What is a compensation event under NEC4?
A compensation event is an event your NEC4 contract lists as one that can change your price, your dates, or both.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
For the full NEC4 list of events, see what NEC4 clause 60.1 means.
The answer
It is NEC's version of a variation, but wider. It also covers things like late access, late information and unforeseen ground. NEC3 works the same way in outline, though its list of events differs in places. Which events count depends on your form, edition, options, amendments and Scope, so check your own subcontract. That also sets who must notify each event, to whom, and what quotation steps follow. On an NEC subcontract, it is your main contractor, not a Project Manager, that replies to your notifications and quotations. The assessment can cover cost, time or both, depending on the terms. Many NEC contracts set a period for notifying, 8 weeks in the unamended form. Check the actual wording and its exceptions, rather than assuming 8 weeks everywhere. Keep your evidence of when you became aware, your notices, your quotations and the replies as you go. A cost record on its own does not prove the event or fix its value.
The NEC4 compensation event procedure, step by step
| Step | Who acts | Period in an unamended NEC4 contract |
|---|---|---|
| Notify the event | You, unless it came from your main contractor's own instruction or changed decision | Within 8 weeks of becoming aware of it |
| Reply to the notification | Your main contractor | Within 1 week |
| Submit the quotation | You | Within 3 weeks of being asked |
| Reply to the quotation | Your main contractor | Within 2 weeks |
| No reply at either stage | You notify the failure | Treated as accepted 2 weeks after your notice |
| Make its own assessment, where it decides to | Your main contractor | Within the period you had to quote |
| Implement the event | Both, once a quotation or assessment is accepted or treated as accepted | The figure is then final |
Example
Illustrative example. The scenario and figures are invented.
The facts
A groundworks subcontractor on an NEC job hits undocumented concrete while digging a trench. It has to decide what to record, what to notify, and by which route.
What happens
- It records the location, the site information it had, the resources used and the effect.
- It checks the signed subcontract form and its options before sending any notification to the right recipient.
- A quotation later shows, separately, the cost and programme inputs the records support.
- If the event turns out to have been notified late, the actual clause, amendments, exceptions and evidence are checked.
The outcome
The event is recorded, notified by the checked route and quoted with its cost and programme inputs shown separately. Nothing here predicts whether a late notification would survive, or what the event is worth.
To have every compensation event on your job warned, notified and quoted inside its periods, see our Compensation Event Loss Prevention service.