What are compensation events?

In NEC contracts, a Compensation Event (CE) is something that happens which changes the cost or duration of the work and isn’t the contractor’s fault. When a CE occurs, the contractor can get more time, more money, or both.

NEC lists specific events (ECC Clause 60.1) such as:

• PM instructions that change the work

• Late information or access from the Client

• Unforeseeable physical conditions

• Delayed tests/inspections

• Weather worse than a 1-in-10 year event

• Anything additional stated in the Contract Data

When a CE is notified, the Project Manager assesses its impact on cost and programme, and the Prices/Completion Date are updated.

Situation:
A contractor is due to start piling on 1 June. The contract says the client must provide access to the north compound by that date. The client doesn’t give access until 20 June because utility clearance isn’t finished.

Why this is a CE:
Under NEC, late access by the Client is a defined compensation event.

What happens next:

1. Contractor notifies a CE.

2. PM agrees it’s valid (CE under Clause 60.1(2)).

3. Contractor submits a quotation showing:

   • Additional prelims (site staff, welfare, plant standby)

   • Delay to critical path of the Accepted Programme

4. PM accepts the quotation.

5. Completion Date is moved by 20 days, and the Prices are increased accordingly.

Outcome:
The contractor is fairly compensated for the delay, and the programme now reflects reality - NEC’s collaborative approach working as intended.