned Completion earlier than the contractual Completion Date. I would suggest this is the more appropriate time to ask for a quote for acceleration, the Contractor is more comfortable that all the CE's are implemented, shown on the Accepted Programme, has a good feel on planned Completion, knows how many weeks the PM on behalf the Employer wishes to reduce the contractual Completion Date by, and all this should bring a bit more certainty to the process. Good dialogue is the key here.

Rob

Gary Whitehead
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NEC was designed to encourage collaborative partnership approaches where both parties work for the best interests of the project as a whole. Consequently, it is more dependant than most contract forms on both parties acting in the proper spirit in order to work effectively.

 

This is something I think clients should bear in mind when choosing NEC over say IChemE / FIDIC. If your contract administration culture is adversarial, or you don't have a strong relationship with your contractor, or indeed if you don't have the resources to administer it effectively, NEC may not be the best option.

 

When it works, it works well. When it fails, it does that pretty well too.

Ian van Aardt
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 Thank-you Gary and Damian,

This is also, unfortunately, how I first interpreted the implications of Cl. 63.3.

The consequence of it seems a little bit unjust. Obviously if the Contractor, PM and Employer have a good relationship and act in the spirit of the NEC rather than to the letter of the contract, Cl.63.3 and the consequent acceleration quote will not be a problem.

I understand the intentions behind it all, which protects the Contractor from unfair reductions of time, but overall I think that at the same time it can inhibit fair assessments of earlier CE's in an attempt to not give away extensions of time early on in the contract. Once the horse has bolted it's already hard enough to keep the project within the defined 'box', when the relationships are strained this might stifle any innovative thinking on the part of the project team.

None the less, thank-you for the reply's.

Cheers,

Ian.

Damian Smith
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The CE should be assessed at the time the CE occurs and should not take into account any future CE's

Once the CE has been assessed, then any impact must also be reflected by changing the completion date.

As you mention, clause 63.3 closes the door on option 3

Overall the client is still benefiting in real terms with the value engineering CE, so while the completion date may have changed outwards by two months, the contractor will still want to acheive his planned completion date (as a result of the VE CE)simply because the Value Engineering CE could offer a reduction in overall cost of the works.

Gary Whitehead
User offline. Last seen 24 weeks 20 hours ago. Offline

I checked with our resident NEC expert, and it is as I feared: Option 1 is the only one that's really tenable.

 

His reasoning:

"PM should not hold up aseesment of one CE on the basis that another is coming.

For the one planned that allows an earlier 'planned Completion', then CE assessment can not bring forward the 'Completion Date' (63.3 talks only of a 'delay to the Completion Date') so yes this could introduce some terminal float, which would belong to the Contractor.

If you then want to accelerate (bring forward the (contractually required) Completion Date then use cl 36 to so so - but only by agreement."

 

Cheers,

 

G