MTRC NEC4 Training Level 2 - Module 3 Rev 1.1

MTRC NEC4 Training
Module 3 – Compensation Events
Ian Heaphy & Daniel Cheung making the difference
September 2021
making the difference

Turner & Townsend Confidential
Training modules
Module Module Module Module Module

One Two Three Four Five
Roles &
responsibilities Compensation Time and the
Precontract Commercial
and risk events programme
management
• Contract • What are • Payment process

• Role of the
selection compensation • Contract dates • PWDD
Project Manager
• Main and events • The programme • Defined Cost
& Supervisor
secondary • The • Delay • Schedule of Cost
• Contractor’s
option selection compensation assessment Components
obligations
• Contents of a event process • Acceleration • Reporting
• Risk
contract • Assessment and • Completion and • Title
Management
• Tender implementation take over • Contractor’s
assessment proposals
Turner & Townsend MTRC NEC4 Level 2 – Module 3 2

Training modules
Module Module Module Module Module

One Two Three Four Five
Roles &
responsibilities Compensation Time and the
Precontract Commercial
and risk events programme
management
• Contract • What are • Payment process

• Role of the
selection compensation • Contract dates • PWDD
Project Manager
• Main and events • The programme • Defined Cost
& Supervisor
secondary • The • Delay • Schedule of Cost
• Contractor’s
option selection compensation assessment Components
obligations
• Contents of a event process • Acceleration • Reporting
• Risk
contract • Assessment and • Completion and • Title
Management
• Tender implementation take over • Contractor’s
assessment proposals

Agenda – Module 2 compensation events
■ Welcome and introductions

■ What events are compensation event
■ The compensation event process
■ Proposed instructions
■ Q&A session

What events are
compensation
events
Module 3 –
Compensation Events
making the difference 5

What are compensation events
■ Compensation events are events for which the Client takes the
risk of their occurrence
■ If a compensation event occurs the Contractor will be entitled
to be compensated for the effect of that event in terms of
both time and cost
■ time (Completion Date(s), Key Dates)
■ cost (direct, indirect, delay and disruption)
■ There is no separate extension of time (EOT) or claim clauses
■ Single opportunity to price for all the time and cost effects
resulting from the event!

Where are the compensation events listed
■ Clause 6 of an NEC contract covers compensation events and

contains in a single section the mechanics for notifying,
assessing and implementing its effects
■ Compensation events are listed in the core clauses
■ clause 60.1 lists 20 events
and if selected
■ main Option B & D – 3 more compensation events - and
■ secondary Options X2, X12, X14, X15
■ Additional compensation events can also be included in the
Contract Data
■ Compensation events can also be added and removed through
z clauses
Compensation events – cl 60.1
(1) Project Manager gives an instruction to change the Scope except

• a change made in order to accept a Defect
• a change to the Scope provided by the Contractor for its
design which is made
• at the Contractor’s request or
• in order to comply with the Scope provided by the Client
■ The Project Manager has the power to issue an instruction to
change the Scope under clause 14.1
■ This can include any change (variation) to the works including
addition, omission, introducing or removing constraints, changing
specifications, design standards etc.
■ There is no contractual limit on the range or value of change,
though this may be imposed by the law of the contract

(2) The Client does not provide access and use of the Site by the
later of its access date and the date shown the Accepted
Programme
■ The Client is obligated to provide access under clause 33.1
■ The Contractor can delay the date for access to the Site by
identifying a later date in the programme submitted for
acceptance and can bring this date forward in a later
programme submission but cannot require an earlier access
date than the access date in the Contract Data

(3) The Client does not provide something which it is to provide by

the date shown in the Accepted Programme
■ The Contractor is required to show the date the Client has to
provide something in their programme submitted for acceptance
■ This will have to comply with any requirements stated in the
Scope i.e. notice periods to be given to the Client
■ When the Project Manager accepts the programme they are
committing the Client to meeting the date shown

