A compensation event quotation should explain how the changed work affects cost and the programme. Preparing it is much easier when the people organising that work have discussed the method, resources and sequence before formal submission. The Project Manager can then assess a calculation which reflects how the work will be carried out, rather than trying to reconstruct it from an unexplained spreadsheet.
Engineers, supervisors, planners and procurement staff may all need to contribute while the quotation is being prepared. Their discussion gives the Contractor a better basis for its forecast and allows the Project Manager to examine it before submission. Agreement between the technical teams supports that review, but the contractual decision remains with the Project Manager.
The change and the dividing date
The fictional Ironbark Recycled Water Scheme is a regional Australian utility project using ECC Option C. A pipeline, pumping station and balancing tank will supply an industrial estate from an existing treatment plant. The plant remains operational during construction and connection.
The example uses NEC4 ECC June 2017 incorporating the January 2023 amendments. Check the signed contract, including its main option, Contract Data and any amendments, before applying these procedures.
The Scope requires a 100 metre pipeline section. Before construction of that section begins, the Project Manager instructs a revised alignment requiring 130 metres, with additional excavation and reinstatement. The Project Manager notifies the compensation event and instructs a quotation.
The Contractor compares the instruction and revised drawings with the original requirement, identifies the quantities affected and discusses how to deliver the change. The assessment compares forecast Defined Cost with the event against forecast Defined Cost without it. The original 100 metres therefore needs to be recognised when assessing the revised 130 metre section. Both sides of the comparison use the applicable Defined Cost rules, rather than simply deducting the original tender price and adding a replacement price.
Clause 63.1 fixes the dividing date. For this instructed change, it is the date of the instruction, even if the quotation is prepared later. Work done by that date is assessed using actual Defined Cost; work not done is assessed using forecast Defined Cost, with the resulting Fee. Here, the affected work has not started, so its assessment is a forecast.
Later records may help examine the forecast, but preparing the quotation later does not move the dividing date or turn the assessment into reimbursement of whatever was eventually spent. The compensation event assessment also differs from the payment forecast under Options C, D and E, which looks at Defined Cost the Project Manager forecasts the Contractor will have paid before the next assessment date.
Building the cost assessment
Option C uses the Schedule of Cost Components, less Disallowed Cost. The same schedule applies under D and E; A and B use the Short Schedule of Cost Components, including their different People Rates provisions. Option F has a separate Defined Cost definition. A build-up prepared for one option cannot be assumed to work unchanged under another.
The forecast needs to combine the Defined Cost rules with the quantities, resources and productivity needed for the changed work. An invoice or subcontract quotation can help establish an amount, although its total is not automatically the amount to include. Use the rates and percentages stated in Contract Data where the applicable schedule requires them. Clause 52.1 governs other amounts, including open-market or competitively tendered prices and deductions for recoverable discounts, rebates and taxes.
Ironbark's delivery team forecasts five working days for the original section and seven for the revised work, before any additional risk allowance. The same four-person crew and hired Equipment package are used. The crew includes the Equipment operator, with a section supervisor working alongside it. Reinstatement is subcontracted and coordinated with the pipeline work.
For the calculation, assume eligible People costs of $75 per crew member per hour and $100 per hour for the section supervisor, with eight-hour days. These illustrative amounts represent the relevant employment cost components, before Fee. The independent Equipment hire costs $900 per chargeable working day, including running costs but excluding the operator. Delivered pipe costs $180 per metre, and the reinstatement subcontract increases by $1,500. The example assumes no additional mobilisation or disposal cost and excludes recoverable tax.
The resource schedule explains why the revised work needs two additional productive days. Employment cost calculations, hire terms, pipe quantities and current supplier and subcontract prices support the build-up. The reviewer needs to see what each amount covers, including whether delivery, running costs or an operator have already been included elsewhere.
Future labour hours cannot be supported by completed timesheets. The forecast instead draws on the proposed method, comparable production records, employment terms and current supply and subcontract information. The Project Manager and Contractor can also agree rates or lump sums under clause 63.2. Any agreement needs to identify the work covered and whether Fee is included. Tender rates do not automatically become compensation event rates.
Queries and risk allowances
During the review before submission, the Project Manager identifies two queries in the Contractor's draft build-up. It includes four additional Equipment days, although the method shows only two extra productive days. An additional supervision allowance also duplicates two days already priced for the same supervisor.
The Project Manager telephones the Contractor's commercial manager and reviews the resource schedule with the supervisor. Neither the hire terms nor the delivery arrangements explain the two further Equipment days. The Contractor removes those days and the duplicated supervision, leaving the method and forecast productivity unchanged. The reductions correct identifiable errors rather than applying a negotiated percentage to the total.
