Managing Reality

Book Four
Managing Change

Third edition
Other titles in the Managing Reality series:
Managing Reality. Book One: Introduction to the Engineering and Construction Contract.
Third edition (2017)
Bronwyn Mitchell and Barry Trebes. ISBN 978-0-7277-6182-8
Managing Reality. Book Two: Procuring an Engineering and Construction Contract.
Third edition (2017)
B. Mitchell and B. Trebes. ISBN 978-0-7277-6184-2
Managing Reality. Book Three: Managing the Contract. Third edition (2017)
B. Mitchell and B. Trebes. ISBN 978-0-7277-6186-6
Managing Reality. Book Five: Managing Procedures. Third edition (2017)
B. Mitchell and B. Trebes. ISBN 978-0-7277-6190-3
Managing Reality
Book Four
Managing Change
Third edition

Bronwyn Mitchell and Barry Trebes

Published by ICE Publishing, One Great George Street, Westminster, London SW1P 3AA.

Full detail of ICE Publishing representatives and distributors can be found at:
www.icebookshop.com/bookshop_contact.asp

Other titles by ICE Publishing:

NEC4: The Role of the Project Manager
B. Mitchell and B. Trebes. ISBN 978-0-7277-6353-2
NEC4: The Role of the Supervisor
B. Mitchell and B. Trebes. ISBN 978-0-7277-6355-6
NEC3 and NEC4 Compared
R. Gerrard. ISBN 978-0-7277-6201-6

www.icebookshop.com

A catalogue record for this book is available from the British Library

ISBN 978-0-7277-6188-0

# Thomas Telford Limited 2018

ICE Publishing is a division of Thomas Telford Ltd, a wholly-owned subsidiary of the Institution of
Civil Engineers (ICE).

All rights, including translation, reserved. Except as permitted by the Copyright, Designs and
Patents Act 1988, no part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise,
without the prior written permission of the Publisher, ICE Publishing, One Great George Street,
Westminster, London SW1P 3AA.

This book is published on the understanding that the authors are solely responsible for the
statements made and opinions expressed in it and that its publication does not necessarily imply
that such statements and/or opinions are or reflect the views or opinions of the publishers. While
every effort has been made to ensure that the statements made and the opinions expressed in
this publication provide a safe and accurate guide, no liability or responsibility can be accepted in
this respect by the author or publishers.

While every reasonable effort has been undertaken by the author and the publisher to acknowledge
copyright on material reproduced, if there has been an oversight please contact the publisher and
we will endeavour to correct this upon a reprint.

Commissioning Editor: Michael Fenton

Production Editor: Madhubanti Bhattacharyya
Market Development Executive: Elizabeth Hobson

Typeset by Academic þ Technical, Bristol

Index created by Laurence Errington
Printed and bound by NOVOPRINT S.A., Spain
Contents Preface
Foreword
vii
ix
Acknowledgements xi
Series contents xiii

Introduction 1
General 1
Background 1
The structure of the books 2

01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation events 3
Synopsis 3
1.1. Introduction 4
1.2. Compensation event procedure – background 4
1.3. What is a compensation event? 5
1.4. Where to find a list of compensation events 6
1.5. Roles of the Project Manager and Contractor 18
1.6. Administering compensation events 18
1.7 Notification of a compensation event 20
1.8. Quotations for a compensation event 23
1.9. Assessment of quotations 26
1.10. The use of the programme for the assessment of compensation events 27
1.11. Implementation of compensation events 28
1.12. Reduction of Prices 28
1.13 Frequently asked questions 29
1.14. Format of a compensation event quotation 33

Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation event procedure 35

Section A: Actions required to be taken by the Project Manager 36
Section B: Actions required to be taken by the Contractor 37
Section C: Compensation event procedure 38
Section D: Procedure for events notified by the Project Manager 40
Section E: Procedure for events notified by the Contractor 41
Section F: Most common complicating factors 42

02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Cost Components and Short Schedule of Cost Components 43

Synopsis 43
2.1. Introduction 44
2.2. What is the SCC? 44
2.3. Why has this approach been taken? 45
2.4. Assessment options 45
2.5. When is the SCC or SSCC used? 45
2.6. Defined Cost 48
2.7. The Fee 49
2.8. The components of cost included under the SCC 49
2.9. The components of cost included under the SSCC 56
2.10. Contract Data part two 60
2.11. Putting it all together for payment – Option C 60
2.12. Inspecting accounts and records 63
2.13. Use of the SSCC 64
2.14. Practical issues 64
2.15. Preliminaries and people costs 70

Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . Example quotations for compensation events 71

Section A: Based on the SCC 71
A2.1. Introduction 71
A2.2. Contract Data example 73
A2.3. Defined Cost 74
A2.4. Direct fee percentages 74
A2.5. SCC example quotation 75

v
 A2.6. Supporting notes 87
Section B: Based on the SSCC 95
B2.1. Introduction 95
Section C: Based on rates or lump sums – all main Options 97
C3.1. Introduction 97

Appendix 3 . . . . . . . . . . . . . . . . . . . . . . . . . . Example people cost calculations 99

A3.1. Introduction 99

Appendix 4 . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison between traditional preliminaries build-up and how they

relate to the Schedule of Cost Components and the Short Schedule of
Cost Components 101
A4.1. Introduction 101

Appendix 5 . . . . . . . . . . . . . . . . . . . . . . . . . . Interrelationship between the Contractor’s and the Subcontractor’s share on

target cost contracts 107
A5.1. Introduction 107

Index 109

vi
Preface In the preface to the first edition of Managing Reality, in 2005, we set out our aims and
aspirations for ‘managing reality’. These were as follows:

g to add and contribute to the body of knowledge on the use of the NEC Engineering
and Construction Contract (ECC)
g to provide a set of books that focuses on the ‘how to’ – how to manage and
administer the ECC contract
g to present as a five-part book series that covers both the needs of the student
professional or prospective client, through to the novice practitioner and experienced
user
g to provide a rounded view of the ECC, whatever your discipline, on both sides of
the contractual relationship
g to enable everyone to realise the business benefits from using the NEC suite of
contracts generally and the ECC in particular.

Managing Reality does not attempt to give a legal treatise or a blow-by-blow review of
each and every clause. It is intended to be complementary to other publications, which
give excellent theoretical and legal perspectives.

This book is about dealing with the reality of real life projects: managing reality.

The feedback and support we have received since the first publication of Managing
Reality in 2005 has been universally positive, and we would like to thank all of you who
have bought and used it since its first publication.

We have greatly enjoyed updating and working on this third edition, and we hope that
these books continue to provide a useful body of knowledge on the use of the
NEC4 ECC.

Bronwyn Mitchell and Barry Trebes

2017

vii
Foreword A key objective of the first edition of Managing Reality was to provide a five-part book
series to meet the needs of students, prospective clients, novice practitioners and
experienced users. Satisfying such diverse needs is an ambitious objective for any text.

Does Managing Reality achieve its stated aim? I believe that the answer to this is a
resounding ‘yes’. In my view, the calibre of authorship is exceptional. All levels of and
types of readership from the uninitiated to the experienced professional will derive
considerable benefit from this text. Although written in a very accessible style, there is
no skimping on detail or on addressing difficult issues. The worked examples are
particularly helpful. Managing Reality should be your prime aid from the moment you
are considering whether or not to use an NEC contract right through to using and
operating the contract.

But Managing Reality is much more than simply a ‘how to’ guide. It seeks to deliver a
clear message that NEC contracts cannot be used to their full potential unless one is
prepared to ditch one’s knowledge and experience of traditional contracting. For
example, emphasis is placed on the fact that certainty and predictability are the
hallmarks of NEC contracts. Open-ended and subjective phrases and concepts have no
place in NEC contracting.

I am privileged to be associated with this third edition of Managing Reality. Its

publication is very timely since it coincides with the publication of the NEC4 suite of
contracts. This new edition of the NEC suite is a reflection of the dominant position
that NEC contracts now have both in the UK and in many other countries. It will
continue to support those who need help overcoming any reservations about using NEC
contracts, and reinforce existing users in their continued use of these ground-breaking
contracts.

Professor Rudi Klein

President, NEC Users’ Group

ix
Acknowledgements We would like to thank the following individuals and companies who have supported
this book.

For their active participation in this book we would like to thank

g Professor Rudi Klein (SEC Group Chief Executive) for writing the Foreword
g Dr Robert N. Hunter of Hunter and Edgar Edinburgh for his thoughts and
suggested revisions for this third edition
g Michael Fenton, the ICE commissioning editor, for his enthusiasm and patience
g Richard Patterson of Mott MacDonald
g everyone who has given feedback on this book since 2005.

And our continued gratitude to those who provided support and input into the first
edition of Managing Reality:

g Mike Attridge, of Ellenbrook Consulting, who reviewed this book on behalf of the
authors
g David H. Williams, who provided guidance and support in the development of the
first edition of this book
g everyone at Needlemans Limited Construction Consultants (now part of the Mott
MacDonald Group)
g everyone at MPS Limited with whom Needlemans Limited worked to develop the
first web-based management system for the NEC in 2000.

Finally, we would like to thank our family and friends for their ongoing support,
understanding and patience.

xi
Series contents The following outlines the content of the five books in the series.

Book 1 Managing Reality: Introduction to the Engineering and

Construction Contract
Chapter 1 Introduction to the Engineering and Construction Contract, concepts
and terminology
This chapter looks at
g an introduction to the ECC
g an identification of some of the differences between the ECC and
other contracts
g an outline of the key features of the ECC
g conventions of the ECC
g concepts on which the ECC is based
g terminology used in the ECC
g terminology not used in the ECC
g how the ECC affects the way you work.

Chapter 2 Roles in the Engineering and Construction Contract

This chapter describes the roles adopted in the ECC, including
g how to designate a role
g discussion of the roles described in the ECC
g discussion of the project team
g how the ECC affects each of the roles.

Appendix 1 List of duties

Book 2 Managing Reality: Procuring an Engineering and

Construction Contract
Chapter 1 Procurement
This chapter looks at the concept of procurement and contracting
strategies and discusses
g procurement and contract strategy
g what tender documents to include in an ECC invitation to tender
g how to draft and compile a contract using the ECC
g procurement scenarios that a client could face and how to approach
them
g what are framework agreements and how they could incorporate
the ECC
g what is partnering and how it can be used with the ECC.

Appendix 1 Assessing tenders

Appendix 2 ECC tender documentation

Chapter 2 Contract Options

This chapter looks at the Contract Options available within the ECC,
including
g ECC main and secondary Options
g priced contracts
g target contracts
g cost-reimbursable contracts
g choosing a main Option
g choosing a secondary Option.

xiii
 Appendix 3 Inspection of the Contractor’s accounts and records plan

Chapter 3 Completing the Contract Data

This chapter gives guidance on
g how to choose a main Option
g how to choose an Option for resolving and avoiding disputes
g how to choose secondary Options
g choosing optional statements in the Contract Data
g where to position the optional statements in the Contract Data
g how to complete each statement in the Contract Data.

Chapter 4 Scope guidelines

This chapter looks at the Scope and Site Information, including
g Providing the Works
g what should be included in the Scope
g separation of the Scope and the Site Information
g structuring for the Scope
g interface management
g general rules in drafting the Scope
g Site Information.

Appendix 4 Scope clauses

Book 3 Managing Reality: Managing the Contract

Chapter 1 Payment procedures in the Engineering and Construction Contract

This chapter discusses the following
g the payment procedure, including
– when the Contractor’s application for payment is submitted
– when assessments take place
– when the payment certificate is issued
– how invoicing is carried out
– when payment takes place
g the effects of option Y(UK)2, taking into account the Housing
Grants, Construction and Regeneration Act 1996 as amended.

Chapter 2 Control of time

This chapter discusses aspects relating to the Contractor’s programme,
including
g the terminology used to describe the programme
g what the programme is
g the definition and purpose of the Accepted Programme
g how and when to submit programmes
g what the programme is used for
g what to include in the programme.

Chapter 3 Control of quality

This chapter discusses:
g The quality framework embedded within the ECC
g The Contractor’s obligations
g Role of the Employer’s representatives
g Subcontracting
g Quality control

Chapter 4 Disputes and dispute resolution

This chapter

xiv
 g emphasises the importance of early dispute resolution to the
successful outcome of a contract
g considers the common sources of dispute
g considers how the ECC has been designed to reduce the incidence of
disputes
g examines how the ECC provides for the resolution of disputes
g looks at the implications for the dispute resolution process as a result
of the HGCR Act as amended
g looks at ECC changes in relation to adjudication.

Book 4 Managing Reality: Managing Change

Chapter 1 Compensation events

This chapter describes
g the compensation events contained within the ECC
g procedure for administering compensation events
g roles played by the two main parties to the contract in relation to
compensation events.

Appendix 1 Compensation event procedure

Chapter 2 Schedule of Cost Components and Short Schedule of Cost Components

This chapter discusses aspects relating to the full SCC and its short
version, the SSCC, including
g when the SCC and SSCC are used
g how the SCC and SSCC interact with the payment clauses
g Defined Cost
g the Fee
g the components of cost included under the SCC and SSCC
g Contract Data part two.

Appendix 2 Example quotations for compensation events

Appendix 3 Example people cost calculations

Appendix 4 Comparison between traditional preliminaries build-up and how they relate
to the Schedule of Cost Components and the Short Schedule of Cost
Components

Appendix 5 Interrelationship between the Contractor’s and the Subcontractor’s share

on target cost contracts

Book 5 Managing Reality: Managing Procedures

Chapter 1 ECC Management: Procedures

This chapter brings together all the aspects discussed in previous
chapters in Books One to Four of the Managing Reality series. This
chapter provides the ‘how to’ part of the series. It introduces some
example pro formas for use with the ECC. Unless detailed separately due
to a complex procedure, replies are described under the relevant action.

For quick reference, this chapter may be read on its own. It does not,
however, detail the reasons for carrying out the actions, or the clause
numbers that should be referred to in order to verify the actions in
accordance with the contract. These are described in detail in the other
books that form part of this series.

xv
Managing Change
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ICE Publishing: All rights reserved

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Introduction

General This series of books will provide the people who are actually using the Engineering and
Construction Contract (ECC) in particular, and the New Engineering Contract (NEC) suite
in general, practical guidance as to how to prepare and manage an ECC contract with confi-
dence and knowledge of the effects of their actions on the contract and the Parties.

Each book in the series addresses a different area of the management of an ECC contract:

g Book One – Managing Reality: Introduction to the Engineering and Construction Contract
g Book Two – Managing Reality: Procuring an Engineering and Construction Contract
g Book Three – Managing Reality: Managing the Contract
g Book Four – Managing Reality: Managing Change
g Book Five – Managing Reality: Managing Procedures.

Book One (Managing Reality: Introduction to the Engineering and Construction Contract) is for
those who are considering using the ECC but need further information, or those who are
already using the ECC but need further insight into its rationale. It therefore focuses on the
fundamental cultural changes and mind-shift that are required to successfully manage the
practicalities of the ECC in use.

Book Two (Managing Reality: Procuring an Engineering and Construction Contract) is for those
who need to know how to procure an ECC contract. It covers in practical detail the invitations
to tender, evaluation of submissions, which option to select, how to complete the Contract Data
and how to prepare the Scope. The use of this guidance is appropriate for clients, contractors
(including subcontractors) and construction professionals generally.

Book Three (Managing Reality: Managing the Contract) is essentially for those who use the
contract on a daily basis, covering the detail of practical management such as paying the
contractor, reviewing the programme, ensuring the quality of the works, and dispute resolution.
Both first-time and experienced practitioners will benefit from this book.

Book Four (Managing Reality: Managing Change) is for those who are managing change under
the contract; whether for the client or the contractor (or subcontractor), the management of
change is often a major challenge whatever the form of contract. The ECC deals with change
in a different way to other, more traditional forms. This book sets out the steps to efficiently
and effectively manage change, bridging the gap between theory and practice.

Book Five (Managing Reality: Managing Procedures) gives step-by-step guidance on how to
apply the most commonly-used procedures, detailing the actions needed by all Parties to
comply with the contract. Anyone administering the contract will benefit from this book.

Background The ECC could be termed a ‘modern contract’ in that it seeks to holistically align the setting up
of a contract to match business needs, as opposed to writing a contract that merely administers
construction events.

The whole ethos of the ECC, and the NEC suite generally, is one of simplicity of language and
clarity of requirement. It is important that the roles and responsibilities of all of those involved
in the contract are equally clear in definition and ownership.

When looking at the ECC for the first time it is easy to believe that it is relatively straight-
forward and simple. However, this apparent simplicity belies the need for the people involved

1
Managing Change

to think about their project and their role, and how the ECC can deliver their particular
contract strategy.

The ECC provides a structured flexible framework for setting up an appropriate form of contract
whatever the selected procurement route. The fundamental requirements are as follows:

g The Scope – quality and completeness: what are you asking the Contractor to do?
g The Site Information: what are the site conditions that the Contractor will find?
g The Contract Data – key objectives for completion (e.g. start date, completion date and
programme): when do you want it completed?

The details contained in this series of books will underline the relevance and importance of the
above three fundamental requirements.

The structure of Each chapter starts with a synopsis of what is included in that chapter. Throughout the book
the books there are shaded ‘practical tip’ boxes that immediately point the user towards important remin-
ders for using the ECC (see example below).

Clarity and completeness of the Scope is fundamental.

There are also unshaded boxes that contain examples to illustrate the text (see example below).

Imagine a situation in which the Supervisor notifies the Contractor that the reinstatement of
carriageways on a utility diversion project is not to the highway authority’s usual
standards. However, the Scope is silent about the reinstatement.

The test of a Defect is also whether the work is in accordance with the applicable law. In this
instance, the reinstatement is not in accordance with the Road and Street Works Act 1991.

Other diagrams and tables are designed to maintain interest and provide another medium of
explanation. There are also standard forms for use in the administration and management of
the contract, together with examples.

Throughout the books, the following terms have been used in a specific way:

g NEC is the abbreviation for the suite of New Engineering Contracts and it is not the
name of any single contract
g ECC is the abbreviation for the contract in the NEC suite called the Engineering and
Construction Contract.

The NEC4 suite comprises the

g Engineering and Construction Contract

g Engineering and Construction Subcontract
g Engineering and Construction Short Contract
g Engineering and Construction Short Subcontract
g Professional Service Contract
g Professional Service Short Contract
g Term Service Contract
g Term Service Short Contract
g Supply Contract
g Supply Short Contract
g Framework Contract
g Dispute Resolution Service Contract
g Design Build and Operate Contract
g Alliance Contract – consultative version.

2
Managing Change
ISBN 978-0-7277-6188-0

ICE Publishing: All rights reserved

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Chapter 1
Compensation events

Synopsis This chapter describes

g the compensation events contained within the ECC

g procedure for administering compensation events
g roles played by the two main parties to the contract in relation to compensation
events.

3
Managing Change

1.1. Introduction One of the underlying principles of the ECC is to avoid and reduce the amount of change that
occurs on construction projects. However, the contract recognises that change is inevitable even
when the project has been well planned and prepared, and it sets out to deal with the effects and
consequences of change in an improved way.

The contract recognises that the earlier an event that could affect the cost, time or quality of a
project is identified, then the more likely it is that its effects can be reduced or even avoided. The
ECC early warning procedure is what it says: an early warning mechanism for change. Should
the change become necessary, then the contract tries to deal with the effects of change in an
improved way by use of quotations for compensation events.

Compensation events represent the mechanism for the Contractor, ensuring that it is not out of
pocket for things that happen that are outwith its control. Unlike some traditional contracts,
which address ‘extensions of time’ and ‘variations’ separately, the ECC regards changes as a
package of time and money. This means that for every event the effects on both the programme
(the Completion Date and Key Dates) and the contract sum (the total of the Prices) are
considered at the same time.