(4) The Project Manager gives an instruction to stop or not to start

any work
■ The Project Manager has the power to issue an instruction to
stop or not start any work under clause 34.1, this can be for any
reason
■ Any work suspended has to be started / restarted or omitted
from the Scope
■ A right to terminate the contract will arise after 13 weeks

(5) The Client or Others

• do not work within the times shown on the Accepted
Programme
• do not work within the conditions stated in the Scope or
• do work on Site that is not stated in the Scope
■ Others are third parties including other contractors engaged by
the Client
■ The Contractor is required to show the time frames for the work
of the Client or Others in their programme submitted for
acceptance
■ This will be in accordance with the time frames in the Scope or
any updated time frames agreed with the Client or Others
■ When the Project Manager accepts the programme they are
committing the Client and Others to meeting the date shown

(6) The Project Manager or Supervisor does not reply to

communication from the Contractor within the period required
by the contract
■ The reply period will be as set out specifically in a clause or the
period for reply in the Contract Data
(7) The Project Manager gives and instruction for dealing with an
object of value or of historical or other interest
■ The Project Manager is obligated to issue the instruction under
clause 73.1
(8) The Project Manager or Supervisor changes a decision which it
has communicated to the Contractor
■ This clause has limited application and does not allow the Project
Manager to make changes that are not provided for under the
contract
(9) The Project Manager withholds an acceptance for a reason not

stated in this contract
■ Any acceptance required by the Project Manager has stated
reasons for non acceptance listed in the contract
(10) The Supervisor instructs a search for a Defect and no Defect is
found unless the search is only needed because the Contractor
gave insufficient notice of doing work obstructing a required
test or inspection
■ The Supervisor has the power to issue the instruction under
clause 43.1
(11) A test or inspection done by the Supervisor causes
unnecessary delay
■ The Supervisor is obligated not to cause unnecessary delay to
tests or inspections under clause 41.5

(12) The Contractor encounters physical conditions

• are within the Site,
• are not weather conditions and
• 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.
Only the difference between the physical conditions
encountered and those for which it would have been
reasonable to have allowed is taken into account in assessing a
compensation event

Compensation event – 60.1(12)
(60.2) In judging the physical conditions for the purpose of

assessing a compensation event, the Contractor is assumed
to have taken into account
• the Site Information,
• publicly available information referred to in the Site
Information,
• information obtainable from a visual inspection of the Site
and
• other information which an experienced contractor could
reasonably be expected to have or to obtain
(60.3) If there is an ambiguity or inconsistency within the Site
Information (including the information referred to in it), the
Contractor is assumed to have taken into account the
physical conditions more favourable to doing the work

(13) A weather measurement is recorded

• within a calendar month,
• before the Completion Date for the whole of the works and
• at the place stated in the Contract Data
the value of which, by comparison with the weather data, is
shown to occur on average less frequently than once in ten
years
Only the difference between the weather measurement and
the weather which the weather data show to occur on average
less frequently than once in ten years is taken into account in
assessing a compensation event

■ weather measurements are identified in the Contract Data

■ Standard list of weather measurements are
■ cumulative rainfall (mm)
■ number of days with rainfall more than 5mm
■ number of days with minimum air temperature less than 0 degrees
Celsius
■ number of days with now lying at xx:xx hours GMT
■ Additional weather measurements can be added
■ weather measurements are recorded at the location identified in
the Contract Data, this can be the Site or a local weather station
■ weather data is past weather data provided by a source identified
in the Contract Data i.e. Hong Kong Observatory

(14) A Client’s liability event occurs

■ Client’s liabilities are listed at clause 80.1
(15) The Project Manager certifies take over of a part of the works
before both Completion and the Completion Date
■ The Client may use any part of the works before Completion and
this will be considered take over unless
■ it is for a reason stated in the Scope or
■ to suit the Contractor’s method of working
■ Take over after the Completion Date but before the works are
complete is not a compensation event as the Contractor is in
breach of their obligation to finish on or before the Completion
Date

