Question 3

An Option B contract has been awarded for the construction of a new road.

The lighting was completely missed from the contract documents. The Project Manager instructs a change to the Works
Information to include the lighting but does not notify a compensation event. The Employer, who has budgetary constraints, is
now stating that, as 10 weeks have passed by, that the Contractor loses entitlement to any additional payment or time.

a. Is this correct and how should the Project Manager deal with this?

[5 marks]

The Employer’s statement that the Contractor loses entitlement to any additional payment or time is not correct. It is because
this compensation event is related to change of Works Information [CC 60.1(1)] in which the Project Manager should have
notified under clause 61.1. Therefore, the time limit of 8 weeks on notification by the Contractor [CC 61.3] is not applicable in
this case. The clause61.3 would normally apply to compensation events as per clauses CC60.1(2), (3), (5), (6), (9), (11), (12), (13),
(14), (16), (18) and (19).

The Project Manager should then instruct the Contractor to submit quotations for a proposed change decision [CC 61.2]. The
Project Manager can discuss with the Contractor different ways of dealing with the compensation event which are practicable
and may instruct the Contractor to submit alternative quotations. [CC 62.1].

Since the Employer has budgetary constraints, to act in a spirit of mutual trust and co-operation, a meeting may be arranged
attended by the Employer, the Contractor and the Project Manager to solve the problem [CC 10.1]. The Employer may consider
deleting some of the works that may not be necessary in order to release his budget from the original contract and allocate to
the lighting work. Then, the Project Manager process the procedures to issue another compensation event to delete part of the
works in the contract [CC 60.1(1)].

The work has been undertaken and completed. The Contractor argues that as no bill rate existed that the compensation event
should be based on the Contractor’s actual costs plus Fee.

b. What key clauses define how the compensation event should be assessed and is the Contractor correct?

[7 marks]

To assess monetary effect of the compensation event, clauses 63.1 stated that the changes to the Prices are assessed upon the
actual Defined Cost of work already done and the resulting fee. Since there is no such item in the original Bill of Quantities, in
Option B contract, clause 63.13, the Bill of Quantities will be amended taking account of the effect of the compensation event.
The amendment of the Bill of Quantities can be made reference to clause 11.2(21) which stated the bill of quantities shall be
changed in accordance with this contract to accommodate implemented compensation event. The Rate and lump sums from
Bill of Quantities, or from any other source may be used to assess compensation event instead of the Defined Cost plus Fee
approach if the Project Manager and Contractor agree to both the principle and rates to be used.

Unless the Contractor agreed to adopt rates and lumps sums to assess a compensation event, otherwise, the assessment shall
be based on Defined Cost plus Fee.

Within the Bill of Quantities, an item of excavation has not been divided into different depth classifications, which the method
of measurement requires.

c. The Contractor notifies a compensation event under clause 61.3. Is this correct? How should the Project Manager respond
and within what timescale?

[4 marks]

Under clause 61.3, the Contractor is allowed to notify the Project Manager of an event if the Contractor believes that the event
is a compensation event within 8 weeks of becoming aware of it. The step taken by the Contractor is correct. The event is likely
to affect and change the Defined Cost, Completion or meeting a Key Date. Therefore, the Project Manager shall notify the
Contractor accordingly and instructs him to submit quotations before the end of either one week after the Contractor’s
notification or a longer period to which the Contractor has agreed. If no responses from the Project Manager within the
duration mentioned, the Contractor may further notify the Project Manager of his failure of feedback. After further two weeks
of this notification, if the Project Manager did not provide feedback, the event will be treated as a compensation event and the
Contractor can submit quotations for this compensation event to the Project Manager.

The Project Manager fails to respond to the notified compensation event. Four weeks later the Contractor realises this.

d. What options are available to the Contractor? If the Project Manager continues to fail to respond to a notified
compensation event, what impact will this ultimately have?

[4 marks]

According to [CC 61.4], the Project Manager shall notify his decision to the Contractor within one week after the Contractor’s
notification or a longer period to which the Contractor has agreed. Since the Project Manager in this case failed to reply to the
Contractor after four weeks, the Contractor can treat this as an acceptance that the event is a compensation event and submit
quotations to the Project Manager [CC 62.2]. However, under [CC 10.1], to work in a spirit of mutual trust and co-operation, the
Contractor may discuss with the Project Manager and agree with the Project Manager another date that the Project Manager
should respond to the notification.

The Project Manager eventually responds, accepts that this is a compensation event and requests a quotation from the
Contractor. Two weeks into the quotation period the Contractor telephones the Project Manager stating it is very difficult to
assess.

e. What is the default method of assessing a compensation event under Option B? What other option is available to the
Project Manager and Contractor?

[5 marks]

The default method of assessing a compensation event under Option B is based on their effect on Defined Cost plus the Fee. For
example, if the effect of a compensation event is to delete work, the assessment is based on the forecast Defined Cost of that
work plus the Fee, not simply a deletion of the price for the deleted work. But another option is available as long as both the
Project Manager and the Contractor accept. The alternative is that the assessment of the effect of a compensation event will be
made reference to the rates and prices from the Bill of Quantities. [CC 63.13]

[END]