Apart from a clear and finite list of events that could trigger a compensation event, other points
to note are that

g the Contractor can notify a compensation event if it is less than 8 weeks since it became
aware of the event (except in specific circumstances)
g a weather event is not confined to an extension of time assessment
g physical conditions, such as ground conditions, rely on information provided by the
Client
g the procedure for most compensation events takes place within a maximum time period
of 6 weeks.

Compensation events are events that are at the Client’s risk in the contract.

1.2. Compensation In order to understand why the compensation event procedure has developed into the form
event procedure – found in the ECC, it is necessary to consider some of the principles upon which the contract
background is founded.

Every procedure has been designed so that its implementation should contribute to, rather than
detract from, the effectiveness of the management of the work. In this context, management
includes cost and time management.

The ECC is based on the principle that foresight applied collaboratively mitigates problems and
shrinks risk. This could be considered a departure from traditional contracts that tend to view
the Engineer/Architect/Supervising Officer as the font of all knowledge, paying little or no
regard to any worthwhile contribution that the Contractor may have to offer in the area of
problem resolution. Latham acknowledged this issue in his report, Constructing the Team, when
advocating that a modern form of contract should include ‘firm duties of teamwork with shared
financial motivation to pursue the teamwork approach. These should involve a general pre-
sumption to achieve “win–win” solutions to problems that may arise during the course of a
project.’ Continuing on this theme, the ECC motivates people to play their part in collaborative
management if it is in their commercial (Client and Contractor) and professional (consultants,
e.g. designers and Project Managers) interest to do so.

The ECC sets out to motivate these people by clearly defining the actions to be taken, clearly
stating who is responsible for taking those actions, and giving periods within which the
actions are required to be taken. Such is the emphasis the ECC places on collaborative manage-
ment that sanctions exist within the contract to be applied to the party who does not play
their part. These sanctions take the form of financial consequences (direct and indirect) for such
lapses as

4
 Compensation events

g failure to reply within the period for reply

g failure to give early warnings
g failure to keep the programme up to date
g failure to submit quotations on time.

Another principle to assist with the efficient management of the works is that the Project
Manager, acting on behalf of the Client and in communication with it, should be presented with
options for dealing with a ‘problem’. The Contractor should be indifferent to the choice made in
terms of time and money.

This is achieved by basing the valuation of compensation events on a forecast of their impact
upon the cost to the Contractor of carrying out the works as forecast by them at the time the
event is assessed. Where, as is often the case, alternative ways of dealing with the ‘problem’ are
possible, the Contractor prepares quotations for different ways of tackling it. Clause 62.1
requires the practicable options to be discussed with the Contractor. The Project Manager
selects the ones which will serve the best interests of the Client. In some cases this will be
the lowest cost solution, in others it might be the least-delay solution, or a combination of
factors.

The financial effects of a compensation event are based upon a quotation prepared by the
Contractor, preferably in advance of the work (the subject of the compensation event) being
carried out. Under price-based contracts (main Options A and B), the Contractor carries the
risk if its forecast of financial effect turns out to be wrong and consequently the Client has a
firm commitment. Under the target cost contracts (main Options C and D), the Contractor
carries some risk if its forecast is wrong, as it will affect their final ‘share’ from the target
mechanism. This is justified on the grounds that

g it stimulates foresight in that it enables the Client to make rational decisions about
changes to the work with reasonable certainty of its cost and time implications
g at the same time, it puts a risk on the Contractor that motivates it to manage the new
situation efficiently.

An important by-product of the procedure included in the ECC for compensation events is that
few, if any, issues relating to the valuation of work or extensions of time are left to be settled
after the event.

The compensation event procedure is a quick procedure designed to value change during
the period of the contract and not after Completion.

1.3. What is a Compensation events are events that are at the Client’s risk under the Contract and that entitle
compensation the Contractor to an assessment of the effect that the event has on the Prices, the Completion
event? Date and Key Dates. Risks that are not specifically identified as being the Client’s are at the
Contractor’s liability (clause 81.1). The Contractor should therefore be aware of the matters that
are likely to arise and will be at its risk under the contract. These items should be considered in
the carrying out of its risk assessment prior to the starting date, and these matters should be
listed in Contract Data part two to be included in the Early Warning Register.

The assessment of a compensation event is always of its effect on the Prices, the Completion
Date and Key Dates. In other words, there are not separate clauses for events that result in
an ‘extension of time’ and for events that result in changes to the Prices. For all events, the effect
on both the Prices and the programme are always considered together. This does not mean that
every event will always have an effect on both time and the Prices, but this effect has to be
assessed in order to reach such a conclusion. In the case of some events, the assessment may
be reduced payments to the Contractor.

Compensation events consider the effect on both time and money.

5
Managing Change

A compensation event is a different name for various terms that do not apply in the ECC, and it
should not be referred to as

g a variation
g an extension of time
g loss and expense
g delay and disruption
g a claim.

1.4. Where to find a Compensation events can be found in three places:

list of compensation
events g clause 60.1 – which lists 21 compensation events
g main Options B and D – which include additional compensation events in clauses 60.4,
60.5 and 60.6 relating to the use of bills of quantities
g secondary Option clauses X2.1, X10.5, X12.3(6), X12.3(7), X14.2 and X15.2, and
Y(UK)2 clause Y2.5.

A compensation event is much more than Scope changes. A change in Scope is covered by only
one of the 21-plus compensation events that are listed.

1.4.1 Core compensation A discussion of each of compensation events listed under Clause 60.1 of the ECC is given
events below.

Compensation event 60.1(1)

‘The Project Manager gives an instruction changing the Scope except

g a change made in order to accept a Defect or

g a change to the Scope provided by the Contractor for its design which is made
– at the Contractor’s request or
– in order to comply with the Scope provided by the Client.’

This clause is simply the result of an instruction given by the Project Manager varying the
works, for example deletion or addition of work, a change to the specifications, issue of a
revised drawing or clarification of a verbal instruction. Any instruction to change the works
as a result of clause 17.1 (ambiguities and inconsistencies) or 17.2 (illegal and impossible
requirements) will also fall under this compensation event.

The bullet points in clause 60.1(1) detail the three exceptions to a change to the Scope being a
compensation event:

g The Project Manager may agree, for reasons of efficacy, to accept a Defect created by
the Contractor (clause 45; discussed further in Chapter 3 of Book Three). If so, then
they would instruct a change to the Scope after acceptance of the Contractor’s
quotation under clause 45.2. The resulting change to the Scope to ensure that the
Scope reflects the works as built (including the Defect) is not regarded as a
compensation event.
g Where the Contractor has designed the works, and/or has included the Scope as part of
its proposal, there will be two parts to the Scope that form part of the contract: the
Scope provided by the Client and the Scope provided by the Contractor. Although the
Scope by the Contractor forms part of the overall Scope, the Contractor retains
ownership of its part, and any changes to it made at the request of the Contractor or to
ensure that it complies with the Scope provided by the Client are not construed as
changes to the Scope provided by the Client. To avoid confusion, a Project Manager
instructing a change to the Contractor’s Scope should make it clear in the instruction that
the change is not to the Client’s Scope, but is a change to the Contractor’s Scope either
made at the Contractor’s request or to comply with the Scope by the Client.
g Where an instruction is given by the Project Manager for the Contractor’s design to
comply with the Client’s Scope. In this respect, it means the Client’s Scope takes priority
over the Contractor’s design.

6
 Compensation events

The Client’s Scope takes priority over the Contractor’s design.

Compensation event 60.1(2)

‘The Client does not allow access to and use of each part of the Site by the later of its
access date and the date for access shown on the Accepted Programme.’

The Client will have included access dates in Contract Data part one; that is, dates by which the
Client intends to give the Contractor access to the Site or parts of it. The Contractor will have
included in their programme submitted for acceptance the date by which they require access to
the Site or parts of it. These latter dates included by the Contractor in their programme may be
later than the access dates proposed by the Client. Clause 33.1 clearly states the obligations of
the Client in giving access to the Site to the Contractor; that is, to give access by the later of the
access date stated in Contract Data part one or the date for access given on the Accepted
Programme. This is discussed further in Chapter 2 of Book Three. If the Client fails in this
obligation, it is a compensation event.

Compensation event 60.1(3)

‘The Client does not provide something which it is to provide by the date shown on the
Accepted Programme.’

The wording is to make it clear that where a Contractor requires the Client to provide something
that this is shown on the Accepted Programme and not lost in supporting information.

The Scope should state clearly details of anything, such as Plant and Materials or facilities, that
the Client is to provide and any restrictions on when it is to be provided. Clause 31.2 requires the
Contractor to include this information in their Accepted Programme. If the Client fails to
provide this information by the relevant date, the Contractor is entitled to notify the event as
a compensation event. Note that this compensation event depends on the Contractor having
entered the dates in their programme.

Compensation event 60.1(4)

‘The Project Manager gives an instruction to stop or not to start any work or to change a
Key Date.’

Clause 34.1 gives the Project Manager the authority to instruct the Contractor to stop or not to
start work. One of the many reasons that the Project Manager may give such an instruction is
for reasons of safety. Such an instruction is a compensation event. Some clients change this
clause using a secondary Option Z clause to add that where the instruction relates to health and
safety matters or is in relation to a Contractor default, the instruction is not a compensation
event. Clause 14.3 gives the Project Manager the authority to instruct the Contractor to change
a Key Date.

Compensation event 60.1(5)

‘The Client or Others

g do not work within the times shown on the Accepted Programme,

g do not work within the conditions stated in the Scope or
g carry out work on the Site that is not stated in the Scope.’

The Scope should state clearly details of the order and timing of work to be done by the Client
and Others. Clause 31.2 requires the Contractor to include this information in their Accepted
Programme. If the Client or Others work outside these parameters, it is a compensation event.
Note that this compensation event depends on the Contractor having entered the dates in their
programme.

Compensation event 60.1(6)

‘The Project Manager or the Supervisor does not reply to a communication from the
Contractor within the period required by the contract.’

7
Managing Change

Certain clauses within the ECC give various periods for reply by the Project Manager and
Supervisor. A default period for reply is given in Contract Data part one, and the obligation
to reply within the relevant period is given in clause 13.3. Where communication is not made
within the timescales given, the Contractor may notify a compensation event. Note that any time
period may be extended by agreement between the Project Manager and the Contractor.

Compensation event 60.1(7)

‘The Project Manager gives an instruction for dealing with an object of value or of
historical or other interest found within the Site.’

Clause 73.1 states the procedure for dealing with such items. Any instruction for dealing with an
object of value or of historical or other interest found within the Site would be additional work
for the Contractor and therefore a compensation event.

Compensation event 60.1(8)

‘The Project Manager or the Supervisor changes a decision which either has previously
communicated to the Contractor.’

Both the Project Manager and the Supervisor are able to change decisions made under the
authority given to them under the ECC. Any such changed decision is likely to result in extra
work for the Contractor, and would therefore be a compensation event.

Compensation event 60.1(9)

‘The Project Manager withholds an acceptance (other than acceptance of a quotation for
acceleration or for not correcting a Defect) for a reason not stated in the contract.’

There are various clauses in the ECC that state reasons why the Project Manager is entitled not
to accept a submission or proposal from the Contractor. Examples are clauses 24.1 (people) and
31.3 (the programme). Where the Project Manager does not accept a submission from the
Contractor and the reason that they state is not one of the reasons in the contract, then the
Contractor may notify a compensation event. If the withheld acceptance is for a quotation for
acceleration (clause 36) or for acceptance of a Defect (clause 45), then the non-acceptance is not
a compensation event. This is because both the quotation for acceleration and the quotation for
accepting a Defect are voluntary.

Compensation event 60.1(10)

‘The Supervisor instructs the Contractor to search for a Defect and no Defect is found
unless the search is needed only because the Contractor gave insufficient notice of doing
work obstructing a required test or inspection.’

Clause 43.1 allows until the defects date for the Supervisor to instruct the Contractor to search.
Since a search that does not reveal a Defect would have been unfair to the Contractor, a com-
pensation event allows them to notify the time and cost that the unnecessary search has resulted
in. If, however, the search was required because the Contractor did not give sufficient notice for
the test or inspection (clause 41.3), then any search is not a compensation event, whether or not
a Defect is found.

Compensation event 60.1(11)

‘A test or inspection done by the Supervisor causes unnecessary delay.’

The Scope should state clearly those tests or inspections that are to be carried out by the Super-
visor and the Contractor, whether witnessed by the Supervisor or not. Clause 41.5 requires the
Supervisor to carry out their tests and inspections without causing unnecessary delay. Although
the word ‘unnecessary’ may be a little vague, the Contractor could use their programme for the
commencement date of following activities to provide evidence of the delay.

Compensation event 60.1(12)

‘The Contractor encounters physical conditions which

g are within the Site

8
 Compensation events

g are not weather conditions and

g an experienced contractor would have judged at the Contract Date to have such a
small chance of occurring that it would have been unreasonable to have allowed for
them.’

Only the difference between the physical conditions encountered and those for which it
would have been reasonable to have allowed is taken into account in assessing a compensation
event.

The wording clarifies that the Contractor’s entitlement is limited to the event’s effect over and
above that which ‘would have been reasonable to have allowed’.

This compensation event means that the Client takes the risk for physical conditions. Note that
‘physical conditions’ includes more than just ground conditions. A statement in the instructions
to tenderers that

‘the tenderer shall make whatever arrangements are necessary to become fully informed
regarding all existing and expected conditions and matters that might in any way affect the
cost of the performance of the works and claims for additional reimbursement on the
grounds of lack of knowledge or failure to fully investigate the foregoing conditions shall
not relieve the tenderer from the responsibility for estimating properly the difficulty or cost
of successfully performing any work’

does not relieve the Client of their responsibilities.

As with the integration of the early warning clause into a compensation event (clause 61.5),
clause 60.1(12) refers to an ‘experienced’ contractor.

Clause 60.1(12) is read with clauses 60.2 and 60.3. Clause 60.2 describes the aspects of the
physical conditions: whether they had such a small chance of occurring that it would have been
unreasonable to have allowed for them (note that the compensation event refers to physical
conditions and not simply ground conditions, where ‘physical conditions’ has a much wider
connotation), and that the Contractor is assumed to have taken into account when judging
(at the Contract Date). This means it is in the Client’s interests to provide as much information
to the Contractor as possible, in order to discharge their own duties.

Clause 60.3 states the contra proferentem rule regarding inconsistencies and ambiguities in the
Site Information, for which the Client is responsible.

This compensation event is the standard ground conditions variation that has been with the
construction industry for many years. It is important when preparing the tender documentation
under the ECC that the following points are borne in mind:

g The more information concerning ground conditions that can be provided, the greater
the certainty with which appropriate allowances can be made by the tenderers.
g It is important that the information provided is both correct and relevant to the risks
faced.
g It may be useful for the Client to use a specialist to provide interpretation of factual data
to ensure that tenders are on a common basis.
g The Client may use the Scope or secondary Option Z whereby they can define in the
contract the limit between the risks carried by the Client and the Contractor; that is, to
indicate what should be allowed for in the Prices. An example of such limits would be
for the Client to state the limits for groundwater levels.

If a Client chooses to delete clause 60.1(12), using Option Z, then all the risks for physical
conditions are taken by the Contractor, not only those that they have misjudged, given the infor-
mation provided by the Client. Perhaps the Client should consider why the Contractor should
take the risk of physical conditions if the Client is not prepared to, even though the Client is
more likely to have the information regarding the physical conditions.

9
Managing Change

Deleting compensation events 60.1(12) and 60.1(13) means more than simply deleting
those clauses. It is also worth considering whether the Contractor can manage those risks
better than the Client.

Compensation event 60.1(13)

‘A weather measurement is recorded

g within a calendar month

g before the Completion Date for the whole of the works and
g at the place stated in the Contract Data

the value of which, by comparison with the weather data, is shown to occur on average less
frequently than once in 10 years.

Only the difference between the weather measurement and the weather which the weather data
show to occur on average less frequently than once in 10 years is taken into account in
assessing a compensation event.’

The wording clarifies that the Contractor’s entitlement is limited to the difference between the
weather data and the weather measurement.

The ECC does not refer to ‘inclement’ weather, or ‘exceptionally adverse weather conditions’,
but rather weather that occurs on average less frequently than once in 10 years, using a defined
set of records, such as those available from the Met Office (see later in this section) or other
independent body. This is a more objective and measurable approach than other standard
forms of contract.

The purpose is to make available for each contract weather data, compiled by an independent
authority (Contract Data part one requires the insertion of who is to supply the weather
measurements) and agreed by both Parties beforehand, establishing the levels of selected
relevant weather conditions for the Site for each calendar month that has had a period of
return of more than 10 years. If weather conditions more adverse than these levels occur, it
is a compensation event. Weather which the weather data show is likely to occur less
frequently than once within a 10-year period is the Contractor’s risk in relation to both cost
and time.

The time of occurrence of all compensation events is when the action or lack of action describ-
ing the event takes place. In the case of weather, it is the day when weather conditions are
recorded as having occurred within a calendar month and are on average more frequent than
once in 10 years. The test is the comparison of the weather measurements with the weather data.
The compensation event can then be notified under clause 61.3, and its effect can be assessed at
the end of the month when the extent of the weather exceeding the 10-year return weather data is
known. The process starts again at the beginning of each month.

This compensation event is concerned with weather occurring only at the place stated in the
Contract Data. If weather occurring at some distance from the Site could produce some risk
such as flooding on the Site, the allocation of risk should be dealt with by special compensation
events.

It should be noted that the ECC awards both time and money to the Contractor who success-
fully proves a weather compensation event. Traditional contracts tend to award an extension of
time but no money, and, for this reason, some Clients are unhappy at having to pay for an event
that is not within their control in the same way that the other events are within their control.
Many Clients have deleted this clause using Option Z. Perhaps these Clients are not aware of
how onerous the weather compensation event actually is, and how much risk the Contractor
is actually adopting already. This point is worth emphasising, since it is a common misconcep-
tion that the ECC weather statement is less onerous than in traditional contracts.

10
 Compensation events

The criterion is weather that occurs on average less frequently than once in 10 years. Let us say
that there has been a large amount of rainfall in May and the Contractor wishes to notify a
compensation event. They should first, having measured the rainfall at the place stated in the
Contract Data (hopefully on or near the Site), average the rainfall occurring in that May. They
should then access records that give the rainfall in every May for the period of return, which
should be for a period of more than 10 years. (The records from the Met Office tend to give
a 10-year average, making comparisons much easier.) The average rainfall for each May is then
compared. If the average rainfall in the month of May during which the Contractor was Provid-
ing the Works was on average over the period of return greater than the one in 10-year average
for May, then the compensation event may be notified. If the relevant month of May was the
same as the highest May cumulative rainfall, then it does not fit the criterion, since it would then
be equal to, not less than, once in 10 years. The scenarios below are based on the period of
return records being available since 1983.

Through these examples it can be seen that the Contractor is required to measure the weather
measurements such as rainfall and compare them with the weather data from the weather data
available over the period of return. Only if the weather measurement by comparison to the
weather data is shown to occur on average less frequently than once in 10 years does it qualify
as a compensation event. Note that the examples above illustrate how the once in 10-year
average would work.

The Met Office (www.met-office.gov.uk) offers subscription services for planning averages and
monthly updates for the NEC:

‘Location Based Reports, available as Location Based Monthly Planning Averages and
Location Based Monthly Downtime Summaries, both provide weather information, from
over 3,600 locations, that accurately reflects onsite conditions . . . To create them, we have
combined our historic gridded database of long-term average values with our database of
present observations used to drive forecasting models.