(16) The Client does not provide materials, facilities and samples for
tests and inspections as stated in the Scope
■ A breach of an obligation set out in the Scope
(17) The Project Manager notifies a correction to an assumption
about a compensation events

100m of cable installation
1m depth
Junction Junction
box 1 box 2

rock
Junction Junction
box box
10m of
cable Compensation event notified
installation by the Contractor for
unforeseen physical
conditions, accepted by
Project Manager

rock
Junction Junction
Quotation to be provided by the Contractor
box box
10m of and this is there one chance to cover for all
installation of the time and cost effects of the event
90m of rock

rock
Junction Junction
box box
10m of
installation

10m of rock
Junction Junction
box box

5m of rock
Junction Junction
box box

-5m of rock
Junction Junction
box box

(18) A breach of contract by the Client which is not one of the other
compensation events under this contract
■ A “catch all” provision to allow the Project Manager to deal with
any breach of an obligation by the Client via the compensation
event process and to avoid time becoming “at large"

(19) An event which

• stops the Contractor completing the whole of the works or
• stops the Contractor completing the whole of the works by
the date for planned Completion shown on the Accepted
Programme,
and which
• neither Party could prevent,
• 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 it and
• is not one of the other compensation events stated in the
contract
■ Linked to clause 19.1 which requires the Project Manager to
instruct how a prevention event is to be dealt with
(20) The Project Manager notifies the Contractor that a quotation

for a proposed instruction is not accepted
■ The Contractor is able to recover the abortive cost and time
expended in providing quotations for work that does not take
place
■ If the works take place the cost and time for preparing the
quotation is recovered as part of the compensation event
assessment
(21) Additional compensation events stated in the Contract Data
■ Allows the Client to take on more risk if they wish
■ If the Contract Data does not state any more compensation
events the clause has not effect

Compensation events – Option D
(60.4) A difference between the final total quantity of work done

and the quantity stated for an item in the Bill of Quantities is
a compensation event if
• the difference does not result from a change to the Scope,
• the difference causes the Defined Cost per unit of quantity
to change and
• the rate in the Bill of Quantities for the item multiplied by
the final total quantity of work done is more than 0.5% of
the total of the Prices at the Contract Date.
If the Defined Cost per unit of quantity is reduced, the
affected rate is reduced

Compensation events – Option D
(60.5) A difference between the final total quantity of work done

and the quantity for an item stated in the Bill of Quantities
which delays Completion or the meeting of the Condition
stated for a Key Date is a compensation event
(60.6) The Project Manager gives an instruction to correct a mistake
in the Bill of Quantities which is
• a departure from the rules for item descriptions and or
division of the work into items in the method of
measurement or
• due to an ambiguity or inconsistency.
Each such correction is a compensation event which may
lead to reduced Prices.

Compensation events - PSC
ECC PSC
60.1(1) Project Manager gives an 60.1(1) Service Manage gives an
instruction to change the Scope instruction to change the Scope
except except
• a change made in order to • a change made in order to
accept a Defect accept a Defect
• a change to the Scope provided • a change to the Scope provided
by the Contractor for its design by the Consultant which is made
which is made • at the Contractor’s request or
• at the Contractor’s request or • in order to comply with the
• in order to comply with the Scope provided by the Client
Scope provided by the Client

ECC PSC
60.1(2) The Client does not provide 60.1(2) Client does not allow access
access and use of the Site by the to a person, place or thing by the
later of its access date and the date later of its access date and the date
shown the Accepted Programme for access shown on the Accepted
Programme
60.1(3) The Client does not provide 60.1(3) The Client does not provide
something which it is to provide by something which it is to provide by
the date shown in the Accepted the date shown in the Accepted
Programme Programme
60.1(4) Project Manager gives an 60.1(4) Service Manager gives an
instruction to stop or not start any instruction to stop or not start any
work, or to change a Key Date work, or to change a Key Date