The longer open-trench operation also increases exposure to ordinary wet-weather interruptions. Based on the season and conditions at the workface, the team allows one additional day at a cost of $4,100: $2,400 for the crew, $800 for supervision and $900 for Equipment. This is an incremental allowance after considering the risks already allowed for in the original work. The cost forecast and programme each include it once.
Clause 63.8 requires allowances for cost and time risks which have a significant chance of occurring and are not compensation events. Explain the particular risk and the basis for its allowance, rather than adding an unexplained contingency percentage. Ironbark's allowance concerns ordinary weather interruptions, not weather which would itself qualify as a separate compensation event. The assessment also assumes a competent and prompt response to the event, with Defined Cost and time reasonably incurred, as required by clause 63.9.
The figures compare the initial draft with the corrected assessment. They are net changes from the forecast without the instruction, using an illustrative fee percentage of 10%. All amounts are Australian dollars, excluding recoverable tax.
| Net forecast effect | Initial draft AUD | After review AUD |
|---|---|---|
| People crew 2 days × 4 people × 8 hours × $75 | $4,800 | $4,800 |
| People section supervision Assessed 2 days × 8 hours × $100 | $3,200 | $1,600 |
| Equipment additional hire Assessed 2 days × $900 | $3,600 | $1,800 |
| Plant and Materials additional pipe 30 metres × $180 delivered | $5,400 | $5,400 |
| Subcontractors additional reinstatement | $1,500 | $1,500 |
| Additional identified risk allowance 1 day of crew, supervision and Equipment | $4,100 | $4,100 |
| Change in Defined Cost | $22,600 | $19,200 |
| Resulting Fee at illustrative 10% | $2,260 | $1,920 |
| Change to the Prices | $24,860 | $21,120 |
Removing the unsupported hire and duplicated supervision reduces Defined Cost by $3,400 and the resulting Fee by $340. The corrected change to the Prices is $21,120, compared with $24,860 in the initial draft. Forecast Defined Cost for the section rises from $43,500 without the instruction to $62,700 with it, including the additional risk allowance. The difference is $19,200 before Fee.
The forecast depends on assumptions about matters such as productivity and access, which the teams need to explain and test. These are different from assumptions formally stated by the Project Manager under clause 61.6 where the effects are too uncertain to forecast reasonably. The quotation is then assessed on the stated assumptions. If one later proves wrong, the Project Manager notifies a correction, which is a compensation event under clause 60.1(17).
At Ironbark, the revised dimensions and access arrangements are sufficiently known to prepare the forecast. If they were not, the uncertainty would need to be addressed, including whether a stated assumption from the Project Manager was appropriate. A Contractor's qualification that its quotation is 'subject to actual costs' does not create that contractual mechanism.
A failure to give early warning can also affect the assessment. If the Project Manager has stated in the instruction to quote that the Contractor did not give an early warning which an experienced contractor could have given, clause 63.7 requires assessment as if that warning had been given. The assessment needs to consider what timely warning would have allowed the teams to do, rather than apply an arbitrary percentage deduction. Ironbark's example assumes no such failure.
The programme assessment
Use the Accepted Programme current at the dividing date, as required by clause 63.5, and identify its revision and the date to which it shows progress. Account for events between that programme's date and the dividing date, including actual progress and events unrelated to this change. Also check whether any delay from this compensation event is already represented, so that it is not counted twice.
Ironbark's Accepted Programme was prepared a week before the instruction. The team reviews progress, procurement and other events during that week and establishes that they have not changed the relevant sequence or planned Completion. The assessment therefore starts from that programme, taking account of the intervening week, rather than substituting a programme accepted after the dividing date.
The Contractor changes the section's duration from five productive days to seven and includes the additional day of time risk allowance. It checks the dependencies into testing and commissioning, the pipe delivery and reinstatement sequence, and the treatment plant operator's availability. The connection requirements remain unchanged, and procurement enquiries and discussion with the operator support the proposed timing.
The affected branch has two working days of float before it delays the downstream sequence. Increasing the section from five to eight days uses that float and moves planned Completion by one working day. There is no affected Key Date in this example. On a live project, the Contractor would also need to examine the effect on each relevant Key Date and its Condition.
The table uses working-day positions on one illustrative programme calendar, rather than actual project dates.
| Programme measure | Without event | With event |
|---|---|---|
| Section duration including the additional risk allowance | 5 working days | 8 working days |
| Available float on the affected branch | 2 working days | 0 working days |
| Planned Completion | Day 20 | Day 21 |
| Completion Date after implementation | Day 25 | Day 26 |
The five-day gap between planned Completion and the Completion Date is terminal float. Clause 63.5 measures the delay to planned Completion without first absorbing it into that gap. The Completion Date therefore moves by the same one working day, expressed as the corresponding contractual date using the project calendar.