These new reports also include up to 16 weather parameters with wind as standard so they
can be used for a variety of building contracts including New Engineering Contract (NEC)
clause 60.1 (13).’ (Met Office website, 2017)

It makes sense that the Client takes the risk for elements that are outwith the Contractor’s
control. If the Contractor is to take the risk, they are likely to factor this risk into the contract,
and the Client is unlikely to know whether they are receiving value for money. The Contractor is
likely to be conservative in their risk estimate and the true price of the project could be difficult
to assess. The assessment of weather applies to the ‘extra’ weather and not to the one in 10-year
weather that is at the Contractor’s risk.

Compensation event 60.1(14)

‘An event which is a Client’s liability stated in these conditions of contract.’

The wording reflects the fact that this clause does not just refer to clause 80.1, which lists the
Client’s liabilities, but also includes any additional Client’s liabilities stated in Contract Data
part one.

Clause 80.1 lists the Client’s liabilities. Additional Client’s liabilities, if any exist, are stated in
Contract Data part one. Those Clients providing design to the Contractor should note that a
Client’s liabilities event is claims, proceedings, compensation, and claims that are due to a fault
of the Client or a fault in their design.

11
Managing Change

Weather data

Scenario 1
The average rainfall (in mm) for the month of May in the relevant year (in this case 2017)
is 144. The period of return is based on the available weather data for the 30-year period
1988–2017 as follows:
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
144 125 114 130 137 141 140 120 114 130
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
137 141 127 133 140 143 130 126 124 132
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
135 137 140 141 142 120 118 121 121 112
The average rainfall in May 2017 at 144 is the highest based on the period of return weather
records being available for the 30-year period since 1988 and therefore fits the criterion of
occurring on average less frequently than once in 10 years. The rainfall may be notified as a
compensation event under clause 60.1(13).
Scenario 2
The average rainfall for the month of May in the relevant year (in this case 2017) is 142. The
period of return is based on the available weather data for the 30-year period 1988–2017 as
follows:
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
142 125 114 130 137 140 140 124 113 143
2007 2006 2005 2004 20003 2002 2001 2000 1999 1998
143 140 127 133 144 140 132 122 123 133
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
132 137 141 145 140 121 119 121 121 112
The average rainfall in May 2017 at 142 is the fourth highest based on the period of return
weather records being available since 1988 behind 1994 (145), 2003 (144) and 2007 (143)
based on the period of return weather records being available since 1988. A simplistic
approach is to estimate the once in 10-year value for the available weather records in this
scenario for 30 years and to take the third highest to estimate the one in 10 years average in
this case (2007: 143).
The average rainfall in May 2017 is 142, which is the fourth highest average over the period of
return and therefore does not fit the criterion of occurring on average less frequently than
once in 10 years. The rainfall may not be notified as a compensation event under
clause 60.1(13).
Scenario 3
The average rainfall for the month of May in the relevant year (in this case 2012) is 143. The
period of return is based on the available weather data for the 30-year period 1983–2012 as
follows:
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
143 125 114 130 137 141 143 124 112 143
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
135 140 127 133 140 143 143 122 123 133
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
132 137 141 143 142 121 119 120 119 122
The average rainfall in May 2017 is 143, but this highest value has occurred previously
during the period of return between 1988 and 2017 in 2011, 2001 and 1994. The rainfall in
May 2017 at 143 does not fit the criterion of occurring on average less frequently than once
in 10 years, as on average over the 30-year period of return it has occurred four times. The
rainfall may not be notified as a compensation event under clause 60.1(13).

12
 Compensation events

Compensation event 60.1(15)

‘The Project Manager certifies take over of a part of the works before both Completion
and the Completion Date.’

The Client may use a part of the works before Completion and, unless the use is for reasons
stated in Clause 35.2, they take over that part. If take over occurs before Completion and the
Completion Date, it is a compensation event.

It is important to note that the Scope should state the reasons, if any exist, as to why the Client
may require to use part of the works before Completion. For example, the Client could require
access across parts of the works for their own requirements. Alternatively, the Contractor may
request the Client to use part of the works to suit their method of working. Under clause 35.2,
take over would not occur in either of these instances, and therefore there would be no compen-
sation event. The Client may state in Contract Data part one that they are unwilling to take over
the works before the Completion Date (to cover instances where the Contractor completes early
and expects the Client to take over early).

Compensation event 60.1(16)

‘The Client does not provide materials, facilities and samples for tests and inspections as
stated in the Scope.’

Clause 41.2 requires the Client to provide materials, facilities and samples for tests and inspec-
tions as stated in the Scope. This compensation event relies on the Scope stating the things that
the Client is to provide. If the Client does not provide the things they are required to provide,
then the Contractor is entitled to notify a compensation event.

Compensation event 60.1(17)

‘The Project Manager notifies the Contractor of a correction to an assumption which the
Project Manager made about a compensation event.’

The wording reflects that the compensation event only relates to assumptions made by the
Project Manager and not to those made by the Contractor.

Clause 61.6 allows the Project Manager to state assumptions to be used to facilitate the assess-
ment of a compensation event. If they later notify the Contractor of corrections to these assump-
tions, the notification is a separate compensation event.

Compensation event 60.1(18)

‘A breach of contract by the Client which is not one of the other compensation events in
this contract.’

This is an ‘umbrella’ clause to include breaches of contract by the Client within the compen-
sation event procedure.

Compensation event 60.1(19)

‘An event which

g stops the Contractor completing the whole of the works or

g stops the Contractor completing the whole of the works by the date for planned Com-
pletion shown on the Accepted Programme

and which

g neither Party could prevent

g an experienced contractor would have judged at the Contract Date to have such a small
chance of occurring that it would have been unreasonable to have allowed for it and
g is not one of the other compensation events stated in this contract.’

This compensation event deals with events where the chances of it happening are so remote as
to be unreasonable to have provided for it in the contract.

13
Managing Change

No attempt has been made as with other contracts to define what such an event is (war, act of
God, etc.). A legal definition of force majeure is as follows:

‘Force majeure [French: Irresistible compulsion or coercion. The phrase is used

particularly in commercial contracts to describe events possibly affecting the contract
and that are completely outside the parties’ control. Such events are normally listed in
full to ensure their enforceability; they may include acts of God, fires, failure of
suppliers or subcontractors to supply the supplier under the agreement, and strikes
and other labour disputes that interfere with the supplier’s performance of an
agreement. An express clause would normally excuse both delay and a total failure to
perform the agreement.’ (Oxford Dictionary of Law, 7th edn, 2014, Oxford University
Press)

This clause also makes it a positive obligation on the Contractor to notify such events.

An example of a situation where this compensation event could be used is a foot-and-mouth

epidemic. The epidemic that occurred in 2001 in the UK had a severe effect on pipe laying and
other projects in areas affected by the disease.

Compensation event 60.1(20)

‘The Project Manager notifies the Contractor that a quotation for a proposed instruction is
not accepted.’

The Contractor is entitled to compensation for a proposed instruction not being accepted. This
will encourage the Project Manager to consider carefully issuing proposed instructions, which,
in the past, may have resulted in the Contractor incurring costs for which there was no contrac-
tual means of compensation unless a quotation for a proposed instruction was accepted.

Compensation event 60.1(21)

‘Additional compensation events stated in Contract Data part one.’

This provides an opportunity for the Client to identify additional compensation events.

Why include additional compensation events?

g In order to get better value for money from the Contractor by defining what could be a
grey area (e.g. physical conditions) or simply taking on board a risk. This could be
defined up-front or perhaps as a result of tender negotiations.

Examples of additional compensation events:

g Discovery of archaeological finds
g Discovery of asbestos
g Birds nesting
g Unexploded bombs
g Discovery of the great crested newt
g Suicide attempts off a bridge
g Late flights
g Late-running trains
g Planning approval.

What is the consequence?

g If they occur, then they would become a compensation event (clause 60.1(21)).
g The Client also indemnifies the Contractor (clause 83.1).
g The Contractor does not have to insure against a Client’s liabilities (clauses 80.1 and
83.1).

1.4.1.1. Summary of Table 1.1 gives an at-a-glance summary of the clauses referred to in the compensation events.
clauses

14
 Compensation events

Table 1.1 Summary of compensation events

Compensation clause Brief description Relevant clause

60.1(1) Change to the Scope 14.3, 27.3 and 45

60.1(2) Access and use of the Site 33.1
60.1(3) Client providing something 31.2
60.1(4) Stop or not start any work 34.1
60.1(5) Client and Others working times and 31.2
conditions
60.1(6) Replying to communications 13.3
60.1(7) Object of value 73.1
60.1(8) Changing decisions No specific clause
60.1(9) Withholding acceptance 13.8 and, for example 13.4,
24.1 and 31.3
60.1(10) Instructions to search 43.1
60.1(11) Test or inspection causing delay 41.5
60.1(12) Physical conditions See also clauses 60.2 and
60.3
60.1(13) Weather No specific clause/Contract
Data part one
60.1(14) Client’s liabilities 80.1
60.1(15) Take over 35.2
60.1(16) Client provides materials, facilities 41.2
and samples
60.1(17) Correction to an assumption 61.6
60.1(18) Breach of contract No specific clause
60.1(19) Unforeseen events 19.1
60.1(20) Quotation for a proposed instruction 65
is not accepted
60.1(21) Additional compensation events Contract Data part one

1.4.2 Main Options B Since Options B and D are based on Bills of Quantities that are at the Client’s risk, there are
and D only three additional compensation events applicable to these main Options only under the contract,
as shown in Table 1.1.

Compensation event 60.4

‘A difference between the final total quantity of work done and the quantity stated for an
item in the Bill of Quantities is a compensation event if

g the difference does not result from a change to the Scope

g the difference causes the Defined Cost per unit of quantity to change and
g the rate in the Bill of Quantities for the item multiplied by the final total quantity of work
done is more than 0.5% of the total of the Prices at the Contract Date.

If the Defined Cost per unit of quantity is reduced, the affected rate is reduced.’

The ECC sets an objective test of when a change in quantity leads to a change in rate in the Bill
of Quantities.

This clause only applies to changes in quantities that do not result from changes to the Scope. A
change to the Scope is always a compensation event, subject to the exceptions in clause 60.1(1),
regardless of the effect on quantities.

15
Managing Change

A change in quantity is not, in itself, a compensation event. A compensation event is triggered

only by the changed quantity satisfying the three tests stated in the clause.

So, by way of an example, if in a Bill of Quantities for earthworks the final total quantity of
work done compared with the item stated in the bill is more than 0.5% of the total of the Prices,
it does not arise from a change in the Scope and the change causes the affected rate to change,
then this difference would be assessed as a compensation event.

Scenario A. The final total quantity of work done is

Reference Item description Unit Quantity Rate Amount: £

Series 600: EARTHWORKS

Excavation
6.01 Excavation of unacceptable material m3 10 000 10.00 100 000.00
Class U1A in cutting and other
excavation 0 to 3 m in depth

and the quantity stated for an item in the Bill of Quantities is

Reference Item description Unit Quantity Rate Amount: £

Series 600: EARTHWORKS

Excavation
6.01 Excavation of unacceptable material m3 5000 10.00 50 000.00
Class U1A in cutting and other
excavation 0 to 3 m in depth

and the total of the Prices at the Contract Date was £1 000 000.00.

In this scenario the change is above the trigger value, as 0.5% of the total of the Prices at the
Contract Date is (£1 000 000) £5000.00, and the total value change is + £5000.00.

If we assume that the change in quantity enables the Contractor to work more economically and
the Defined Cost per unit to be reduced, then the affected rate reduces from £10.00 per m3 to
£9.00 per m3.

Scenario B. The final total quantity of work done is

Reference Item description Unit Quantity Rate Amount: £

Series 600: EARTHWORKS

Excavation
6.01 Excavation of unacceptable material m3 5000 10.00 50 000.00
Class U1A in cutting and other
excavation 0 to 3 m in depth

and the quantity stated for an item in the Bill of Quantities is

Reference Item description Unit Quantity Rate Amount: £

Series 600: EARTHWORKS

Excavation
6.01 Excavation of unacceptable material m3 10 000 10.00 100 000.00
Class U1A in cutting and other
excavation 0 to 3 m in depth

and the total of the Prices at the Contract Date was £1 000 000.00.

16
 Compensation events

In this scenario the change is above the trigger value, as 0.5% of the total of the Prices at the
Contract Date is (£1 000 000) £5000.00, and the total value change is −£5000.00.

If we assume that the change in quantity means that the Contractor is not able to work as
economically and the Defined Cost per unit will rise, this causes the affected rate to increase
to £12.00 per m3 from £10.00 per m3.

Compensation event 60.5

‘A difference between the final total quantity of work done and the quantity for an item
stated in the Bill of Quantities which delays Completion or the meeting of the Condition
stated for a Key Date is a compensation event.’

A difference between the original and final quantities in a Bill of Quantities is not, in itself, a
compensation event. The amount due to the Contractor includes the Price for Work Done to
Date, which is based on the actual quantities of work done. However, any difference of
quantities, which causes Completion to be delayed or delays a Key Date, is a compensation
event.

Compensation event 60.6

‘The Project Manager gives an instruction to correct a mistake in the Bill of Quantities
which is

g a departure from the rules for item descriptions or division of work into items in the
method of measurement or
g due to an ambiguity or inconsistency.

Each such correction is a compensation event which may lead to reduced Prices.’

Since the Bill of Quantities is not the Scope (clause 56.1), any mistakes in the Bill of Quantities
arising because the bill does not comply with the method of measurement or because of ambi-
guities or inconsistencies are treated separately (clause 17.1). This may occur when an item has
been omitted from the bill or an item in the bill should be deleted or amended to comply with
the method of measurement. This is one of the compensation events that may result in a
reduction of the Prices.

1.4.3 Secondary Options The inclusion of the following secondary Options gives rise to additional compensation events.
X2, X10, X12, X14, X15
and Y(UK)2 Option X2 – changes in the law
If, after the Contract Date, a change in the law of this contract occurs, it is a compensation event.

Option X10 – building information management

If the Information Execution Plan is altered by a compensation event, the Contractor includes
alterations to the Information Execution Plan in the quotation for the compensation event
(clause X10.5).

Option X12 – changes in the law

A change to the Partnering Information (clause X12.3(6)) or to the Contractors programme
(clause X12.3(7)) is a compensation event, which may lead to reduced Prices.

Option X14 – advanced payment to the Contractor

If there is a delay in the Client’s making the advanced payment under this secondary Option, a
compensation event occurs (clause X14.2).

Option X15 – limitation of the Contractor’s liability for their design to reasonable skill and care
If the Contractor corrects a Defect for which they are not liable under the contract, it is a
compensation event (clause X15.2).

Option Y(UK)2 – Part II of the Housing Grants, Construction and Regeneration Act 1996
Suspension of performance is a compensation event if the Contractor exercises their right to
suspend performance under the Act (clause Y2.5).

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Managing Change

1.5. Roles of the The roles of the Project Manager and Contractor in the compensation event procedure are
Project Manager defined in the ECC in terms of the actions each is to take. These actions are all described in
and Contractor section 6 of the core clauses – ‘Compensation events’ (Appendix 1, Sections A and B in this
book list those actions required by the Project Manager and Contractor with regard to compen-
sation events).

The list of compensation events contained within clause 60.1 divide generally into two
categories:

g those for which the Project Manager will usually volunteer a decision that a
compensation event has occurred; that is, those generally in respect of instructions issued
by the Project Manager or Supervisor (see Section 1.7.2 below)
g those that, due to their subjectivity or because the event could be construed as some
shortcoming of the Project Manager, Supervisor or Client, are more likely to be left to
the Contractor to notify the Project Manager that they consider a compensation event
has occurred (see section 1.7.3 below).

Appendix 1, Sections D and E in this book shows the different procedures to be followed in
each case. It will be seen that the procedures are identical once the Project Manager, for events
in the second of the above categories, notifies the Contractor that they believe a compensation
event has occurred.

The flow charts in Appendix 1 show the ‘trouble-free’ situations where the procedure operates
smoothly. In practice, however, complicating factors can arise to disrupt the smooth process
envisaged, but which in fairness to the ECC have been predicted and provided for in the
contract. Appendix 1, Section F, presents a table of the more common complicating factors that
can arise and some possible consequences.

1.6. Administering The assessment of a compensation event is always of its effect on both cost (the Prices) and the
compensation programme (the Completion Date and Key Dates).
events

1.6.1 Changes to the The Contractor includes alterations to the Accepted Programme as part of their quotation for
Completion Date the compensation event where the programme has altered in any way. A change to the
programme includes not only a change to the Completion Date or Key Dates but changes to
the resources, the statement of how the Contractor plans to do the work or sequencing of the
programme. In any of these cases, alterations to the Accepted Programme are required to be
submitted with the quotation.

Compensation events are a package of time and money; therefore, the programme is a part
of a quotation for a compensation event.

The programme is an important part of a compensation event quotation. The Contractor should
ensure that all changes are noted in the programme, including consequential changes that result
from a compensation event.

1.6.2 Changes to the Clause 63.1 states that the changes to the Prices are assessed as the effect of the compensation
Prices event upon the Defined Cost of the work already done, the forecast Defined Cost of the work
not yet done and the resulting Fee.

The important principle here is that there is absolutely no reference to the Prices included in the
activity schedule (clause A 11.2(21) – Activity Schedule is a defined term): the Prices in main
Options C and D are used to determine the target price only. Instead, assessment of the finan-
cial effects of a compensation event is based on their effect on Defined Cost plus the Fee.

Defined Cost is defined in all the main Options. The Fee is the amount calculated by applying the
fee percentage stated in Contract Data part two to the amount of Defined Cost, and is intended to

18
 Compensation events

cover such items as the Contractor’s offsite overheads, profit and any other cost components not
expressly included in the Schedule of Cost Components (SCC or Short SCC) (see clause 52.1).

What this all means is that for every compensation event a ‘mini-lump sum’ price is, wherever
possible, estimated in advance, and is based on its forecast effect on

g the actual Defined Cost or

g the actual Defined Cost of the work already done, if the assessment is made after the
work because the subject of the compensation event has been completed.

No compensation event for which a quotation is required is due to the fault of the Contractor or
relates to a matter that is at their risk under the contract. It is therefore appropriate to reimburse
the Contractor their forecast additional costs. Clause 63.1 identifies that the demarcation
between the actual Defined Cost of the work already done and the forecast Defined Cost of
work yet to be done is the date that the Project Manager instructed or should have instructed
the work.

1.6.3 Procedure for It is the intention of the ECC that the majority of quotations for compensation events are based
change on forecasts of their financial effects (provided by the timescales included in the contract), since
1.6.3.1 Forecasts this accords with the objective designed to provide the Client with reasonable certainty of the
cost and time implications of changes to the work and places a risk on the Contractor, which
motivates the latter to manage the new situation efficiently.

Where the effects of a change are too uncertain to be forecast reasonably by the Contractor, the
Project Manager states assumptions about the event on which the Contractor bases their
forecast of Defined Cost. This precludes the use of large contingent sums in the Contractor’s
quotations. The Project Manager’s assumptions provide the only mechanism for revisiting the
compensation event quotation after implementation.

1.6.3.2 Revisiting The quotation provided by the Contractor is their only chance of including all costs (consequen-
compensation events tial or otherwise) resulting from a particular event. Once a compensation event has been
implemented, only the Project Manager’s assumptions that turn out to be incorrect allow the
revisiting of a quotation (clauses 61.6 and 60.1(17)). Any assumptions made by the Contractor,
if later proved to be incorrect, do not allow such reassessment. This must be made abundantly
clear to Contractors.