ECC PSC
60.1(5) The Client or Others do not 60.1(5) The Client or Others do not
work within the times shown on the work within the times shown on the
Accepted Programme, the Accepted Programme or the
conditions stated in the Scope, or conditions stated in the Scope
do work on Site not stated in the
Scope
60.1(6) The Project Manager or 60.1(6) The Service Manager does
Supervisor does not reply to a not reply to a communication from
communication from the Contractor the Consultant within the period
within the period required in the required in the contract
contract
60.1(7)The Project Manager
instructs how to deal with an object
of value or historical interest

ECC PSC
60.1(8) The Project Manager or 60.1(7) The Service Manager
Supervisor changes a decision changes a decision which the
which either has previously Service Manager has previously
communicated to the Contractor communicated to the Consultant
60.1(9) Project Manager withholds 60.1(8) Service Manager withholds
an acceptance for a reason not an acceptance for a reason not
stated in the contract stated in the contract
60.1(10) Supervisor instructs a
search for a Defect and no Defect is
found unless the search is only
needed because the Contractor
gave insufficient notice of doing
work obstructing a required test or
inspection

ECC PSC
60.1(11) A test or inspection by the
Supervisor causes unnecessary
delay
60.1(12) Unforeseen physical
conditions
60.1(13) A weather event over a 1
in 10 year event level
60.1(14) An event which is a 60.1(9) An event which is a Client’s
Client’s liability stated in these liability stated in these conditions of
conditions of contract contract
60.1(15) The Project Manager
certifies take over before both
Completion and the Completion
Date

ECC PSC
60.1(16) The Client does not
provide things for tests and
inspections as stated in the Scope
60.1(17) The Project Manager 60.1(10) Service Manager notifies
notifies the Contractor of a the Consultant of a correction to an
correction to an assumption which assumption which the Service
the Project Manager stated about a Manager stated about a
compensation event compensation event
60.1(18) A breach of contract by 60.1(11) A breach of contract by
the Client which is not one of the the Client which is not one of the
other compensation events in the other compensation events in the
contract contract

ECC PSC
60.1(19) An event which 60.1(12) An event which
• stops the Contractor completing the • stops the Consultant completing the
whole of the works or whole of the service or
• stops the Contractor completing the • stops the Consultant completing the
whole of the works by the date for whole of the service by the date for
planned Completion shown on the planned Completion shown on the
Accepted Programme, Accepted Programme,
and which and which
• neither Party could prevent, • neither Party could prevent,
• an experienced contractor would • an experienced consultant would
have judged at the Contract Date to have judged at the Contract Date to
have such a small chance of have such a small chance of
occurring that it would have been occurring that it would have been
unreasonable to have allowed for it unreasonable to have allowed for it
and and
• is not one of the other compensation • is not one of the other compensation
events stated in the contract events stated in the contract

ECC PSC
60.1(13) The Consultant corrects a
Defect for which it is not liable
under the contract – obligation is
provide the service using
reasonable skill and care, a Defect
caused even when reasonable skill
and care has been exercised will
still need to be corrected but this
will be a compensation event
60.1(14) The Service Manager gives
an instruction correcting information
provided by the Client – Client
warrants the information it provides
to the Consultant

ECC PSC
60.1(20) the Project Manager 60.1(15) the Service Manager
notifies the Contractor that a notifies the Consultant that a
quotation for a proposed instruction quotation for a proposed instruction
is not accepted is not accepted
60.1(21) Additional compensation 60.1(16) Additional compensation
events stated in the Contract Data events stated in the Contract Data

Case study 1 – compensation events
■ Which of the following would be compensation events

■ An instruction changing the Contractor’s Scope for its design as
their design will not achieve a design life specified in the Client’s
Scope
■ The Contractor encounters asbestos in an existing building which
was not identified in the Site Information
■ A failure by the Building Department to approve a Contractor’s
design submission
■ A change to the Scope to replace an existing wall damaged by the
Contractor when Providing the Works
■ An instruction to stop work a part of the works given by the Project
Manager
■ as the Client is thinking of omitting that work
■ as the Contractor is working in an unsafe way

