Is a compensation event the same as a variation?
No: a compensation event is wider than a variation, settles time and money together, and is usually priced from forecast cost.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
A variation is a change to the work, instructed under a JCT or similar subcontract. On an NEC job, a change to the work is only one kind of compensation event. The list also covers late access, late information, unforeseen ground conditions, exceptional weather and other events that are not your risk. Four differences matter for your money. First, one procedure deals with both the price and the dates. Under JCT, the variation, the extension of time and the loss and expense each follow their own route. Second, the price change is a forecast of Defined Cost plus the Fee, the contract's own measure of cost. Your bill rates are used only if both sides agree. Third, there is usually a time bar: notify late and you can lose the event entirely. Fourth, once an event is implemented, its figure is final, even if the work costs more or less. So do not run an NEC job the way you run a JCT one. Notify every event within its period, quote from the cost components, and put the time effect in the same quotation. Our Compensation Event Claim service rebuilds refused or undervalued events on the NEC rules.
Example
Illustrative example. The scenario and figures are invented.
The facts
A cladding subcontractor used to JCT jobs starts on an NEC4 subcontract. Its main contractor instructs a change to the fixing detail on the east elevation, which also delays the start there by 2 weeks.
What happens
- On a JCT job it would value the change at its rates and send a delay notice later, as a separate claim.
- Here the instruction is a compensation event the main contractor should notify. The subcontractor checks that it has, and is asked to quote.
- Its quotation forecasts Defined Cost of £18,500 from the Schedule of Cost Components, and adds the Fee at 12 per cent, £2,220.
- The same quotation shows the 2 week delay on a revised programme, and goes in within 3 weeks.
The quotation in figures
| Item | Amount |
|---|---|
| Forecast Defined Cost | £18,500 |
| Fee at 12 per cent | £2,220 |
| Change to the Prices | £20,720 |
The outcome
The event is implemented at £20,720 with the 2 weeks, in one step, instead of a variation and a separate delay claim.
To have refused or undervalued events rebuilt on the NEC rules rather than as variations, see our Compensation Event Claim service.