1.6.3.3 Times stated in In practice, many compensation events can occur simultaneously, and some compensation
the procedure events may involve significant restructuring of the price document (and programme). In recog-
nition of this the ECC allows the relaxation of the time periods by agreement between the
Project Manager and the Contractor (clause 62.5). Such relaxation, however, should be the
exception to the rule and not used as a cover-up for ineffective or poor contract administration.

It may be the case that the Project Manager has been given a specific level of financial author-
isation and that they would be required to report to a management board on increases to the
project value. They could therefore find it difficult to respond in the time required by the
contract where a compensation event has breached the maximum level of their financial auth-
ority, whether per event or total contract value. This would apply particularly to the 2-week
reply to quotations (clause 62.3).

Where the Client wishes to initiate specific procedures covering this scenario, amendments to
the conditions of contract can be made using Option Z. For one-off cases, the Project Manager
should rely on clause 62.5 to extend the time required.

Variations in the Contractor’s supply chain could also result in the Contractor needing an
extension to the time period of 3 weeks to submit a quotation for a compensation event.

In general, agreement on timescales should probably be made for each compensation event as it
arises, so that the right resolution is arrived at practically while still reflecting the spirit of the
contract.

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Managing Change

1.6.3.4 Other aspects of The compensation event process has specific procedural requirements, which fall into three
the procedure distinct stages, namely

1 notification
2 quotation
3 implementation.

Quotations cannot be revisited unless they are based on assumptions given by the Project
Manager and they later correct incorrect assumptions.

1.7 Notification of a Note that although this sub-heading is included under the heading of a compensation event, the
compensation event instruction of such a quotation is not a compensation event in itself, and the Contractor does not
1.7.1 Proposed put the proposed instruction into effect.
instruction or changed
decision The Project Manager may instruct the Contractor to submit quotations for a proposed instruc-
tion or a proposed changed decision (clause 65.1). The Project Manager states in the instruction
the date by which the proposed instruction may be given. The quotation is to be submitted
within 3 weeks of being instructed to do so by the Project Manager (clause 65.2), and the
quotation is assessed as a compensation event. The Project Manager replies to the Contractor’s
quotation by the date when the proposed instruction may be given.

The instruction is not related to a compensation event as such but only to a potential compen-
sation event, and the Project Manager should make this very clear in their instruction. This
option is available to the Project Manager where they may be considering a change but wish
first to know what the effect of that change would be. Once they have received the no-obligation
quotation, the Project Manager makes one of three replies:

g an instruction to submit a revised quotation including the reasons for doing so

g the issue of the instruction together with a notification of the instruction as a
compensation event and acceptance of the quotation
g a notification that the quotation is not accepted.

If the Project Manager does not reply to the quotation within the time allowed, the quotation is
not accepted.

The Project Manager may instruct the Contractor to submit a quotation for a proposed
instruction; for example, changing the floor finishes to the entrance of their new office
block.

1.7.2 Notification by the Either the Contractor or the Project Manager can notify a compensation event. There are
Project Manager eight instances in which the Project Manager should identify the compensation event
(clause 61.1):

g The Project Manager gives an instruction changing the Scope (clause 60.1(1)).
g The Project Manager gives an instruction to stop or not to start any work or to change a
Key Date (clause 60.1(4)).
g The Project Manager gives an instruction for dealing with an object of value or of
historical or other interest found within the Site (clause 60.1(7)).
g The Project Manager or the Supervisor changes a decision they have previously
communicated to the Contractor (the assumption is made that the Project Manager is
aware of the Supervisor’s changing a decision, presumably because they have been copied
in on correspondence or because the Supervisor has informed them of the change)
(clause 60.1(8)).
g The Supervisor instructs the Contractor to search, and no Defect is found (unless the
search is needed only because the Contractor gave insufficient notice of doing work
obstructing a required test or inspection) (clause 60.1(10)).

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 Compensation events

g The Project Manager certifies take over of a part of the works before both Completion
and the Completion Date (unless this is for a reason stated in the Scope or to suit the
Contractor’s way of working) (clause 60.1(15)).
g The Project Manager notifies a correction to an assumption about the nature of a
compensation event (clause 60.1(17)).
g The Project Manager notifies the Contractor that a quotation for a proposed instruction
is not accepted (clause 60.1(20).

If the Project Manager does not notify a compensation event, the Contractor may do so
(clause 61.3; if the Contractor does not notify of a compensation event within 8 weeks of becom-
ing aware of the event, it is not entitled to the compensation event unless the Project Manager
should have notified the event to the Contractor but did not). Although the Project Manager
may therefore rely on the Contractor to notify all compensation events, even those that
the Project Manager should notify, it falls within the boundaries of mutual trust and
co-operation that the Project Manager notifies those compensation events that they are required
to notify.

If the Project Manager does not notify a compensation event, the Contractor may do so.

1.7.3 Notification by the The Contractor may notify a compensation event under the following circumstances
Contractor (clause 61.3):

g the Contractor believes the event is a compensation event

g the Project Manager has not notified the event to the Contractor.

Note that both statements have to be satisfied before the Contractor may notify a compensation
event to the Project Manager. The 8 weeks within which the Contractor should notify a com-
pensation event may become an indefinite period if it is a compensation event that the Project
Manager should have notified but did not (clause 61.3). This is an encouragement to the Project
Manager to notify compensation events. It could also potentially result in the traditional
‘claims’ situation, where compensation events are notified so long after the actual event that
it is difficult to assess its impact.

1.7.3.1 Believing the The Contractor would usually believe that an event is a compensation event if it or its works
event is a compensation have been affected in some way. At this stage the Contractor does not need to confine it to the
event compensation events in the contract, although clearly not doing so may lead to the notification
failing the five-point test of clause 61.4.

1.7.3.2 Less than 8 weeks This is an objective test that may be evidenced by documentation. The ECC sets this time limit
since they became aware to force issues to the fore and ensure that they are dealt with promptly, thereby maintaining the
of the event certainty of the final outcome, which is vital to upholding a good working relationship between
the parties throughout the contract.

The Contractor has only 8 weeks to notify a compensation event from becoming aware of
it. This rule does not apply to events that the Project Manager should have notified to the
Contractor but did not.

‘If the Contractor does not notify a compensation event within 8 weeks of becoming aware
that the event has happened, the Prices, the Completion Date or a Key Date are not
changed unless the event arises from the Project Manager or the Supervisor giving an
instruction or notification, issuing a certificate or changing an earlier decision.’
(clause 61.3)

‘If the Project Manager fails to reply to the Contractor’s notification of a compensation
event within the time allowed, the Contractor may notify the Project Manager of that
failure. If the failure continues for a further two weeks after the Contractor’s notification it

21
Managing Change

is treated as acceptance by the Project Manager that the event is a compensation event and
an instruction to submit quotations.’ (clause 61.4)

1.7.3.3 The Project If the Project Manager has notified the events that they should have notified in accordance with
Manager has not clause 61.1, then the events that are left to the Contractor to identify are
notified the event
g a failure by the Client, Project Manager, Supervisor or Others to fulfil their obligations
(compensation events 2, 3, 5, 6, 11, 16, 18, 19 and 21)
g the Project Manager withholding an acceptance for a reason not stated in the contract
(compensation event 9)
g an event that is a Client’s liability stated in the conditions of contract (compensation
event 14)
g a happening not caused by any Party (compensation events 12, 13 and 19)
g events confined to the main and secondary Options and any additional compensation
events stated in the Contract Data.

In reality, however, the Contractor would be advised to notify all events that they consider to
be compensation events, even those that the Project Manager is supposed to notify but does
not.

The occurrence of a compensation event entitles the Contractor to an assessment of time and
money (as opposed to immediately entitling them to time and money; the assessment might
be zero). The Contractor’s notifying an event does not necessarily mean that they will receive
time and money for the event because there is still the five-point test carried out by the Project
Manager on receiving a notification from the Contractor in clause 61.4.

1.7.4 The five-point test Once the Contractor has notified a compensation event, the Project Manager assesses the event
against a five-point test as follows (clause 61.4):

Question Yes No

g Does the event arise from a fault of the Contractor? 3

g Has the event happened or is it expected to happen? 3
g Has not been notified within the timescales set out in the 3
conditions of contract
g Does the event affect Defined Cost, Completion or meeting a 3
Key Date?
g Is the event one of the compensation events stated in this contract? 3

Note that all five parts of the test have to be passed. Note also that if a tick were to be placed in
the other column, the test would fail.

Whether the event will ever happen is a matter of opinion, as is whether the Prices, Completion
or Key Dates would be affected. The first and the last points are reasonably objective,
however.

If the notification passes the test(s), then the Project Manager instructs the Contractor to submit
quotations for the event. If the notification fails the test, then the Project Manager informs the
Contractor that the Prices, the Completion Date and the Key Dates will not be changed and the
compensation event procedure ends. Of course, if the Contractor is unhappy with the Project
Manager’s decision, they may take the matter to adjudication.

Compensation events notified by the Project Manager do not go through this test. This is
presumably because the Project Manager has already decided that the event was not the
Contractor’s fault and the event has already happened, and it is one of the compensation events
stated in the contract. Whether the Prices and the Completion Date and the Key Dates will be
affected will be determined after the quotation has been received.

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 Compensation events

1.8. Quotations for a A quotation is a time and money ‘package’ of the Contractor’s assessment (unless it is a Project
compensation event Manager’s assessment) of the financial and time effects of the compensation event, and should
1.8.1 Introduction be submitted within 3 weeks (or some other such agreed period) of the Project Manager’s
instruction to do so.

1.8.2 When are There are three instances in which a Contractor may be instructed by the Project Manager to
quotations submitted? submit quotations in relation to compensation events (the Contractor may also be required to
submit quotations for acceleration (clause 36.1) or for the acceptance of a Defect (clause 45.2),
in which case the quotations are submitted within the period for reply):

1 The Project Manager instructs the Contractor to submit quotations for a compensation
event at the same time as they notify the compensation event (clause 61.1).
2 The Project Manager instructs the Contractor to submit quotations for a compensation
event once they have decided that an event notified by the Contractor has passed the
five-point test (clause 61.4.). Note that this is in the alternative to instance 1 above; the
two cannot happen for the same event.
3 The Project Manager instructs the Contractor to submit a revised quotation for a
compensation event (clause 62.4).

In all three instances, the Contractor has 3 weeks within which to submit quotations (clause 62.3
for instances 1 and 2; clause 62.4 for instance 3), but this time may be extended by agreement
between the Contractor and the Project Manager before the quotation is due (clause 62.5; see
additional requirements in clause 62.6). If the Contractor does not submit their quotation and
its accompanying details within the required time, the Project Manager will assess the compen-
sation event themselves, a powerful disincentive for the Contractor.

In addition to quotations as a result of a compensation event notification, the Project Manager

may also instruct the Contractor to submit quotations for a proposed instruction (or changed
decision), as discussed in Section 1.7.1 above, which could also result in a compensation event.

1.8.3 Instructions for An instruction to submit a quotation could include the following:
quotations
g A notification that the Contractor did not give an early warning of an event that an
experienced contractor could have given (clause 61.5).
g Assumptions about the event where the Project Manager decides that the effects of a
compensation event are too uncertain to be forecast reasonably (clause 61.6).
g An instruction to submit alternative quotations based on different ways of dealing with
the compensation event. The Project Manager must first discuss the different ways of
dealing with the compensation event that are practicable. This is particularly useful
where the Project Manager wishes to retain the Completion Date. Where a compensation
event is likely to result in a delay to the Completion Date but the Project Manager is
keen to retain the Completion Date, rather than accelerating the Project Manager could
request alternative quotations for the compensation event, retaining the Completion Date
in one of the alternatives.

1.8.4 What is included in Quotations for compensation events comprise (clause 62.2)
the quotation?
g proposed changes to the Prices
g any delay to the Completion Date
g any delay to the Key Dates

assessed by the Contractor.

The quotations therefore include the following:

g Details of the assessment of the changes to the Prices and the delay to the Completion
Date or Key Date
g Alterations to the Accepted Programme showing the effect of the compensation event
where the programme for the remaining work has been affected (note that the
programme is required if the remaining work is affected, not only if the Completion Date

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Managing Change

has changed, in other words, if a method or resource statement has changed, sequencing
amended or durations affected, a revised programme is required)
g cost and time risk allowances for matters that have a significant chance of occurring and
are not compensation events (clause 63.8)
g alternative quotations where instructed to do so by the Project Manager (clause 61.6)
g alternative quotations for other methods of dealing with the compensation event that the
Contractor considers practicable (clause 62.1).

The Contractor may include alternative quotations.

If the Project Manager has notified the Contractor in their instruction to submit quotations
that the Contractor did not give an early warning that an experienced contractor could have
given, then the Contractor assesses the quotation as if they had given an early warning
(clause 63.7). This is the sanction on the Contractor for not following the early warning
procedure in the contract. The event is therefore assessed as if the options that would have
been available at the time that an early warning could have been given are still available,
and the quotation is for the most effective and economical option.

The quotation is based on the assumption that

g the Contractor reacts competently and promptly to the compensation event

g the additional Defined Cost and time due to the event are reasonably incurred
g the time due to the event is reasonably incurred (clause 63.9).

1.8.4.1 Changes to the Changes to the Prices are assessed as the effect of the compensation event upon (clause 63.1)
Prices
g the actual Defined Cost of the work by the dividing date
g the forecast Defined Cost of the work not done by the dividing date
g the resulting Fee.

Defined Cost
The first thing to notice is that all payment mechanisms deal with compensation events in the
same way; that is, all compensation events are assessed using Defined Cost as defined, which, for
all the main Options except Option F, are the SCC (Options C, D and E) and the Short SCC
(SSCC) (Options A, B). This means that for Options A and B, which use an activity schedule
and a Bill of Quantities as the payment mechanism rather than Defined Cost, changes and other
compensation events are not assessed using the Activity Schedule or the Bill of Quantities.
Compensation events under Options A and B are assessed using the SSCC. The Project
Manager and Contractor may by agreement use rates or lump sums to assess the change to the
Prices.

The effect of the event

Second, the assessment is the effect of the compensation event upon the three items of cost
identified in clause 63.1. The event is therefore the basis for all assessment, and its effect needs
to be determined.

Work already done

The calculation includes the effect upon work already done and the effect upon work not yet
done. The work already done may refer to work that has been completed and that is now
required to be changed. It is not the bill cost (Option B) or the activity cost (Option A) that
is assessed, but the Defined Cost of the work. The chances of a Contractor having maintained
records from which this information can be extracted are possibly small, and compiling this
information could be taxing. The calculation is that the Defined Cost of the work done is
deducted and the forecast Defined Cost of the new work is added.

Forecast of work not yet done

The calculation of work not yet done is a forecast. The assumption is that the work has not yet
been done, although, since the Contractor is required to carry out the work and given the time

24
 Compensation events

periods of the compensation event procedure, it is possible that the work to be done may
already have been completed by the time for the submission of the quotation. This would
certainly make it easier for the Contractor when preparing their quotation. It would reduce
some of their risk, and in Options C and D would keep the target cost more stable in compari-
son with the Price for Work Done to Date.

Where this is not the case, the Contractor is required to forecast the cost using the full SCC and
any Subcontractor quotations. Assumptions about the event made by the Project Manager
could assist in this forecast.

The Fee
The Fee is defined as the amount calculated by applying the fee percentage to the amount of
Defined Cost (clause 11.2(10)). The percentage is tendered by the Contractor, and included in
their Contract Data part two. It represents the Contractor’s profit and the overheads that are
not included elsewhere in the SCC. Once the Contractor has added all the components of cost
in the SCC or the SSCC, and deducted Disallowed Cost (C, D, E and F) to get their total
Defined Cost, they multiply this Defined Cost by the fee percentage and add this product to the
Defined Cost.

The Fee includes all the costs not included in the SCC or SSCC.

1.8.4.2 Delay to the A delay to the Completion Date is assessed as the length of time that, due to the compensation
Completion Date event, planned Completion is later than planned Completion as shown on the Accepted
Programme (clause 63.5). In other words, the Contractor includes in their programme the date
when they plan to complete, as well as the date they are required to complete in accordance with
the contract. This planned Completion date must be earlier than the contractual Completion
Date. The duration between planned Completion and the Completion Date is the terminal float
(Figure 1.1), and this remains the Contractor’s to use if, for example, inefficiencies occur that
delay planned Completion up to the Completion Date.

Figure 1.1 Terminal float

the works

commissioning

planned Completion 

Completion Date 
⎧
⎨
⎩

terminal float

For the purposes of compensation events, therefore, the assessment of the time element of the
event is based upon planned Completion rather than the Completion Date.

1.8.4.3 Delay to the Clause 63.5 also refers to the delay to a Key Date. A delay to a Key Date is assessed as the
Key Dates length of time that, due to the compensation event, the planned date when the Condition stated
for a Key Date to be met is later than the date shown in the Accepted Programme. The
Contractor is required to include Key Dates in their programme; that is, the dates by when the
condition stated in Contract Data part one will be met. A compensation event quotation should
include any delay to the Key Date as a result of the compensation event.

1.8.5 Acceptance of a The Project Manager is required to respond within 2 weeks of the Contractor submitting their
quotation quotation (clause 62.3), but this time may be extended by agreement between the Contractor and
the Project Manager before the reply is due (clause 62.5). Their reply may be one of three
options (clause 62.3):

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Managing Change

g a notification of acceptance of the quotation

g an instruction to submit a revised quotation or
g that the Project Manager will be making their own assessment.

These three options are further explained as follows:

g The Project Manager could accept the quotation. In this case, the compensation event is
implemented (clause 65.1).
g The Project Manager could give the Contractor an instruction to submit a revised
quotation after explaining their reasons for doing so (clause 62.4). The Contractor has
3 weeks to submit the revised quotation (clause 62.4). The Project Manager may use this
option where, for example, they consider that the Contractor has assessed the event
incorrectly.
g The Project Manager could give the Contractor a notification that they will be making
their own assessment. They could do this if, for example, they have already instructed a
revised quotation but it was also unsatisfactory, or if they did not believe that a revised
quotation would yield the results expected.

1.9. Assessment of The assessment of the compensation event is assumed to be carried out by the Contractor. The
quotations Contractor is required to assess the event as if they had given an early warning (where so
notified), and to include time and cost risk allowances.

It is only if the Project Manager replies to a submitted quotation that they will be making their
own assessment of a compensation event. The Contractor therefore always gets the first chance
at assessing the event.

1.9.1 Assessment by the It is not really in either Party’s interest for the Project Manager to assess a compensation event.
Project Manager The Project Manager will use the tools available to them, such as the Accepted Programme,
which means that the Contractor is incentivised to keep its programme accurate and up to date.
Since the reasons for the Project Manager making their own assessment all originate in some
failure of the Contractor, it is possible that the Project Manager may be a bit more stringent
in their calculations than the Contractor. It is unlikely that the Contractor will be happy about
this arrangement, but its recourse is through adjudication. It therefore seems sensible that the
Contractor prevents the compensation event procedure going as far as the Project Manager
having to do their own assessment.

1.9.1.1 Reasons for the There are four reasons why a Project Manager assesses (note that there is no option for the
Project Manager Project Manager to choose not to assess if the reasons exist; the statement is obligatory) a
assessing a compensation event after they have notified the Contractor that they will be doing so
compensation event (clause 64.1):

g The Contractor has not submitted their quotations and accompanying details within the
time allowed. The Contractor has 3 weeks to submit quotations after being instructed to
do so, or an agreed extended time period (clause 62.5).
g The Project Manager decides that the Contractor has not assessed the event correctly and
they do not instruct a revised quotation. The Project Manager has the choice of
instructing a revised quotation, and they would tend to do so only if they thought that
the explanation for requesting a revised quotation would yield the required results.
g If, when the Contractor submits required quotations for compensation events, they have
not submitted a programme or alterations to a programme that this contract requires. If
the programme has changed in any way (e.g. the statement of how the Contractor plans
to do the work, or a changed Completion Date or a changed Key Date), the Contractor
must submit a revised programme as part of the compensation event quotation
(clause 62.2).
g The Project Manager has not accepted the Contractor’s last programme for a reason
stated in the contract by the time the Contractor submits the quotation for the
compensation event. The Contractor is required to submit a revised programme regularly
(clause 32.2), but if the latest programme submitted has not been accepted by the Project
Manager for a reason stated in the contract, then the Project Manager is entitled to make
their own assessment.