Case study 1 – compensation events
■ Which of the following would be compensation events

■ An instruction changing the Scope to correct an inconsistency in
the Client’s Scope
■ A subcontractor goes out of business and needs to be replaced
■ The Contractor find archaeological remains during an excavation
■ The Supervisor instructs a search for a Defect and a Defect is
found
■ The Project Manager does not reply to drawings submitted by the
Contractor for acceptance under clause 21.2, within the period for
reply
■ The Project Manager issues a revised set of drawings with updated
drawing numbers, this has no impact on time or cost

The process
Module 3 –
Compensation Events

Procedure
■ The procedure follows a logical chain with strict timescales as

follows:
■ Notification Immediate by Project Manager, 8
weeks by Contractor
■ Decision on validity 1 week
■ Quotation 3 weeks
■ Assessment of quotation 2 weeks
■ Implementation
■ All the timeframes can be extended by the mutual agreement of
the Project Manager and the Contractor
■ Parties need to ensure sufficient resources are in place to manage
and asses the effects of compensation events within the time
periods set out in the contract

Compensation event process

PMI / SI = Project Managers / Supervisors instruction, notification, certificate, changed decision
NCE = notification of compensation event
Project Manager Contractor
PMI / SI
Decision on
NCE NEC – 8
validity - 1
(cl 61.1) weeks
week (cl 61.3)
(cl 61.3)
Not a
compensation
event
Quotation -
Instruct
3 weeks
quote
(cl 62.3)
(cl 61.2 /
61.4)
Respond to
quote - 2
weeks (cl Issue quote
62.3)
Project
Manager’s
assessment
(3 weeks) Implemented

Notification
■ Either the Project Manger or the Contractor can notify the other
of a compensation event
■ The Project Manager is required to notify certain compensation
events – those that arise from an action of the Project Manager or
Supervisor, 60.1(1), (4), (7), (8), (10), (15), (17), (20) (cl 61.1)
■ As part of the notification, they will also instruct the Contractor to
submit a quotation for the compensation event unless
■ the event arose due a fault of the Contractor
■ the event has no effect on the Prices, Completion Date or Key
Dates (cl 61.2)

Notification
■ The Contractor notifies compensation events under clause 61.3

■ Contractor must notify certain compensation events – those the
Project Manager is not obligated to notify – within 8 weeks of
becoming that the event has happened or they will lose their
entitlement to any change to the Prices, Completion Date and Key
Dates
■ If the Contractor notifies an event the Project Manager must
decide whether to accept the notification and to instruct a
quotation
■ The Project Manager must make the decision within 1 week or –
as with any step in the process - a longer period to which the
Project Manager and Contractor have agreed

Notification
■ In order to determine if the event is a valid compensation event

that will proceed to the quotation stage the Project Manger
applies the five tests in clause 61.4
■ If the Project Manager decides that the event notified by the
Contractor: -
■ arises through a fault of the Contractor,
■ has not happened and is not expected to happen,
■ has not been notified within the timescales in the contract
■ has no effect upon Defined Cost, Completion or meeting a Key
Date or
■ is not one of the compensation events stated in this contract
the Project Manager notifies the Contractor there will be no
change the Prices, Completion Date and Key Dates
Notification
■ If Project Manager fails to reply to the Contractor’s notification in

time (1 week or any extended period the Project Manager and the
Contractor had agreed to), the Contractor may notify the Project
Manager of the failure
■ If the Project Manager fails to reply to the second notification
within a 2 week period, then the quotation is deemed to be
accepted. (Cl 61.4)
No response
from the
Contractor’s No default
Project
notification acceptance
Manager
1 week X weeks