Float and time risk allowance serve different purposes. The two days of branch float arise from the sequence. The additional risk day represents an identified uncertainty in carrying out the changed work. It must not be added again as a second contingency elsewhere in the programme.
The teams should consider practicable resequencing and resource alternatives. The Project Manager can, after discussion, instruct alternative quotations under clause 62.1. That does not mean assuming another crew can safely work in the same constrained area. Any additional time-related cost needs an explanation of the resources affected. Neither the three added activity days nor the one-day movement in planned Completion automatically establishes a project-wide daily prolongation charge.
The quotation includes the alterations to the Accepted Programme required by clause 62.2. An assessment copy showing the affected activities and dependencies helps the Project Manager follow the calculation. Keep that copy alongside the quotation while continuing to meet the separate programme submission and acceptance requirements.
Submitting and assessing the quotation
The Contractor now submits Ironbark's quotation for $21,120, supported by the instruction, corrected cost build-up and programme alterations. It proposes a one-day delay to the Completion Date, with no change to Key Dates. The supporting calculation explains why the additional resources are required for three days while planned Completion moves by only one.
The Contractor has three weeks from the instruction to submit its quotation, and the Project Manager has two weeks from submission to reply under clause 62.3. If more time is needed, an extension must be agreed before the relevant deadline and communicated by the Project Manager under clause 62.5. Discussions and requests for clarification do not extend those periods. Nor can the Contractor wait for acceptance before complying with an instruction given in accordance with the contract.
The Project Manager checks that the formal quotation reflects the discussions and that the instruction caused each effect included. Quantities, resource periods, productivity, risk allowances and Fee need to follow the applicable valuation rules and reconcile with the programme. Specialist advice can assist, but the Project Manager remains responsible for the response.
A telephone call may clarify a description or locate a supporting record without requiring another submission. If the quotation itself needs changing, the Project Manager can instruct a revision, explaining the reasons under clause 62.4. The Contractor then has three weeks to submit it, subject to an agreed extension. The other responses under clause 62.3 are acceptance or notification that the Project Manager will make the assessment. A request for more information is not a separate response which leaves the decision indefinitely open.
At Ironbark, the queries have been resolved before submission. The Project Manager checks the corrected quotation and notifies acceptance of the $21,120 assessment and one-day time effect. There is no need to wait until the end of the reply period simply because that time is available.
The Project Manager must instead make the assessment in the circumstances stated in clause 64.1. These include failure to submit the quotation and assessment details within the permitted time, or an incorrect assessment where the Project Manager has not instructed a revision. The clause also addresses failure to submit a programme or alterations as the contract requires, and non-acceptance of the latest programme for a contractual reason when the quotation is submitted. Where clause 64.2 applies, the Project Manager assesses the programme for the remaining work.
The Project Manager follows the same assessment rules and notifies its assessment with the supporting details. Under clause 64.3, the period is the time allowed for the Contractor's quotation, starting when the need for the Project Manager's assessment becomes apparent. The calculation still needs to explain the cost and time effects of the event.
A missed reply does not immediately result in acceptance. Under clause 62.6, the Contractor may notify the failure; if it continues for a further two weeks, the quotation is treated as accepted. Clause 64.4 provides a corresponding notification and further two-week period where the Project Manager fails to assess. If more than one quotation has been submitted, the notice identifies the one proposed for use. The Contractor needs to follow the applicable procedure rather than assume that silence has accepted its submission.
Implementation and payment
The compensation event is implemented when the Project Manager notifies acceptance of the Contractor's quotation or the Project Manager's own assessment, or when a quotation is treated as accepted under the contract. At Ironbark, acceptance implements the $21,120 increase to the Prices and the one-day change to the Completion Date. The Option C Prices are adjusted through the Activity Schedule. The work itself need not have finished for the event to be implemented.
An implemented assessment is not revised simply because a forecast on which it was based proves wrong. Clause 66.3 prevents that routine reopening. A correction to a Project Manager's stated assumption is dealt with as a separate compensation event, and the contractual dispute procedures remain available. Other main options have their own provisions to check, including those dealing with bill quantities and remeasurement under B and D.
For Option C, the implemented amount changes the target. It is not simply added to the next payment. The payment assessment continues under its own rules, using eligible Defined Cost plus Fee and other contractual amounts.
Keep the accepted quotation with the instruction, revised drawings and programme assessment. The record should show the resource assumptions and the two corrections agreed during review, so that the teams can distinguish the implemented forecast from the actual costs appearing in later payment assessments.