26
 Compensation events

The Contractor is therefore incentivised to ensure that their programme is submitted as

required. A further incentive exists in clause 64.2, where the Project Manager assesses (again,
there is no option for the Project Manager; the action is obligatory) a compensation event using
their own assessment of the programme if there is no Accepted Programme or if the Contractor
has not submitted alterations or a change to the programme for acceptance as required by the
contract.

The programme is so important that its non-acceptance is grounds for the Project Manager
making their own assessment of compensation events.

1.9.1.2 Procedure for the The Project Manager has 3 weeks from the time that the need for the Project Manager’s assess-
Project Manager’s ment has become apparent (i.e. 3 weeks from the time the Project Manager notified the
assessment Contractor that they would be making their own assessment) to notify the Contractor of their
assessment of the compensation event and give them details (clause 64.3). If the Contractor was
allowed more than 3 weeks to submit their quotation, then the Project Manager is allowed that
same extra time to do their own assessment and notify the Contractor.

1.10. The use of the Like most contracts, there is a relationship between the cost and time effects of change. In the
programme for the ECC the programme is part of a quotation for a compensation event, which is a package of time
assessment of and money.
compensation
events The programme is therefore intrinsically linked to the effects and management of change.

1.10.1 Programmes The same principles that apply to the Accepted Programme apply to programmes that accom-
that accompany pany compensation events. Great care is needed when assessing the time effects where the
compensation events operation or activity has a learning curve.

For instance, a profile of outputs for a tunnelling contract may look like the example in
Figure 1.2.

It can be seen from Figure 1.2 that the point when the compensation event arises and the time
when it is to be undertaken may be at different points on the tunnelling progress profile, and so
a compensation event issued shortly after work commences in week 1 to lengthen the tunnel by
20 m should be based on the planned output rates in week 10 of 60 m a week and not at the
planned output rate of 10 m per week.

Another example is where the Contractor has to construct an escalator box with 100 secant
piles. The Contractor commences work, and they subsequently advise the Project Manager that

Figure 1.2 A planned tunnelling progress profile

Metres/
week
100
80
60
Average
40 51 m per week

20

0 1 2 3 4 5 6 7 8 9 10
Week No.
Week No. 1 2 3 4 5 6 7 8 9 10
Metres per week 10 30 50 60 60 60 60 60 60 60 = Total 510 m

510 m
Average = = 51 m per week
10

27
Managing Change

the first 10 piles have taken considerably longer than anticipated due to them encountering
physical conditions that an experienced contractor would not have foreseen encountering,
namely the ground having physical obstructions. It would be wrong at this stage for the
Project Manager to assume that the next 90 piles would encounter the same conditions and
to award a blanket compensation event, covering all 100 piles. Each pile must be taken on its
own merits.

It should also be remembered that the failure of the Contractor to supply a programme that
demonstrates the effects of a compensation event is grounds for the Project Manager to make
their own assessment of the time effects of the compensation event.

1.11. Implementation This stage represents the formal conclusion of the administrative process.
of compensation Implementation of a compensation event takes place in one of three ways:
events
g when the Project Manager notifies their acceptance of a quotation
g when the Project Manager notifies the Contractor of their own assessment
g a Contractor’s quotation is treated as having been accepted by the Project Manager.

The third manner of implementation occurs where, under clause 61.4, the Project Manager does
not reply to a compensation event notification by the Contractor within 2 weeks of the notifica-
tion. In this case, the failure to respond is treated as acceptance of the compensation event by
the Project Manager, as well as an instruction to submit quotations. The Contractor is advised
to quote this clause with their quotation in this instance.

The acceptance of a quotation is always an alternative to the Project Manager doing their own
assessment, so the compensation event is implemented when either one occurs, since both
cannot happen in the same compensation event.

If

g the Project Manager decides as a result of the quotation to give the instruction (or
changed decision)

then

g they can either accept the quotation or

g make their own assessment or
g instruct a revised quotation, in which case the revised quotation will either be accepted
or assessed by the Project Manager.

For all Options, the Project Manager notifies the Contractor of an assessment made by the
Project Manager (clause 66.1). When implementing a compensation event, the Project Manager
includes in their notification implementing a compensation event the changes to the Prices, the
Completion Date and the Key Dates accordingly. This will be either from the quotation, which
they have accepted, or from their own assessment.

1.12. Reduction of The only compensation events in clause 60.1 that allow a reduction of the Prices (if the assess-
Prices ment shows a reduction in Defined Cost plus the Fee) are

g a change to the Scope (clause 60.1(1))

g the correction of an assumption made in assessing an earlier compensation event under
clause 61.6 (clause 60.1(17)).

The only compensation events in the Option clauses that allow a reduction of the Prices are
those arising from clauses 60.4 and 60.6 in main Options B and D and from secondary Option
clauses X2.1, X12.3(6) and X12.3(7). All other compensation events listed in clause 60.1 and in
the Option clauses cannot lead to reduced Prices even if their effect is to reduce Defined Cost
plus the Fee.

28
 Compensation events

1.13 Frequently What happens if the Contractor notifies the event more than 8 weeks after they became aware of
asked questions it?
1.13.1 Eight-week time
bar g The first consideration is how to prove when the Contractor became aware of the event.
The trigger is not when the event occurred but when the Contractor became aware of it.
In most cases, the Contractor should be aware immediately, due to a notification or an
instruction or some other visible evidence.
g The second element to consider is what impact the late notification has had on the
project and the Project Manager’s ability to manage the project. A late notification could
mean that decisions that had been open to the Project Manager are now closed due to
passage of time and due to superseding events. It could be said that the Project Manager
has been prejudiced in their ability to manage the project.
g Contractually, the Contractor has 8 weeks only to notify a compensation event. If
notification does not take place within this period, then the Contractor loses their
contractual right to compensation. They still retain their legal right to compensation,
however. This means that an Adjudicator should uphold the 8 weeks but a court could
instruct compensation.

The Contractor should not rely on their legal right to relieve them of their contractual duty,
however. There is a reason for the 8-week time bar, and in the interest of the efficacy of the
contract and of the mutual trust and co-operation that underpins the contract, the Contractor
should endeavour to stick to the 8 weeks.

Some clients amend clause 61 to make the 8 weeks a condition precedent for the continuation of
the procedure and the entitlement to an assessment of time and money. It could well be argued,
however, that such a clause is against the rules of natural justice and justified enrichment. This
could be particularly applicable where the Project Manager has not carried out their actions
under the contract, such as notified a compensation event resulting from their own actions. If
the Contractor does not notify a compensation event within 8 weeks of becoming aware of it,
and the event is a matter that should have been notified to the Project Manager as a compen-
sation event but was not, then the Contractor does not lose their entitlement to an assessment of
time and money. Clause 61.7 states that a compensation event is not notified after the issue of
the Defects Certificate. It does not seem to be in the spirit of the NEC to wait until the last
minute to notify a quotation, however (see the final point in Section 1.13.2 below).

In conclusion, it is recommended that all the circumstances should be taken into consideration
prior to not accepting a compensation event notification. Above all else, mutual trust and
co-operation as embodied by fair and reasonable actions is the philosophy of the NEC, and
to act otherwise could result in unnecessary conflict.

1.13.2 Claims What happens if the Contractor submits a ‘claim’-type document?

g Where the Contractor’s compensation event notification was accepted and they were
instructed to submit quotations, a poorly drafted quotation does not detract from the
fact that the compensation event has been validly notified and accepted.
g The Project Manager may choose to make their own assessment; however, this should
always be a last resort since not only is it difficult to do but it may result in a
dispute.
g The most effective action to take would be to sit with the Contractor and go through the
Project Manager’s expectations of a quotation. In particular, it should be explained that
global forecasts are not acceptable and that quotations cannot be revisited after the
compensation event has been implemented.
g The incidence of claims may increase since the Contractor is no longer obliged to notify a
compensation event if the Project Manager does not. Because there is no time limit on
the notification of a compensation event in this case (other than that it must take place
before the defects date), the Contractor may notify the event at Completion, although
the event took place much earlier. This is not in the spirit of the NEC, however, nor
does it help the Contractor’s cash flow, and they are advised to notify the event
themselves.

29
Managing Change

1.13.3 The Project What happens if the Project Manager does not notify a compensation event that they should
Manager does not notify have done?

g The principle in the NEC is that where the Client, the Project Manager or the Supervisor
does not carry out their obligations, it is a compensation event. Where the Contractor is
in breach of contract, there is no contractual remedy. This is based on the premise that
the Contractor is likely to be financially influenced by their own breaches and is therefore
less likely to commit them in the first place.
g In this case, however, there is no direct sanction on the Project Manager for not
notifying a compensation event that they should notify. This is possibly because of the
inherent failsafe that the Contractor may notify the event if the Project Manager does
not. It is therefore in the Contractor’s interests to notify compensation events.

1.13.4 Early warnings How does an early warning affect a later compensation event on the same matter?

g The Contractor and the Project Manager are both obliged to notify an early warning as
soon as either becomes aware of any matter that could
– increase the total of the Prices
– delay Completion
– delay meeting a Key Date or
– impair the performance of the works in use.
This is to give the Contractor and the Project Manager time to consider the implications
of the matter and to take action to mitigate any potential consequences.
g If the Project Manager decides that the Contractor did not notify an early warning that
an experienced contractor could have notified and the same matter becomes a
compensation event, the Project Manager informs the Contractor of this decision when
they instruct the Contractor to submit quotations (clause 61.5).
g Notifying the Contractor in this way means that the Contractor has to assess the
compensation event as if they had given the early warning (clause 63.7), and it means
that the Project Manager may assess the compensation event in the same way if they
have chosen to assess the event themselves.
g The reason for this procedure is to ensure that the Contractor’s not notifying an early
warning matter does not prejudice the Project Manager in their management of the
project. If, for example, the matter had been identified, avenues available to the Project
Manager at that time might have been sufficiently flexible to facilitate the most
economical route to have been chosen.

1.13.5 Grouping What does the Project Manager do if many compensation events take place over a short period
compensation events of time? Do they have to attend to each separately?

Because the compensation event procedure is fairly long and complex, it is understood that
using the procedure for small compensation events that will be carried out in a few hours seems
a little arduous.

Many Project Managers allow the grouping of smaller compensation events into one notified
compensation event on a specified day of the week, for example Friday. All the smaller events
that took place during the event are then collected and notified in one compensation event
notification. Larger compensation events that require time and effort to assess are still notified
separately.

This should only affect Option C and D contracts. Option A and B contracts should not be
subject to many compensation events due to the philosophy behind the fixed price required.
Compensation events under Option E are mostly important for time purposes rather than
budget purposes, although the compensation event quotations are obviously included in the
forecast of Defined Cost (budget).

Another, related, matter is where Contractors have not correctly forecast the consequential
results of a compensation event. This could happen where a relatively minor compensation
event of low value has a large consequential impact on the programme. Many Project Managers

30
 Compensation events

in this situation allow a dummy compensation event that sweeps up the consequential events of
previous compensation events.

1.13.6 Amending the What does the Project Manager do if the drawings change before they have issued the contract?
contract prior to Can they use the compensation event procedure to change the prices to reflect the new
execution drawings?

The compensation event procedure is a part of the contract, and since the contract in this
situation is not yet in place, it is a little incongruous to be using a contractual procedure to sort
out something that is happening before the contract. You can do virtually anything by agree-
ment, however, and if both Parties agree to use the tendered data for the SCC to amend the
tendered prices to reflect updated drawings, then this is acceptable. It is probably difficult to
check the validity of the quotation, however, given the lack of documentation accompanying
a previous event.

More importantly, however, is that fact that the Prices are changed before the contract is
executed. As long as you have the time available to make these changes, this is better than
issuing an obsolete contract and immediately issuing a score of compensation events.

1.13.7 Removing Of the 21 compensation events contained in clause 60.1, the two that are most frequently varied
compensation events are clauses 60.1(12) and 60.1(13); that is, the compensation events that deal with physical
conditions and weather.

The basic premise of a compensation event is that the Client takes the risk for the event
described. In this way, the risks to be taken by the Contractor are clearly laid out, and the
Contractor is able to price the contract effectively, taking into account those elements of the
contract that are at their risk. Many clients are so used to writing out ground conditions in
an Institution of Civil Engineers (ICE) contract that they automatically want to exclude
clause 60.1(12) of the ECC as well. It may therefore be worth spending just a little time on the
concept of risk and how it affects the contract.

Risk is not transferred but is reallocated.

One of the principal misconceptions about risk is that it is ‘transferable’. Some clients like to use
the phrase ‘transfer the risk to the Contractor’. In general, however, the risk is not ‘passed’ to
the Contractor, but rather it takes on a different form and is reallocated. If, for example, in a
traditional contract that is not the ECC, the Client decides they do not want to take the risk
of ground conditions and they rewrite the contract so that the Contractor has the risk of ground
conditions, the risk has assumed a different form for the Client.

If the contract is a lump sum contract, it is likely that the Contractor will build the potential cost of
such a risk into the contract price. They might be conservative in their estimate of the occurrence
of the risk and so may include a monetary value in the contract price at a high level to cover their
risk. This might not even stop them submitting a claim to the Project Manager if the risk does
materialise and the cost to the Contractor is far in excess of that included in the contract price.
If, on the other hand, the risk does not materialise, all things being equal, the Contractor will have
pocketed the cost of the risk. Whether the risk occurs or not, therefore, the Client will pay.

In a cost-reimbursable-type contract, the Client will pay for the risk whether it is allocated to
the Contractor or to the Client. It is unlikely that the Contractor will accept a risk uncondition-
ally, and perhaps the Client should consider whether it is fair and reasonable that the Contractor
takes the risk for something that is unforeseen and outwith the Contractor’s control. In general,
therefore, it is more effective for the Client to pay for a risk that does occur, than to pay for
something that might happen.

Getting back to the ECC and compensation events, it is worth noting that all the events are well
defined. In particular, the two most contentious events, namely physical conditions and

31
Managing Change

weather, are more than simply ‘unforeseen ground conditions’ or ‘inclement weather’. The
approach is more objective, and therefore more measurable than in traditional contracts.

1.13.8 Adding The compensation events contained in the main and secondary Options are optional by virtue
compensation events of their being part of an Option, and therefore these will not be discussed further.

The Client can modify the contract risk allocation by identifying in the Contract Data
additional compensation events In adding an element, the client should consider the
following:

g What is it that will affect the project? Is it gusts or a constant wind speed above a certain
speed?
g What does the Met Office measure and how near to the Site is this measured?
g Does the Client want to take the risk for this? That is, what will be the effect on the
project and who is best placed to manage this risk?
g What is the policy for managing situations where there is no fault? (This is helped to a
certain extent by compensation event 60.1(19).)

Risk should be allocated to the Party best placed to manage it.

Consider the case where high-speed gusts of 120 mph blow down a structure, but wind is not an
additional weather measurement. Since wind is not a weather measurement, there can be no com-
pensation event, but it is advisable that the Project Manager considers the situation anyway and
perhaps comes to a commercial settlement. For example, were the winds forecast and did the
Contractor take what precautions they could in the time allowed to prevent damage? Did the
Client facilitate the Contractor’s actions? What is the extent of the damage to the project and
how will this event affect the rest of the project? It may be in the interests of the project to
provide the Contractor with the means to very quickly repair the damage so that a critical date

Table 1.2 ECC clauses where the Project Manager fails to act

Clause Description

31.3 ‘If the Project Manager does not notify acceptance or non-acceptance within the
time allowed, the Contractor may notify the Project Manager of that failure. If the
failure continues for a further one week after the Contractor’s notification, it is
treated as acceptance by the Project Manager of the programme.’
61.3 ‘The Project Manager has not notified the event to the Contractor.’

61.4 ‘If the Project Manager fails to reply to the Contractor’s notification of a
compensation event within the time allowed, the Contractor may notify the Project
Manager of that failure. If the failure continues for a further two weeks after the
Contractor’s notification it is treated as acceptance by the Project Manager that the
event is a compensation event and an instruction to submit a quotation.’

62.6 ‘If the Project Manager does not reply to a quotation within the time allowed, the
Contractor may notify the Project Manager of that failure. If the Contractor
submitted more than one quotation for the compensation event, the notification
states which quotation the Contractor proposes is to be used. If the failure continues
for a further two weeks after the Contractor’s notification it is treated as acceptance
of the quotation by the Project Manager.’
64.4 ‘If the Project Manager does not assess a compensation event within the time
allowed, the Contractor may notify the Project Manager of that failure. If the
Contractor submitted more than one quotation for the compensation event, the
notification states which quotation the Contractor proposes is to be used. If the
failure continues for a further 2 weeks after the Contractor’s notification, it is
treated as acceptance by the Project Manager of the quotation.’

32
 Compensation events

is met. Future relations with the Contractor, social and environmental responsibilities, and
insurances should all also be considered by the Project Manager.

1.13.9 The Project Failure of the Project Manager to act (Table 1.2) is one of the most frustrating and difficult
Manager fails to act things for a Contractor to contend with. There is no simple remedy to this problem other than
the hope that the Client will employ the right competency of person and that they will recognise
when their Project Manager is failing to act, and if this is persistent then they will replace them.

The contract includes sanctions for non-performance of the Project Manager. A Project
Manager who fails to perform may find themselves subject to a claim on their professional
indemnity insurance from the Client.

Clause W1.1(4) states that the Client may take a treated as accepted quotation to adjudication.

1.14. Format of a A quotation for a compensation event comprises

compensation
event quotation g proposed changes to the Prices
g any delay to the Completion Date and Key Dates assessed by the Contractor.

See Appendix 2 of Chapter 2 in this book for an example of a compensation event quotation.
See Chapter 2 for how to use the SCC. Appendix 2 of Chapter 2 contains example standard
forms that may be used during the compensation event procedure.

33
Managing Change
ISBN 978-0-7277-6188-0

ICE Publishing: All rights reserved

http://dx.doi.org/10.1680/mc.61880.035

Appendix 1
Compensation event procedure

Synopsis This appendix describes the compensation event procedure through

g listing actions to be taken by the Contractor and Project Manager

g flow-charting the procedure
g drafting a timeline for the compensation procedure notified by both the Contractor
and the Project Manager.

35
Managing Change

Section A: Actions required to be taken by the Project Manager

Key
PM Project Manager
C Contractor
CE compensation event
S Supervisor

A1.1. Notifications Clause Action

61.1 The PM notifies the C of a CE arising from the PM or S giving an instruction or
notification, issuing a certificate or changing an earlier decision.
61.4 The PM notifies their decision to the C when the PM consider that an event notified by
the C is not a CE or the PM notifies the C when the PM decides otherwise.
61.5 The PM notifies their decision to the C that they believe that the C did not give an early
warning of the CE that an experienced C could have given.
61.6 The PM notifies corrections to earlier assumptions upon which they instructed the C to
base their quotation in cases where effects of the CE were too uncertain at the time of
the event.
62.3 Following submission by the C of a quotation for a CE, the PM may notify the C that
the PM will be making their own assessment (for reasons stated in clause 64).
65.3 Where the PM has instructed the C to submit a quotation for a proposed instruction,
following submission of the quotation, the PM may notify the C that the proposed
instruction will not be given.
62.5 The PM notifies the C of any extensions to the time allowed for either the C to submit
quotations or the PM to reply to quotations.
64.3 The PM notifies the C of their assessment of a CE and gives the C details of the PM’s
own assessment.
66.1 The PM implements a CE by notifying the C of acceptance of the C’s quotation. The
PM notifies the C of an assessment made by the PM or the C’s quotation is treated as
having been accepted by the PM.