Notification
■ If Project Manager fails to reply to the Contractor’s notification in

time (1 week or any extended period the Project Manager and the
Contractor had agreed to), the Contractor may notify the Project
Manager of the failure
■ If the Project Manager fails to reply to the second notification
within a 2 week period, then the quotation is deemed to be
accepted. (Cl 61.4)
No response Contractor
from the issues
Contractor’s Project second Default
notification Manager notification acceptance
1 week X days / 2 weeks

weeks


PMI / SI
Decision on
NCE NEC – 8
validity - 1
(cl 61.1) weeks
week (cl 61.3)
(cl 61.3)
Not a
compensation
event
Instruct
quote
(cl 61.2 /
61.4)

Quotation
■ The Project Manager can enter into discussion with the Contractor
about alternative ways of dealing with the compensation event and
can ask for alternative quotes (62.1)
■ This process allows for different options for dealing with the
compensation event to be considered such as mitigating cost or
mitigating delay
■ This could include considering delay recovery measures and
instructing quotations be prepared on this basis
■ Contractor has to submit the required quotations and can offer
further alternatives
■ To support delay recovery measures instructions changing the Scope
could be issued – if required – which in themselves would be
compensation events but the Contractor would not be entitled to the
same costs and time effects twice

Quotation
■ If the Contractor did not give an early warning which an experienced

contractor could have given the event is assessed as if they had given
the early warning
■ If the Project Manager decides that the effects of a compensation
event are too uncertain they can state an assumption
■ The assessment of the compensation event is then based on these
assumptions
■ If the assumption turns out to be incorrect the Project Manager
notifies a correction
■ This leads to the award of a new compensation event for the
changed effect (60.1(17))

Assessment
■ Changes to the Prices are assessed as the effect of the

compensation event upon
■ the actual Defined Cost of the work done by the dividing date,
■ the forecast Defined Cost of the work not done by the dividing date
and
■ the resulting Fee
■ The dividing date is the date of
■ the instruction, notification, certificate from the Project Manager or
Supervisor which leads to a compensation event and
■ for other events the date of notification of the compensation event
(Cl 63.1)

Assessment
Compensation
event
notification
Week 1 Week 2 Week 3 Week 4
All forecast Defined Cost

Assessment
Compensation
event
notification
All actual Defined Cost

Assessment
Compensation
event
notification
2 weeks actual 2 weeks forecast

Defined Cost Defined Cost
Assessment
Compensation Compensation
event event quotation
notification assessment
All forecast Defined Cost

Assessment
■ Assessment for the change to the Prices is made on the basis of

Defined Cost plus Fee, this in effect actual cost plus Fee
■ Defined Cost will be covered in detail in Module 5
■ Rates and prices included in the contract i.e. in an Activity Schedule
of Bill of Quantities can only be used by the mutual agreement of the
Project Manager and the Contractor (cl 63.2) – default is Defined
Cost plus Fee
■ The Contractor cannot omit the cost of the original work scope and
replace this with the revised work scope they are only entitled to the
extra over Defined Cost it has or will incur (or save) as a result of the
compensation event
■ The Contractor will need to demonstrate cause and effect
■ Any indirect costs such as an increase in management resources,
extended preliminaries / site running costs will need to be claimed as
part of the compensation quotation and cannot be claimed separately
later
Assessment
Compensation
Compensation event 3 cannot
event 2 can be be dealt with by
Compensation dealt with by the existing
event 1 can be the existing management
dealt with by management team and
the existing team but they additional
management are now at resource is now
team capacity
Cost
required
Additional resource
Management resources
Time

Assessment
■ Assessment of the effect of a compensation event includes risk

allowance for cost and time for matters which have a significant
chance of occurring and are at the Contractor’s risk under this
contract (Cl 63.8)
■ Assessment of the effect of a compensation event is based on the
assumption that the Contractor reacts promptly and competently
to the event that any Defined Cost and time due to the event are
reasonably incurred (Cl 63.9)