A1.2. Instructions Clause Action

61.2 The PM instructs the C to submit quotations for CEs arising from the PM or S giving
an instruction or changing an earlier decision.
65.1 The PM may instruct the C to submit quotations for a proposed instruction or a
proposed changed decision.
61.4 The PM instructs the C to submit a quotation when the PM decides that an event
notified by the C is a CE.
62.1 The PM may instruct the C to submit alternative quotations based upon different ways
of dealing with a CE.
62.4 Following submission by the C of a quotation for a CE, the PM instructs the C to
submit a revised quotation.

A1.3. Acceptances Clause Action

61.4 If the PM does not reply within 2 weeks of the C’s notification of a CE, then the
notification is treated as being accepted by the PM.
62.2 Following submission by the C of a quotation for a CE, the PM accepts the quotation.

36
 Appendix 1

Section B: Actions required to be taken by the Contractor

Key
PM Project Manager
C Contractor
CE compensation event

B1.1. Notifications Clause Action

61.3 For CEs not notified by the PM, the C notifies the PM that they believe the event is a
CE and the PM has not notified the event to the C.
61.4 The C may notify the PM if the PM has not responded timeously to a CE notification
from the C.

B1.2. Submissions Clause Action

62.3 The C submits quotations for CEs.
62.4 The C submits revised quotations for CEs.
64.4 The C may notify the PM if the PM has not assessed a CE within the time allowed.

37
Managing Change

Section C: Compensation event procedure

Contractor-notified event Project Manager-notified event

Event arising from the Supervisor

or Project Manager issuing an
Event occurs instruction or changing an earlier
decision
AND
Simultaneously Project Manager notifies the
event
< 8* weeks
AND
Project Manager instructs the
Contractor to submit quotations
Contractor notifies a compensation
event if:
• they believe it is a compensation event
• less than 8* weeks since the event
• Project Manager has not notified the
event

Project Manager decides if the event:

• is fault of the Contractor
• has not happened and will not
• has no effect on Defined Cost or
Completion (or Key Date) 1 week
• is not a compensation event in the (or longer if
If YES to any the Contractor
contract
has agreed)
If NO to all
Project Manager notifies Project Manager does not
Contractor that the Prices notify Contractor timeously; Project Manager
and the Completion Date Contractor notifies the instructs Contractor to
or Key Date will not be Project Manager that the submit quotations
changed (i.e. the Project Manager has not
procedure ends) responded in time; if the Project Manager's instruction includes
Project Manager still does
not respond, it is assumed • if Contractor did not give
that the Contractor should an early warning
submit quotations • assumptions if required
• alternative quotations
requirements
3 weeks

Continued on next page

38
 Appendix 1

Continued from previous page

Contractor submits quotations within 3 weeks unless the Project

If the PM does not reply in Manager and the Contractor agree to an extension before the
2 weeks, the Contractor can quotation is due. Quotation includes
notify the PM of this. If the PM • other methods of dealing with the event that are practicable
does not respond within another • details of the assessment
2 weeks, then the quotation is • revised programme if the programme is affected
treated as if it were accepted • proposed changes to the Prices and any delay to the
Completion Date and Key Date

Project Manager replies within 2 weeks

unless the Project Manager and Contractor
agree to extension before the reply is due

Project Manager replies

• Contractor did not submit

quotation in time
• Contractor has not
assessed compensation
event correctly
• Contractor has not submitted
required programme
• Project Manager has not
accepted the Contractor’s
latest programme

Project Manager accepts Project Manager Project Manager gives

quotation instructs a revised notification that they will
quotation and explains be doing their own
reasons assessment

3 weeks or longer if the

3 weeks Contractor had longer to
submit their quotation

Project Manager Contractor submits Project Manager notifies

implements the revised quotation the Contractor of their
compensation event assessment and gives
details

Project Manager replies Project Manager

Procedure ends in 2 weeks unless implements the
extended compensation event

Procedure ends

39
40
Managing Change

Section D: Procedure for events notified by the Project Manager

Contractor submits The event is implemented

Project Manager replies: and the procedure ends
Event arising from the quotation to the Project • accept
Supervisor or Project Manager for acceptance
Manager occurs • no proposed
The procedure ends
instruction Contractor Project Manager replies: Procedure
• revise submits • accept continues
Project Manager notifies the Contractor • own assessment revised • no proposed instruction as previously
of the compensation event and instructs quotation • revise
them to submit quotations. The instruction • own assessment
includes whether an early warning was
given, assumptions and alternative
requirements

Contractor puts the

instruction or changed
decision into effect

3 weeks 2 weeks 3 weeks 2 weeks

Project Manager notifies

OR their own assessment The event is implemented
and the procedure ends

3 weeks

Project Manager replies

OR
Project Manager does not reply, 2 weeks
the Contractor notifies the
Project Manager of no reply

Project Manager does not reply.

Quotation is treated as accepted
 Section E: Procedure for events notified by the Contractor

Contractor notifies event to

the Project Manager if The event is implemented
• it is <8 weeks Project Manager replies: and the procedure ends
• it is a compensation • accept
event • no proposed
The procedure ends
• the Project Manager Project Manager decides instruction Contractor Project Manager replies: Procedure
has not notified it whether the event passes the • revise • accept
four-point test and either submits continues
• own assessment revised • no proposed instruction as previously
• notifies their decision that • revise
the procedure ends if the quotation
Event occurs • own assessment
event fails the test or
Contractor
• instructs the Contractor submits
to submit quotations quotations

8* weeks 1 week 3 weeks 2 weeks 3 weeks 2 weeks

Project Manager replies Project Manager notifies

OR their own assessment The event is implemented
3 weeks
2 weeks and the procedure ends

Project Manager does

not reply, the Contractor 3 weeks
notifies the
Project Manager
of no reply Still no reply from the Project Manager.
Notification by the Contractor OR Project Manager replies
of the compensation event Project Manager
being treated as having does not reply,
been accepted and the the Contractor 2 weeks
Project Manager has notifies the
instructed the Contractor Project Manager
to provide a quotation of no reply Project Manager does not reply.
Quotation is deemed accepted

* ECC states that if the Contractor does not notify an event within 8 weeks of becoming aware of the event, they are not entitled to changes
in the Prices, Completion Date or Key Date unless the Project Manager should have notified the event to the Contractor but did not.
Appendix 1

41
Managing Change

Section F: Most common complicating factors

Key
C Contractor
PM Project Manager
SRs Senior Representatives
CE compensation event

Complicating factor Action required Further possible action

The PM decides that an event The C may notify the PM of their The PM within 2 weeks of the C’s
notified by the C as a CE is not a CE intention to submit a dispute to the SRs notification changes the decision
previously communicated to the C and
(clause 61.4) (clause W1.1)
instructs the C to submit a quotation
(clauses 60.1(8) and 61.4)
OR
The PM does not change the decision
previously communicated to the C and
risks the C submitting a dispute to the
SRs

The C fails to submit a quotation The PM assesses the CE and notifies the The C may notify the PM of their
and details of their assessment C of their assessment within the same intention to submit a dispute to the SRs
within 3 weeks or other extended period originally allowed to the C for if they believe the PM’s assessment to be
period agreed submission incorrectly calculated
(clause 62.3) (clauses 64.1 and 64.3) (clause W1.1 or W2.1)

The PM believes that the C has not The PM instructs the C to submit a The C resubmits the quotation
assessed the CE correctly in a revised quotation, explaining their
(clause 62.4)
quotation submitted reasons for doing so
(clause 62.4)
OR OR
The PM assesses the CE and notifies the The C may notify the PM of their
C of their assessment intention to submit a dispute to the SRs
if they believe the PM’s reasons to be ill
(clauses 64.1 and 64.3)
judged or are not for a reason stated in
the contract
(clause W1.1 or W2.1)
OR
The C may notify the PM of their
intention to submit a dispute to the SRs
if they believe the PM’s assessment to be
incorrectly calculated
(clause W1.1 or W2.1)

42
Managing Change
ISBN 978-0-7277-6188-0

ICE Publishing: All rights reserved

http://dx.doi.org/10.1680/mc.61880.043

Chapter 2
Schedule of Cost Components and
Short Schedule of Cost Components

Synopsis This chapter discusses aspects relating to the full SCC and its short version the SSCC, including

g when the SCC and SSCC are used

g how the SCC and SSCC interact with the payment clauses
g Defined Cost
g the Fee
g the components of cost included under the SCC and SSCC
g Contract Data part two.

43
Managing Change

2.1. Introduction The ECC, in common with other standard forms of construction contracts, provides rules for
assessing

g the amount to be paid to the Contractor for work done

g the change to amounts to be paid to the Contractor for variations and other events that
may arise and that, under the contract, are the Client’s risk, collectively termed
compensation events by the ECC.

The SCC is used for main Options C, D and E, whereas the SSCC is used for main Options A
and B.

Given, then, the obvious connection of the SCC (and its short version) to the financial outcome
of a contract it is perhaps unfortunate that the SCC has so far proven to be one of the least
understood parts of the ECC. This chapter therefore sets out to examine the purpose and detail
of the SCC using examples and discussion to provide a better understanding of this fundamen-
tally important part of the ECC.

2.2. What is the SCC? To understand the role of the SCC in the administration of the contract we need to first identify
where it is referred to in the contract.

A search reveals that the only reference to it occurs in the definition of Defined Cost. Since the
definition of Defined Cost differs depending on which main Option of the ECC is used, it is to
the main Option clauses that we must turn.

It has been stated that the principal role of the main Option clauses is to determine how the
Contractor is to be reimbursed for their efforts or, expressed more formally, where the financial
risk boundary is set between the Client and Contractor (refer to Chapter 2 of Book Two). This
immediately establishes that the role of the SCC must be linked to how the Contractor is
reimbursed.

To confuse matters a little in this area there are in fact two SCCs, namely

g the full schedule – the SCC

g the short schedule – the SSCC.

What follows relates to the SCC, since an understanding of this will make it far easier to under-
stand the differences between the use and content of the two versions.

The SCC is a complete identification of the components of cost for which the Contractor will be
reimbursed under certain circumstances. These components of cost are a part of Defined Cost
as defined.

It is important to note that the definition of Defined Cost differs, depending upon which of the
six main Options A to F is being used.

These components of cost are not priced at the time of tender. However, in Contract Data part
two the Contractor is required to insert certain information in relation to these components of
cost.

The SCC is a complete identification of the components of cost. The definition of Defined
Cost does not mean all of the Contractor’s costs, but is confined to the components as listed
in the SCC.

The definition of Defined Cost differs, depending upon which of the six main Options you
are using.

Contract Data part two contains information required for use in conjunction with the
SCC. It is therefore very important that this is completed correctly at the time of tender.

44
 Schedule of Cost Components and Short Schedule of Cost Components

2.3. Why has this Traditionally, the valuation of change has been assessed on the basis of tendered rates and
approach been prices. Problems occur, however, when, as often happens on projects, the scope and nature
taken? of the project start to vary, and arguments then arise with regard to the applicability of bills
of quantities rates, prices and lump sum items and how much the quantity/type/scope of an
item needs to change before a new rate or price is required.

It is possible to argue forever about the rights and wrongs of a particular price. The SCC is a
way around these problems.

The ECC promotes the idea of the pre-assessment of change via a quotation. This supports the
concept of ‘stimulus to good management’. A well-run project will identify change at the earliest
time possible. This supports the idea that ‘foresight applied collaboratively mitigates problems
and shrinks risk’.

In the ECC, all change is valued at ‘Defined Cost’, with no reference made to tendered rates or
prices. If the Project Manager and Contractor agree, rates and lump sums can be used to assess a
compensation event for all main Options (clause 63.2) The philosophy behind this provision is
that the Contractor should be ‘no better nor no worse off ’ as a result of change that is at the risk
of the Client under the contract during the construction of the works.

This approach also enables the Client to call for quotations for a number of options on how to
deal with the change. Therefore, if the Client has a facility to be opened by a certain date or
costs are of paramount importance, then the Client can consider and the Project Manager can
instruct the Contractor to submit quotations for these options.

The Contractor is conceptually in the same position when pricing the quotation as they would
have been at the time of tender. They also, as with tendering, carry the risk should their
quotation be wrong.

The idea with the SCC and SSCC is that conceptually the Contractor is in the same
position for a compensation event as when they tender for the work.

2.4. Assessment The default situation for assessing the changes to the Prices in Options A and B is the SSCC.
options However, there is an option to use rates and lump sums if the Project Manager and Contractor
agree (clause 63.2).

The default situation for assessing the changes to the Prices in Options C, D and E is the SCC.

2.5. When is the SCC Options A and B are the priced-based Options (lump sum and remeasurable, respectively). The
or SSCC used? definition of the Price for Work Done to Date under these options is not based on Defined Cost
2.5.1 Priced-based but on, respectively, the Activity Schedule and the Bill of Quantities (i.e. the activity schedule
contracts – Option A and the bill of quantities for Options A and B). Therefore, under these main Options the SSCC
and B contracts is used to evaluate compensation events only.

Option A – payment during the contract

For Option A contracts, the Contractor is reimbursed using the Activity Schedule for their work
carried out during the period of the contract and priced at the tender stage. That is, the
Contractor is paid the lump sum price listed in the Activity Schedule when that activity is
completed. Each completed activity then forms part of what is termed the Price for Work Done
to Date (clause 11.2(29)).

Option A – evaluating compensation events

The financial effects of all compensation events that occur during the period of the contract are
not priced using lump sum prices in the Activity Schedule as a basis, but using the SSCC. That
is, any additional costs arising under the contract, including additional Subcontractor costs, are
quoted for using the SSCC. However, there is a facility to use lump sums and rates to assess
compensation events instead of Defined Cost (clause 63.2).

45
Managing Change

The accepted compensation events are added to the lump sum Prices in the Activity Schedule,
and the Contractor is therefore paid for the compensation events through the mechanism of the
Price for Work Done to Date.

Option A
The lump sum prices inserted by the Contractor at the tender stage for each activity on the
Activity Schedule are not necessarily used to assess the financial effect of compensation
events.

The SSCC is only used for the assessment of change to the Prices as a result of
compensation events.

Tendered rates and prices are not used to assess change unless agreed between the
Contractor and the Project Manager (clause 63.2).

Option B – payment during the contract

For Option B contracts, the Contractor is reimbursed using the Bill of Quantities for their work
carried out during the period of the contract and priced at tender stage.

Option B – evaluating compensation events

The financial effects of compensation events that occur during the period of the contract are not
priced using the rates and prices in the Bill of Quantities as a basis, but using the SSCC. This is
the default position described in the contract, and may discourage possible front loading of the
bill rates and prices impacting on costs. However, for Option B contracts, the Project Manager
and the Contractor can agree to use lump sums and rates, including those in the bills of
quantities instead of the SSCC, to calculate the cost of compensation events (clause 63.2).

Option B
The rates, prices and lump sums inserted by the Contractor at the tender stage for each Bill
of Quantities item are not used to assess the financial effects of compensation events.

By agreement between the Project Manager and Contractor, the rates or lump sums,
including those in the bills of quantities, can be used to assess the financial effects of
compensation events (clause 63.2).

2.5.2 Cost-based In addition to the use of the SCC for assessing the financial effect of compensation events under
contracts – Option C, Option C, D and E contracts, it is also used as the basis for calculating the amount due to the
D and E contracts Contractor.

Options C and D – target cost

The Activity Schedule (for Option C) or the Bill of Quantities (for Option D) that is priced by
the Contractor at the tender stage is included in the contract only to provide the target cost. This
target cost may be changed through compensation events (‘in accordance with this contract’).
The Prices are only considered during the contract

g to account for changes through compensation events to ensure that the base comparison
of the target cost remains realistic
g as a comparison with the Price for Work Done to Date to assess the Contractor’s share.

The Prices are not used to pay the Contractor during the period of the contract, and this defi-
nition will therefore not be considered further in this chapter. For a fuller discussion of target
cost and the Contractor’s share, see Chapter 2 of Book Two on contract options.

Options C, D and E – payment during the contract and the evaluation of compensation events
The Price for Work Done to Date is effectively the amount due to the Contractor as assessed by
the Project Manager. The Price for Work Done to Date is therefore the amount paid to the
Contractor during the period of the contract. The Price for Work Done to Date is not related

46
 Schedule of Cost Components and Short Schedule of Cost Components

to the Prices except where the Prices are used as a comparison against the Price for Work Done
to Date to determine the Contractor’s share (Options C and D).

The SCC is therefore the only method for the Contractor to be reimbursed their costs under
Option C, D or E contracts.

The Price for Work Done to Date comprises a number of elements, as shown in Figure 2.1.

Figure 2.1 Example of the amount due for main Options C, D and E

Amount due

Price for Work Done to Date (PWDD) Plus other amounts to be paid or retained
Clause 11.2(31): total Defined Cost that
the Project Manager forecasts will have Plus amounts to be paid to the Less amounts to be retained from
been paid by the Contractor before the Contractor the Contractor
next assessment date plus the Fee
Clause 25.2: the Contractor does not
provide services and other things as
stated in the Scope
Clause 25.3: work does not meet a
Condition for a Key Date
Clause 41.6: costs incurred in repeating
a test or inspection
Clause 50.5: no programme identified in
the Contract Data
Clause 51.2: interest on late payment

Clause 51.3: interest on the correcting

amount
Clause 51.5: any tax that the law requires

Clause 86.1: the Client insures a risk that

the contract requires the Contractor to
insure
Clause 86.3: the Contractor insures a
risk that the contract requires the Client
to insure
Option X1: price adjustment for inflation Option X1: price adjustment for inflation
(only used with Options A, B, C and D) (only used with Options A, B, C and D)
Clause X3.2: multiple currencies excess
(only used with Options A and B)

Option X6: bonus for early Completion

Clause X7: delay damages

Clause X12.4(1): partnering incentives

Option X14: advance payment –

repayment
Option X16: retention Option X16: retention
(not used with Option F) (not used with Option F)
Option X20: Key Performance Indicators Option X20: Key Performance Indicators
(not used with Option X20) (not used with Option X20)
Option X22: early Contractor involvement
(used only with Options C and E)
Clause X22.8: incentive payment
Options C and D
Contractor’s share at Completion Contractor’s share at Completion
Prices < PWDD Prices > PWDD

47
Managing Change

Options C and D
The lump sum prices inserted by the Contractor at the tender stage for each activity on the
Activity Schedule or Bill of Quantities are not used to assess the financial effects of
compensation events.

The SCC is used to assess compensation events and to determine the Price for Work Done
to Date.

Where agreed, rates and lumps may be used to assess the financial effects of compensation
events.

Tendered rates and prices are not used to assess the financial effects of compensation
events.

Option E
The SCC is used to assess both the financial effects of compensation events and to
determine the Price for Work Done to Date by the Contractor.

2.5.3 Option F contracts The SCC is not used at all in Option F contracts since the management Contractor is paid the
amounts due to Subcontractors. The assumption is that the management Contractor does not
do any of the work themselves and therefore they do not need to be reimbursed in a manner
such as that described by the SCC. Where the Contractor does do work, they are paid the lump
sum stated in Contract Data part two.

2.5.4 SCC summary Table 2.1 summarises the use of the SCC and the SSCC for the six main Options.

Table 2.1 Uses of the SCC and SSCC

Main Contract type Evaluation of the financial Payment

Option effects of compensation events

A Priced based SSCC only; or rates and lump Completed activities in the
sums Activity Schedule

B SSCC only; or rates and lump Bills of Quantities items

sums multiplied by the rate

C Cost based SCC or rates and lump sums SCC

D SCC or rates and lump sums SCC

E SCC or rates and lump sums SCC

F Management SCC does not apply Amount of payments to

contract Subcontractors (and the
prices for work done by
the Contractor themselves)

2.6. Defined Cost In each of the main Options, a clause exists that provides a definition of Defined Cost. A
summary of the definitions is given in Table 2.2.

From Table 2.2 it can be seen that Defined Cost is defined by the SCC, which provides a list of
the components of cost to which the Contractor is entitled. This includes such items as wages
and salaries and the listed components of the cost of Equipment and Plant and Materials. This
is different from some other conditions of contract, where ‘actual cost’ is used but not defined
clearly and objectively.

48
 Schedule of Cost Components and Short Schedule of Cost Components

Table 2.2 Definition of Defined Cost for the six main Options

Main Option Clause Definition of Defined Cost

A 11.2(23) Defined Cost is the cost of the components in the Short SCC

B 11.2(23) As Option A

C 11.2(24) Defined Cost is the cost of the components in the SCC less
Disallowed Cost (clause 11.2(26))

D 11.2(24) As Option C

E 11.2(24) As Option C

F 11.2(25) Defined Cost is the amount of payments due to

Subcontractors for work that is subcontracted without taking
account of amounts paid to or retained from the
Subcontractor by the Contractor that would result in the Client
paying or retaining the amount twice and the prices for work
done by the Contractor themselves less Disallowed Cost

Note that Defined Cost is used only to calculate changes in main Options A and B, but used for all payments
in Options C, D and E

The definition of Defined Cost differs depending upon which of the main Options you are
using. You need to look at the particular main Option clauses to determine how to assess
changes and how to assess the amount due.

2.7. The Fee All the costs to the Contractor not covered under the SCC are deemed to be covered by the Fee
(clause 52.1). The Fee is calculated by multiplying the fee percentage tendered by the Contractor
in Contract Data part two with their correlating Defined Cost, which is the total of the
components of cost as listed in the SCC:

Fee = fee percentage × Defined Cost of subcontracted work

The fee percentage should therefore cover

g the Contractor’s desired profit

g overheads that cannot be claimed as a component of cost in the SCC, meaning head
office overheads, since ‘site overheads’ or ‘preliminaries’ are generally covered in the
SCC.

Examples of inclusions in the fee percentage are

g profit
g head office charges and overheads
g corporation tax, insurance premiums (it should be noted that Client’s liability insurance
comes under the people cost component in the SCC)
g advertising and recruitment costs
g sureties and guarantees for the contract.

2.7.1 The Fee – defined The Fee (clause 11.2(10)) is the sum of the amounts calculated by applying the fee percentage to
term the Defined Cost of the work.

2.8. The components The SCC only applies to the main Option C, D and E cost-based contracts and defines the cost
of cost included components for which the Contractor will be reimbursed included in an assessment of changed
under the SCC costs arising from a compensation event (C, D and E).

49
Managing Change

As a general policy, the SCC only provides for the direct reimbursement of those cost com-
ponents that are readily identifiable. The last sentence of the opening paragraph to the SCC
states that: ‘An amount is included only in one cost component and only if it is incurred in order
to Provide the Works.’ The principal way that this is achieved is through the concept of Work-
ing Areas. Working Areas under the ECC mean the areas of land comprising the Site as made
available by the Client, together with any additional areas proposed by the Contractor (in
Contract Data part two and through clause 16.3) and accepted by the Project Manager as being
necessary to Provide the Works.

Generally, it is only the cost of People and Equipment working within these Working Areas that
is reimbursed as Defined Cost. This recognises the difficulty and therefore the higher risk to the
Client in identifying and controlling costs that are incurred away from the Site; that is, outside
the Working Areas.

The exception to this general principle is those costs incurred by the Contractor associated with
the design, manufacture and fabrication outside of the Working Areas that are dealt with in
separate cost components 6 and 7 in the SCC.

To make the SCC fully effective requires certain data to be inserted by the Contractor in
Contract Data part two. It is important that all data required by Contract Data part two for
the SCC is inserted by the Contractor before submitting their tender, since the decision to use
one or the other arises during the contract by agreement between the Contractor and the Project
Manager rather than before the contract starts.

There are eight headings for the components of cost included in the SCC:

1 ‘People’
2 ‘Equipment’
3 ‘Plant and Materials’
4 ‘Subcontractors’
5 ‘Charges’
6 ‘Manufacture and fabrication’
7 ‘Design’
8 ‘Insurance’.

Under each of these headings are described all the components of cost for which the Contractor
will be reimbursed during the period of the contract and that will also be taken into consider-
ation when evaluating the financial effects of compensation events. Any other components of
cost not identified in the definition of Defined Cost (and therefore not included in the SCC) are
deemed to be included in the Fee (clause 52.1). Contractors should therefore ensure that the
tendered fee percentage included in their Contract Data part two covers all elements of cost not
included in the SCC.

2.8.1 Working Areas Note that except for cost components 6 and 7, the components in the SSCC are all for costs
within the Working Areas. This means that the identification of the working areas by the
Contractor in Contract Data part two is particularly important. The working areas are generally
identified as the Site and other areas adjacent or near to the Site that the Contractor considers
they might use temporarily for the purpose of Providing the Works. Examples are ‘borrow pits’
or a concrete batching facility. These should be identified as working areas.

A problem often raised by Contractors is that at the tender stage they do not know precisely
where, say, a ‘borrow pit’ will be, as they are still in negotiation with land owners and the like.
In these circumstances, it is important for the Contractor to identify in the Contract Data that
they intend to have such a location, even though they may only be able to provide a generic
description without a precise location.

50
 Schedule of Cost Components and Short Schedule of Cost Components

2.8.2 Cost component 1 – The cost components for people in the SCC comprise the following categories:
people
g Items 11, 12 and 13 for people directly employed by the Contractor and whose normal
place of working is within the Working Areas; that is, direct employees of the Contractor
whose normal place of working is within the Working Areas (e.g. tradesmen and the site
agent).
g Items 11, 12 and 13 for people directly employed by the Contractor and whose normal
place of working is not within the Working Areas but who are working in the Working
Areas proportionate to the time they spend working in the Working Areas; that is, direct
employees of the Contractor whose normal place of working is not within the Working
Areas but who are working in the Working Areas (e.g. a specialised tradesman who is
being used for a compensation event).

Item 14 includes a third category of cost for people and only one description of cost to be
included in the SCC and therefore payment to the Contractor:

‘The following components of the cost of people who are not directly employed by the
Contractor but are paid for by the Contractor according to the time worked while they are
within the Working Areas.

Amounts paid by the Contractor.’

The words ‘Amounts paid by the Contractor’ may lead to the assumption that whatever the
Contractor pays, the Client is liable to pay. However, one needs to remember that in the SCC
this only applies to main Options C, D and E, and that this cost component will therefore come
under the scrutiny of Option D–E Clause 11.2(26) (Disallowed Cost).

The term ‘people’ as used by the ECC encompasses the Contractor’s staff as well as their
employees working within the Working Areas.

The cost of people who are directly employed by the Contractor in providing the works but
working outside the Working Areas (e.g. the Contractor’s staff whose normal place of working
is the head office, factory, design office or manufacturing facility) are included in

g SCC cost component 6 (manufacture and fabrication)

g SCC cost component 7 (design) or
g the fee percentage.

In general, therefore, the cost of the people who are based at the Site is a cost component in the
SCC. Supporting time sheets or daily labour records would show the amount of time that the
supervision staff have spent on each project. This is particularly applicable where the Contractor
is involved in more than one project at the same Site.

There are no direct entries for people required for Contract Data part two since any application
for payment would include

g a payroll printout showing the required information

g proof of other payments such as lodging allowances
g other documentary evidence such as invoices (especially for item 14 in the SCC).

The payroll printout would be supported by daily labour records and time sheets so that an
audit would reveal a fully traceable cost line. See Section 2.12 and Appendix 3 of Book Two
for information about audits.

2.8.3 Cost component 2 Equipment is a defined term in the contract, and comprises items provided by the Contractor
– Equipment that are used to Provide the Works, but are not included in the works (clause 11.2(9)). The term
therefore covers a broad range of items, the two obvious categories being construction plant
and temporary works. Examples are excavators, dumpers and generators, scaffolding, and
temporary sheet piling and formwork.

51
Managing Change

In the ECC

g the cost of accommodation is part of Equipment

g the depreciation and maintenance calculations are based on ‘open market rates’
g payments for Equipment purchased for work included in this contract are a component
of cost.

2.8.3.1 Equipment using The SCC includes a number of components for the cost of Equipment, admissible as Defined
the SCC Cost, such as

g item 21 – hire (externally hired Equipment) or rental of Equipment that is not owned
g item 22 – payments for Equipment that is not listed in the Contract Data but is
– owned by the Contractor
– purchased by the Contractor under a hire purchase or lease agreement or
– hired by the Contractor from the Contractor’s ultimate holding company or from a
company with the same ultimate holding company
g item 23 – payments for Equipment purchased for work included in the contract
g item 24 – payments for special Equipment listed in the Contract Data
g item 25 – consumables (Equipment that is consumed, e.g. fuel)
g item 26 – transporting, erection and dismantling, upgrading and modification
g item 27 – payments for the purchase of materials used to construct or fabricate
Equipment.

Item 28 states that the cost of operatives is included in the cost of people, unless included in the
hire rates (item 21).

Hire or rent of Equipment not owned by the Contractor (item 21)

No Contract Data entries are required for externally hired or rented Equipment.

Any entries in an application for payment should be supported by documentary evidence such
as invoices from the hiring or rental company, and plant records or time sheets that show for
what activity the item of Equipment was used and for how long.

Payments are made at the hire or rental rate multiplied by the time for which the Equipment is
required.

Payments for Equipment not listed in the Contract Data (item 22)
Item 22 states, ‘open market rates, multiplied by the time for which the Equipment is required’.
There are therefore no Contract Data entries required. Evidence of payment would be required,
as well as the time period for which the Equipment was used.

Payments for Equipment purchased for work included in this contract (item 23)
The Contract Data is required to state a time-related charge. The purchase price of the
Equipment as well as its value throughout the contract and at Completion is required to be
evidenced.

The Contractor is required to list in Contract Data part two the Equipment that is purchased for
work included in the contract. The time-related charge for the Equipment as well as the time
period to which the charge relates should also be included.

The listed items of Equipment purchased for work on the contract, with an on cost charge,
are

Equipment time-related on cost charge per time period

............................ ............................ ............................
............................ ............................ ............................

52
 Schedule of Cost Components and Short Schedule of Cost Components

Payments for special Equipment listed in the Contract Data (item 24)
The ECC requires the Contractor to identify in Contract Data part two any special Equipment
that they propose to use in the contract. They are required to provide the time period for which
the Equipment is used as well as the rates.

The rates for special Equipment are

Equipment rate

............................................. ......................

............................................. ......................

The ECC sensibly makes provision for the addition of special items of Equipment to be made to
this list given by the Contractor at the time of tender in item 24 (if the Project Manager agrees,
an additional item of special Equipment may be assessed as if it had been listed in the Contract
Data). It would seem that the Contractor is required to make a request to the Project Manager.
This is a sensible provision, since contracts are subject to change and there may be a need for
special Equipment not envisaged at the outset of the contract.

Consumables (item 25)

No Contract Data entries are required for consumables.

Some items of Equipment may be consumed while the Contractor is carrying out the works,
such as fuels, welding rods and lubricants. The purchase price of these items would be
included in an application for payment with the appropriate supporting documentation, such
as invoices.

Transport, erection, dismantling, constructing, fabricating or modifying Equipment

(item 26)
No Contract Data entries are required for the transportation, erection and upgrading of
Equipment.

As long as the costs for the following are not included elsewhere, such as in the hire or rental
rates, the Contractor may include in an application for payment for the cost of

g transporting Equipment to and from the Working Areas other than for repair or
maintenance
g erecting and dismantling Equipment
g constructing, fabricating or modifying Equipment as a result of a compensation event.

Payments for the purchase of materials used to construct or fabricate Equipment

(item 27)
This category covers the purchase of materials used to construct or fabricate Equipment, such
as the purchase of rolled steel sections, or lifting eyes and chains for modifying the jib of a crane
to lift bridge sections.

Cost of operatives (item 28)

Unless included in the hire rates, the cost of operatives is included in the cost of people.

Clearly, the cost of operatives should not appear in the hire rates and the cost of people, as these
two cost components are mutually exclusive.

2.8.4 Cost component 3 Plant and Materials are items that are intended to be included in the works (clause 11.2(14)),
– Plant and Materials such as boilers, turbines, steelwork, pumps, vessels, agitators, cabling, cable trays, concrete and
structural steel.

53
Managing Change

The items of Plant and Materials included in the Contractor’s Defined Cost would not include
items issued to the Contractor by the Client free of charge.

There are no entries for Plant and Materials required for Contract Data part two, since any
application for payment would include invoices and other proof of payment. Note that there
are aspects of Disallowed Cost that pertain to Plant and Materials (i.e. there are some items
of cost for which the Contractor does not get paid).

Since most Plant and Materials tend to be supplied by third parties outsourced by the
Contractor and are consequently the subject of supply contracts, the Defined Cost of Plant and
Materials is relatively easy to identify by reference to the invoices received. Clause 52.1 of the
contract makes it clear that all amounts included in the Defined Cost are ‘with deductions for all
discounts, rebates and taxes which can be recovered’. Disallowed Cost as defined includes the
‘cost of Plant and Materials not used to Provide the Works’, so it will be necessary to identify
any over-ordering by the Contractor and to adjust Defined Cost accordingly.

Item 32 makes it clear that cost is credited with payments received for the disposal of Plant and
Materials unless the cost is Disallowed.

2.8.4.1 Cost component 4 Item 41 introduces into the SCC a cost component for Subcontractors. This covers payments to
– Subcontractors Subcontractors for work that is subcontracted without taking into account any amounts paid or
retained from the Subcontractors by the Contractor, which would result in the Client paying or
retaining the amount twice.

2.8.5 Cost component 5 – This cost component covers a range of items that collectively could be loosely described as site
charges overheads (excluding people) or indirect costs (note that some costs that are traditionally known
as site overheads.

2.8.5.1 Charges using The SCC allows for the direct cost for some aspects of charges, such as water, gas and electri-
the SCC (items 51–54) city, as well as the rent of premises in the Working Areas. These cost components described
within items 51, 52, 53 and 54 of the SCC would, for the most part, be supportable by docu-
mentary evidence, and therefore there are no Contract Data part two entries required for these
cost components.

2.8.6 Cost component 6 – The cost components for manufacture and fabrication outside the Working Areas include the
manufacture and cost of manufacture or fabrication of Plant and Materials that are
fabrication
g wholly or partly designed specifically for the works and
g manufactured or fabricated outside the Working Areas.

This cost component excludes the costs of manufacture or fabrication of Plant and Materials
that are ‘off the shelf’ (which would appear under cost component 3 of the SCC).

The Contractor tenders in Contract Data part two an hourly rate for the categories of their own
employees who would work in a workshop or factory outside the Working Areas.

The rates for Defined Cost of manufacture and fabrication outside the Working Areas by
the Contractor are

category of person rate

............................................. ......................

............................................. ......................

54
 Schedule of Cost Components and Short Schedule of Cost Components

The use of cost-reimbursable contracts is not recommended where manufacture or fabrication

outside the Working Areas forms a major part of a contract because of the difficulty this
presents in the control and identification of Defined Cost. The same could be said to apply
where design outside the Working Areas forms a major part of a contract. For this reason, the
ECC takes a very cautious approach, relying on the tendered hourly rates inserted by the
Contractor in Contract Data part two as the basis for calculating the Defined Cost of these
activities. It only requires, therefore, for the Project Manager to satisfy themselves as to the time
spent by the Contractor on these activities.

A possible solution in this situation would be to consider having an Option A fixed-price

contract for the manufacture and supply of, say, the pipework. However, this would still not
remove the problems associated if compensation events arise.

2.8.7 Cost component 7 Cost component 7 covers design of the works and Equipment done outside the Working
– design Areas.

The Contractor tenders in Contract Data part two the category of their own employees who will
work on the design, as well as the categories of employees who would travel to and from the
Working Areas for the purposes of design.

The rates for Defined Cost of design outside the Working Areas are
category of person rate
............................................. ......................
............................................. ......................

The categories of design people whose travelling expenses to and from the Working Areas
are included as a cost of design of the works and Equipment done outside of the Working
Areas are
..............................................................................................
..............................................................................................

2.8.8 Cost component 8 Cost component 8 of the SCC provides for the following to be deducted from Defined Cost:
– insurance
g the cost of events for which this contract requires the Contractor to insure
g other costs paid to the Contractor by insurers.

The first avoids the Client having to pay for costs that the Contractor should have insured
against. If the Contractor does not insure as required by the contract, then such costs are at their
own risk. An example of the first category is loss of or damage to Equipment, which clause 83.2
requires the Contractor to insure against. If a piece of Equipment owned and being used by the
Contractor to Provide the Works catches fire and is destroyed, then its replacement cost is
deducted from the Defined Cost. This avoids the Client having to pay for costs that the
Contractor should have insured against. If the Contractor does not insure as required by the
contract, then such costs are at their own risk. In practice, such an eventuality should never arise
if the Project Manager requests evidence from the Contractor that the required insurances are in
force (refer to clause 84.1).

The second deduction ensures that the Contractor does not receive double payment as a result
of, for example, insurance that they have voluntarily taken out or from insuring for a greater
cover than required by the contract. The practical complication with this is that, unless the
Contractor volunteers the information, the Client will not know the scope of any difference
in cover insurance that the Contractor has effected.

There are no Contract Data entries required for this cost component heading.

55
Managing Change

2.9. The components Used with main Options A and B.

of cost included
under the SSCC

2.9.1 Introduction The opening statement at the beginning of the SSCC states:

‘This schedule is part of these conditions of contract only when Option A or B is used. An
amount is included
g only in one cost component and
g only if it is incurred in order to Provide the Works.’

This opening statement to the SSCC makes it clear that it is part of the conditions of contract
only when main Option A or B and is used for the assessment of compensation events, unless it
is agreed to use rates and lump sums (clause 63.2).

As a general policy, the SSCC only provides for the direct reimbursement of those cost com-
ponents that are readily identifiable. The principal way this is achieved is through the concept
of Working Areas: areas of land comprising the Site that are made available by the Client,
together with any additional areas proposed by the Contractor and accepted by the Project
Manager as necessary to Provide the Works.

Generally, only the cost of People and Equipment doing work in these Working Areas is reim-
bursed as Defined Cost. This recognises the difficulty and thus the higher risk to the Client in
identifying and controlling costs that are incurred away from the Site (i.e. outside the Working
Areas).

The exception to this general principle is those costs incurred by the Contractor associated with
the design, manufacture and fabrication outside of the Working Areas that are dealt with
separately in the SSCC (in cost components 6 and 7).

Recognising that there could be some overlap between various cost components, the SSCC
sensibly provides the reminder that ‘amounts are included only in one cost component’. The
SSCC provides for both direct reimbursement in GBP (or other currency) and also for indirect
reimbursement, by the use of predetermined percentages to cover a range of cost components.

To make the SSCC fully effective requires the insertion of certain data by the Contractor in
Contract Data part two. It is important that all data required by Contract Data part two for
the SSCC is included by the Contractor before submitting their tender. For main Options A and
B, the data is used in the assessment of compensation events.