Assessment
■ Delay to the Completion Date is assessed as the length of time

that planned Completion is later than planned Completion shown
on the Accepted Programme current at the dividing date
■ The assessment takes into account
■ any delay caused by the compensation event already in the
Accepted Programme and
■ events which have happened between the date of the Accepted
Programme and the dividing date. (Cl 63.5)
■ If the programme for the remaining work is altered by the
compensation event the Contractor includes alterations to the
Accepted Programme in its quotation (Cl 62.2)
■ This will be dealt with in detail in Module 4

Assessment
■ Contractor submits quotations within 3 weeks and Project

Manager replies within 2 weeks of the submission, the reply is
■ acceptance of the quotation
■ an instruct to submit a revised quotation
■ notification that they will be making their own assessment
■ If the Project Manager instructs the Contractor to submit a
revised quotation it explains the reasons for doing so
■ The Contractor resubmits within 3 weeks
■ If Project Manager fails to reply a quotation in time, the
Contractor may notify the Project Manager of his failure
■ A further failure to reply to the second notice within 2 weeks then
the quotation is deemed to be accepted. (Cl 62.6)

Project Manager’s assessment
■ The Project Manager can make its own assessment of the effects
of a compensation event if
■ the Contractor has not submitted a quotation and details of its
assessment in the time allowed
■ the Project Manager decides that the Contractor has not assessed
the compensation event correctly and does not request a revised
quotation
■ the Contractor fails to submit a programme or alterations to a
programme which this contract requires it to submit
■ when the Contractor submits quotations for a compensation event,
the Project Manager has not accepted the Contractor’s latest
programme for a reason stated in the contract
■ The assessment made by the Project Manager cannot be
challenged or rejected by the Contractor, except through the
dispute process under the contract
Implementation
■ Compensation event is implemented when

■ Project Manager accepts Contractor’s quotation
■ Project Manager notifies Contractor of its own assessment or
■ Contractor’s quotation is treated as having been accepted (66.1)
■ Once implemented
■ the Prices, Completion Date and Key Dates are changed
accordingly (66.2)
■ the assessment is not revised (even if wrong)
■ A dissatisfied Party can only challenge an implemented compensation
event via the dispute process under the contract


PMI / SI
Decision on
NCE NEC – 8
validity - 1
(cl 61.1) weeks
week (cl 61.3)
(cl 61.3)
Not a
compensation
event
Quotation -
Instruct
3 weeks
quote
(cl 62.3)
(cl 61.2 /
61.4)
Respond to
quote - 2
weeks (cl Issue quote
62.3)
Project
Manager’s
assessment
(3 weeks) Implemented

Case study 2 – compensation event process
■ What should the Contractor do if there is no response from the

Project Manager to a compensation notified by the Contractor
within a 2 week period?
■ If a compensation event is priced using Defined Cost plus Fee can
the Contractor claim general supervision time and cost for the
work?
■ What should the Project Manager do if they are unhappy with a
Contractor’s submitted quotation?
■ Under main Option C target cost contract with Activity Schedule,
what happens to the Defined Cost of an event in excess of the
value agreed for the compensation event?
■ Can the Contractor notify an event as a compensation event 9
weeks after it gave an early warning for it?

Case study 2 – compensation event process
■ An instruction changing the Scope to include additional work has

been issued by the Project Manager, the Client does not want the
work to delay the Completion Date. What can the Project
Manager do to try to ensure this happens?
■ The Contractor has submitted a quotation for a proposed
instruction that is substantially in excess of the amount the
Project Manager estimates the cost of the change to be – what
can the Project Manager do?
■ There is a disagreement between the Project Manager and the
Contractor over the value of a compensation event – what should
the Project Manager do to resolve the problem?

Proposed
instructions
Module 3 –
Compensation Events

Proposed Instructions – cl 65
■ The Project Manager may instruct the Contractor to submit

a quotation for a proposed instruction
■ Contractor has to produce the quotation
■ Contractor does not put a proposed instruction into effect
■ The quotation is prepared and assessed as a compensation
event
■ Issued within 3 weeks and the Project Manager’s response
is
■ acceptance and issue of the instruction to proceed with the
work
■ instruct a resubmission after giving the reasons for doing so
■ notify the quotation is not accepted

Proposed Instructions – cl 65
■ If quotation not accepted this is a compensation event and

the Contractor is entitled to the abortive cost and time
incurred
■ If quotation is not agreed the work can still be instructed
and is treated as a standard compensation event with
opportunity for the Project Manager to make its own
assessment

Q&A and Feedback

Turner & Townsend Limited
Unit 201
2nd Floor, Pioneer Place
33 Hoi Yuen Road
Kwun Tong
Kowloon
Hong Kong
t: + (852) 2834 6122

e: daniel.cheung@turntown.com
www.turnerandtownsend.com
© Turner & Townsend Limited. This content is for general information purposes only and does not purport to constitute professional advice. We do not make any
representation or give any warranty, express or implied, and shall not be liable for any losses or damages whatsoever, arising from reliance on information contained in this
document.
It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any other party without our express written
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MTRC NEC4 Training

Module 3 – Compensation Events

Ian Heaphy & Daniel Cheung making the difference

making the difference

Module Module Module Module Module

• Contract • What are • Payment process

Turner & Townsend MTRC NEC4 Level 2 – Module 3 2

Module Module Module Module Module

• Contract • What are • Payment process

Turner & Townsend MTRC NEC4 Level 2 – Module 3 3

Agenda – Module 2 compensation events

■ Welcome and introductions

Turner & Townsend MTRC NEC4 Level 2 – Module 3 4

making the difference 5

What are compensation events

Turner & Townsend MTRC NEC4 Level 2 – Module 3 6

Where are the compensation events listed

■ Clause 6 of an NEC contract covers compensation events and

Compensation events – cl 60.1

(1) Project Manager gives an instruction to change the Scope except

Turner & Townsend MTRC NEC4 Level 2 – Module 3 8

Compensation events – cl 60.1

Turner & Townsend MTRC NEC4 Level 2 – Module 3 9

Compensation events – cl 60.1

(3) The Client does not provide something which it is to provide by

Turner & Townsend MTRC NEC4 Level 2 – Module 3 10

Compensation events – cl 60.1

(4) The Project Manager gives an instruction to stop or not to start

Turner & Townsend MTRC NEC4 Level 2 – Module 3 11

Compensation events – cl 60.1

(5) The Client or Others

Turner & Townsend MTRC NEC4 Level 2 – Module 3 12

Compensation events – cl 60.1

(6) The Project Manager or Supervisor does not reply to

Compensation events – cl 60.1

(9) The Project Manager withholds an acceptance for a reason not

Turner & Townsend MTRC NEC4 Level 2 – Module 3 14

Compensation events – cl 60.1

(12) The Contractor encounters physical conditions

Turner & Townsend MTRC NEC4 Level 2 – Module 3 15

Compensation event – 60.1(12)

(60.2) In judging the physical conditions for the purpose of

Turner & Townsend MTRC NEC4 Level 2 – Module 3 16

Compensation events – cl 60.1

(13) A weather measurement is recorded

Turner & Townsend MTRC NEC4 Level 2 – Module 3 17

Compensation events – cl 60.1

■ weather measurements are identified in the Contract Data

Turner & Townsend MTRC NEC4 Level 2 – Module 3 18

Compensation events – cl 60.1

(14) A Client’s liability event occurs

Turner & Townsend MTRC NEC4 Level 2 – Module 3 19

Compensation events – cl 60.1

Turner & Townsend MTRC NEC4 Level 2 – Module 3 20

Compensation events – cl 60.1

100m of cable installation

Turner & Townsend MTRC NEC4 Level 2 – Module 3 21

Compensation events – cl 60.1

100m of cable installation

Turner & Townsend MTRC NEC4 Level 2 – Module 3 22

Compensation events – cl 60.1

100m of cable installation

Turner & Townsend MTRC NEC4 Level 2 – Module 3 23