There are eight headings for the components of cost included in the Shorter SCC:

1 ‘People’
2 ‘Equipment’
3 ‘Plant and Materials’
4 ‘Subcontractors’
5 ‘Charges’
6 ‘Manufacture and fabrication (outside the Working Areas)’
7 ‘Design (outside the Working Areas)’
8 ‘Insurance’.

Under each of these headings are described all the components of cost for which the Contractor
will be reimbursed during the period of the contract and which will also be taken into consider-
ation when evaluating the financial effects of compensation events. Any other components of
cost not identified in the schedule should be covered, and are deemed anyway to be covered
by inclusion in the fee percentage.

2.9.2 Cost component 1 The SSCC identifies three components of cost for people for which the Contractor has to
– people provide evidence of amounts paid by them, including those for meeting the requirement of the

56
 Schedule of Cost Components and Short Schedule of Cost Components

law and for pension provisions:

g People directly employed by the Contractor and whose normal place of working is within
the Working Areas; that is, direct employees of the Contractor whose normal place of
working is within the Working Areas (e.g. tradesmen or the site agent).
g People directly employed by the Contractor and whose normal place of working is not
within the Working Areas but who are working in the Working Areas proportionate to
the time they spend working in the Working Areas; that is, direct employees of the
Contractor whose normal place of working is not within the Working Areas but who are
working in the Working Areas (e.g. a specialised tradesman who is being used for a
compensation event).
g People directly employed by the Contractor (and who are not Subcontractors as defined)
but are paid for by them according to the time worked while they are within the
Working Areas.

The inclusion of the last category reflects the more normal practice of paying such people on
agreed hourly or daily rates.

The People Rates are identified in Contract Data part two as follows:

The people rates are

Category of person unit rate

............................ ............................ ............................
............................ ............................ ............................

The term ‘people’ as used by the ECC encompasses the Contractor’s staff as well as their
employees working within the Working Areas.

The cost of people who are directly employed by the Contractor in providing the works but
working outside the Working Areas, such as the Contractor’s staff whose normal place of work-
ing is the head office, factory, design office or manufacturing facility, are included in either cost
component 6 or 7.

2.9.3 Cost component 2 The SSCC components for the cost of Equipment are as follows:
– equipment
2.9.3.1 Equipment using g item 21 – Equipment included in a published list (e.g. the Civil Engineering Contractors
the SSCC Association (CECA) Daywork Schedule); Equipment includes the cost of the Contractor’s
accommodation
g item 22 – Equipment not included in a published list
g item 23 – the time required
g item 24 – transporting, erection and dismantling, upgrading and modification
g item 25 – consumables
g item 26 – the cost of operatives
g item 27 – Equipment that is neither in the published list stated in the Contract Data nor
listed in the Contract Data.

Equipment in a published list (item 21)

Contract Data part two requires entries for items included in a published list of Equipment:

The published list of Equipment is the edition current at the Contract Date of the list
published by . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The percentage for adjustment for Equipment in the published list is . . . . . . . . .% (state plus
or minus)

57
Managing Change

Equipment not in a published list (item 22)

Contract Data part two requires a rate as well as a description for items not included in a pub-
lished list of Equipment:

The rates of other Equipment are

Equipment rate
............................................. ......................

............................................. ......................

The time required (item 23)

This item outlines how the time required for an item of Equipment is to be expressed:

‘The time required is expressed in hours, days, weeks or months consistently with the list
of items of Equipment stated in the Contract Data or with the published list stated in the
Contract Data.’

Transporting, erection and dismantling, constructing, fabricating or modifying

Equipment (item 24)
No Contract Data entries are required for the transportation, erection and upgrading of
Equipment.

As long as the costs for the following are not included elsewhere, such as in the hire rates or
the depreciation and maintenance charge, the Contractor may include in an application
payment for the cost of

g transporting Equipment to and from the Working Areas other than for repair and
maintenance
g erecting and dismantling Equipment
g constructing, fabricating or modifying Equipment as a result of a compensation event.

Consumables (item 25)

No Contract Data entries are required for consumables unless the purchase price of the Equip-
ment that is consumed is in a published list stated in the Contract Data.

Cost of operatives (item 26)

Unless included in the hire rates, the cost of operatives is included in the cost of people. Clearly,
the cost of operatives should not appear in the hire rates and the cost of people, as these two cost
components are mutually exclusive.

Equipment not in the published listed or listed in the Contract Data (item 27)
Where Equipment is neither in a published list stated in the Contract Data nor listed in the
Contract Data, then this Equipment is assessed ‘at competitively tendered or open market
rates’. The onus will be on the Contractor to demonstrate that the rates put forward fulfil these
criteria.

2.9.4 Cost component 3 Plant and Materials are items that are intended to be included in the works (clause 11.2(14)): for
– Plant and Materials example, boilers, turbines, steelwork, pumps, vessels, agitators, cabling, cable trays, concrete
and structural steel.

The items of Plant and Materials included in the Contractor’s Defined Cost would not include
items issued to the Contractor by the Client free of charge.

The cost components for Plant and Materials as described in the SSCC comprise payments
for

58
 Schedule of Cost Components and Short Schedule of Cost Components

g purchasing Plant and Materials

g delivery to and removal from Working Areas
g providing and removing packaging
g samples and tests.

There are no entries for the Plant and Materials required for Contract Data part two, since any
application for payment would include invoices and other proof of payment. Note that there are
aspects of Disallowed Cost that pertain to Plant and Materials (i.e. there are some items of cost
for which the Contractor does not get paid).

Since most of Plant and Materials tend to be supplied by third parties outsourced by the
Contractor and consequently the subject of supply contracts, the Defined Cost of Plant and
Materials is relatively easy to identify by reference to the invoices received. Clause 52.1 of the
contract makes it clear that all amounts included in Defined Cost are ‘with deductions for all
discounts, rebates and taxes, which can be recovered’. Disallowed Cost as defined includes the
‘cost of Plant and Materials not used to Provide the Works’, so it will be necessary to identify
any over-ordering by the Contractor and to adjust Defined Cost accordingly.

Item 32 makes it clear that cost is credited with payments received for the disposal of Plant and
Materials unless the cost is disallowed.

2.9.5 Cost component 4 Item 41 introduces into the SCC a cost component for Subcontractors, covering payments to
– Subcontractors Subcontractors for work that is subcontracted.

2.9.6 Cost component 5 The SSCC caters for the direct cost for some aspects of charges:
– charges
‘51 payments for the provision of and use in the Working Areas of
g water
g gas
g electricity
g telephone and
g internet
52 Payments to public authorities and other properly constituted authorities of charges
which they are authorised to make as part of the works
53 Payments for
(a) cancellation charges arising from compensation events
(b) buying or leasing land or buildings within the Working Area
(c) compensation for loss of crops or buildings
(d) royalties
(e) inspection certificates
(f ) charges for access to the Working Areas
(g) facilities for visits to the Working Areas by Others
(h) consumables and equipment provided by the Contractor for the Project Manager’s
and Supervisor’s offices
54 Payments made and received by the Contractor for the removal from Site and disposal or
sale of materials from excavation and demolition.’

2.9.7 Cost component 6 The components of cost for manufacture and fabrication are exactly the same as in the
– manufacture and SCC.
fabrication

2.9.8 Cost component 7 The components of cost for design are exactly the same as in the SCC.
– design

2.9.9 Cost component 8 – The components of cost for insurance are exactly the same as in the SCC.
insurance

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Managing Change

2.10. Contract Data Note that the data for the SCC and SSCC shown in the individual component cost sections
part two above do not appear in the same order in Contract Data part two.

2.11. Putting it all Once the cost of the each of the component headings can be ascertained, it is a matter of adding
together for up the costs for each cost component. A suggested format is provided in Table 2.3; however,
payment – Option C each Contractor should use the calculation that most suits them.

The final calculation for presentation in an application for the amount due for payment in the
ECC is shown in Table 2.4.

Table 2.3 Putting the SCC together

Cost component Comment £ total

1 People
11 Components for items 11, 12 and 13 Payroll sheets for the period concerned £
12 People who are directly employed by the Contractor and
13 whose normal place of working is within the Working
Areas

11 Components for items 11, 12 and 13 Payroll sheets for the period concerned £
12 People who are directly employed by the Contractor and
13 whose normal place of working is not within the Working
Areas but who are working within the Working Areas
14 The following components of the cost of people who are Proof of payment of the amounts made £
not directly employed by the Contractor but are paid by
the Contractor according to the time worked while they
are within the Working Areas
Amounts paid by the Contractor

2a Equipment for the SCC

Note: In the ECC the definition of Equipment includes
accommodation
21 Payments for the hire or rent of Equipment not owned by Invoices and proof of payment – the hire rate £
g the Contractor or rental rate multiplied by the time for which
g the Contractor’s ultimate holding company or from a the Equipment is required
company within the same ultimate company
22 Payments for Equipment that is not listed in the Contract Invoices and proof of payment – at open £
Data but is market rates multiplied by the time for which
the Equipment is required
g owned by the Contractor
g purchased by the Contractor under a hire purchase or
lease agreement or
g hired by the Contractor from the Contractor’s ultimate
holding company or from a company with the same
ultimate holding company
23 Payments for Equipment purchased for work included in Proof of purchase £
the contract listed with a time- related on-cost charge, in
Time-related on-cost from Contract Data
the Contract Data, of
Demonstration of the change in value over
g the change in value over the period for which the
period
Equipment is required
g the time-related on-cost charge stated in the Contract
Data for the period for which the Equipment is
required

60
 Schedule of Cost Components and Short Schedule of Cost Components

Cost component Comment £ total

24 Payments for special Equipment listed in the Contract Data Rates in the Contract Data multiplied by the
time for which the Equipment is required
25 Payments for the purchase price of Equipment that is Invoice and proof of payment £
consumed
26 Unless included in the hire or rental rates, payments for Documentary proof of payment £
g transporting Equipment to and from the Working
Areas other than for repair and maintenance
g erecting and dismantling Equipment
g constructing, fabricating or modifying Equipment as a
result of a compensation event
27 Payments for purchase of materials used to construct or Documentary proof of payment £
fabricate Equipment
28 Unless included in the hire rates, the cost of operatives is Not calculated 0
included in the cost of people

2b Equipment for the Short SCC

21 Amounts in the published list stated in Contract Data Rates in the published list in the Contract Data £
part two multiplied by the percentage adjustment in
Contract Data part two, multiplied by the time
for which the Equipment is required
22 Amounts not in the published list stated in Contract Data Rates in Contract Data part two multiplied by £
part two the time for which the Equipment is required

23 The time required is expressed in hours, days, weeks or Statement of how to calculate time for the 0
months consistent with the list of items of Equipment in Equipment
the Contract Data or with the published list stated in the
Contract Data
24 Unless included in the published list, payments for Invoice and proof of payment £
g transporting Equipment to and from the Working
Areas other than for repair and maintenance
g erecting and dismantling Equipment
g constructing, fabricating or modifying Equipment as a
result of a compensation event
25 The purchase price of Equipment that is consumed, unless Documentary proof of payment £
in the published list or the rate includes the purchase price
26 The cost of operatives is always included either in cost Statement of where to include people costs 0
component 1 or 21 or 22
27 Amounts for Equipment which is neither in the published Invoice and proof of payment £
list stated in the Contract Data nor listed in the Contract
Data, at competitively tendered or open-market rates,
multiplied by the time for which the Equipment is required

3 Plant and Materials

31 Payments for Invoice and documentary proof of payment £
g purchasing Plant and Materials
g delivery to and from the Working Areas
g providing and removing packaging
g samples and tests

32 Payments received for the disposal of Plant and Materials Documentary proof of payment −£

4 Subcontractors
41 Payments made to Subcontractors Documentary proof of payment £

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Managing Change

Cost component Comment £ total

5a Charges for the SCC

51 Payments for provision and use in the Working Areas of Invoice and proof of payment £
g water
g gas
g electricity
g telephone
g internet
52 Payments to public authorities and other properly Invoice and proof of payment £
constituted authorities of charges which they are
authorised to make in respect of the works
53 Payments for Invoice or other document and proof of £
payment
(a) cancellation charges arising from a compensation event
(b) buying or leasing land or buildings within the Working
Area
(c) compensation for loss of crops or buildings
(d) royalties
(e) inspection certificates
(f ) charges for access to the Working Areas
(g) facilities for visits to the Working Areas by Others
(h) consumables and equipment provided by the
Contractor for the Project Manager’s and Supervisor’s
offices
54 Payments made and received by the Contractor for the Invoice and proof of payment £
removal from Site and disposal of materials from
excavations and demolitions

6a Manufacture and fabrication outside the Working

Areas for the SCC
61 Cost of manufacture or fabrication of Plant and Materials (Hourly rates in Contract Data part two £
62 that are wholly or specifically designed for the works and multiplied by hours worked)
that are manufactured or fabricated outside the Working
Areas

7 Design outside the Working Areas

71 Cost of design of the works and Equipment done outside Hourly rates in Contract Data part two £
72 the Working Areas multiplied by the hours worked
73 Cost of travel to and from the Working Areas for the Invoice/tickets or business mileage plus proof
categories of employees listed in Contract Data part two of payment

8 Insurance
The cost of events for which the contract requires the Documentary proof of payment −£
Contractor to insure

Other costs paid to the Contractor by insurers Documentary proof of payment −£

Total of the SCC £

62
 Schedule of Cost Components and Short Schedule of Cost Components

Table 2.4 Presentation for the ECC application for payment

Direct work
1 Total of the cost components in the SCC £
2 Less Disallowed Cost −£
3 Total Defined Cost £
4 Less Disallowed Cost −£
5 Fee percentage %
6 Other amounts
7 plus other amounts to be paid to the Contractor (e.g. interest on late payments) £
8 less other amounts to be paid or retained from the Contractor (e.g. retention and other amounts) −£
9 less previous amounts due for payment −£
10 Total amount due for this application £

2.12. Inspecting
accounts and
records
2.12.1 Compensation Because the SCC and SSCC are focused on the pre-assessment of change maybe many months
events ahead of the actual work being undertaken, a quotation for a compensation event may therefore
not always include supporting documentation such as quotations/invoices for Plant and
Materials or wage slips.

If your project is required to be audited, either by an internal or external body, then you should
ensure that the departments/bodies involved realise this at the very outset of the project. It is
also suggested that you consult with them at the earliest moment, so that any requirements
or implications that may affect the way you operate the contract can be considered and, where
appropriate, included in the Scope.

2.12.2 Options C, D It may not be possible for the Project Manager to examine fully all the information in a
and E Contractor’s application for payment within the 1 week required to issue a payment certificate.
The Project Manager may only have sufficient time to perform a spot check of the supporting
documentation, and would have to rely on later audits of the Contractor’s books to check the
Price for Work Done to Date and possibly the final total of the Prices.

It is recommended that the contract requires the Contractor to set out their application for
payment in a certain way to assist the Project Manager in their assessment of the amount due.
Clause 50.2 requires the Contractor to submit an application for payment. Assessment of the
amount due would be virtually impossible if the Contractor does not provide all the information
in an amount due prior to the assessment date. It would be to the Contractor’s benefit as well to
ensure that all their costs were visible and easily traceable through the supporting documen-
tation, so that disputes over valuations are kept to a minimum.

Clause 50.4 states that

‘If the Contractor does not submit an application for payment before the assessment date,
the amount due at the assessment date is the lesser of
g the amount the Project Manager assesses as due at the assessment date, assessed as though
the Contractor had submitted an application before the assessment date, and
g the amount due at the previous assessment date.’

This is a powerful incentive for the Contractor to submit an application for payment.

For example, in the people section of the SCC (cost component 1), where the Contractor lists
their on-site labour, including supervision, they could list the people by name and job

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Managing Change

description, the job performed and the hours spent on that job. This would generally be a copy
of the daily labour record in a more legible and visible format. This would be particularly
important where Disallowed Costs are incurred, such as the correction of Defects, so that the
Project Manager is able to see where the Contractor has deducted the time spent on the elements
making up Disallowed Costs. This also underlines the importance of having the Project
Manager on Site, in order to be aware of the performance on Site. There is, of course, an
element of mutual trust and co-operation running through the contract, particularly for the
application for payment, although the Project Manager has the ability to correct payment
certificates later (clause 51.3).

Audits can pick up small things that the Project Manager might miss during their assessment,
and it could also pick up irregularities that are not noticeable in each individual application for
payment but are manifest over a period of time. At the very least, an audit could reveal whether
invoices claimed for under the contract have actually been paid later on. It is recommended that
at least one audit is conducted for Option C, D and E contracts, and many more for longer
projects.

An example of an audit plan is included in Appendix 3 of Book Two.

2.13. Use of the The SSCC is only used for main Options A and B. The SSCC is simpler than the SCC used for
SSCC main Options C, D and E:

g cost component 1 – people uses People Rates that are identified by the Contractor in
Contract Data part two
g cost component 2 – a published list is used for Equipment costs
g cost component 6 – amounts paid by the Contractor.

A comparison between the SSC and the SSCC is given in Figure 2.2.

2.14. Practical issues The ECC SCC does not necessarily cater very well for contracts where there are many contrac-
2.14.1 Working on tors on the same site. Because many of the percentages are based on projected turnover and the
multiple projects on the costs of the site, the Contractor may only be able to be realistic with percentages if the Client has
same site advised them of the projects that the Contractor will be performing over a period.

2.14.2 Example of the A new retaining wall is to be constructed as shown in Figure 2.3. This is a retaining wall on a
principles of the Client-designed project. It is realised, however, that the length of the retaining wall needs to be
assessment of change increased from 10 to 20 m. The Project Manager acknowledges that this is a change to the
Scope, and raises an instruction and compensation event notification in which they instruct the
Contractor to submit a quotation.

Table 2.5 shows three possible scenarios: A, B and C.

The main Option for the contract is Option A (the same principles would work for Option B as
well). The correct tendered price for the work is £2000 – scenario B. In scenario A, the
Contractor has underpriced the true value of the original work in their tender, and has inserted
£1000. In scenario C a high price has been inserted of £3000. It should be noted that the prices
against individual items should be set against the context of the pricing for the whole contract.
The example of low, correct and high is given here for illustrative purposes on the principles of
the SCC.

For the purposes of assessing the changes to the Prices from a compensation event to change the
length of the retaining wall, the original tendered prices of £1000 (low) in scenario A, £2000
(correct) in scenario B and £3000 (high) in scenario C are not used. Instead, the original work
and the revised work are priced using the SCC.

In this example, as shown in Table 2.5, the assessment of the original work using the SCC will
give a true assessment of £2000 in all three scenarios. This figure is then compared with the

64
 Schedule of Cost Components and Short Schedule of Cost Components

Figure 2.2 The components of Defined Cost for the SSC and SSCC

SCC SSCC
1. People 1. People
Cost components 11, 12 and 13: Cost component 11:
• directly employed people • directly employed people
– whose normal place of work is the Working Area – whose normal place of work is the Working Area
– whose normal place of work is not the Working Area – whose normal place of work is not the Working Area
11. Wages and salaries • not directly employed people but who are paid while they are
12. Payments related to work on the contract and made to in the Working Area
people for (a) to (f) Amounts calculated by multiplying each of the People Rates by the
13. Payments made in relation to people in accordance with their time appropriate to the rate spent in the Working Areas.
employment contract for (a) to (o)
14. Non-direct employed people. Amounts paid by the Contractor

2. Charges 2. Charges
21. Hire or rent of Equipment not owned by Contractor 21. Published list (e.g. CECA)
22. Equipment not listed in the Contract Data but owned by the 22. List stated in Contract Data
Contractor 23. Time expressed in hours, days, weeks or months
23. Equipment purchased for the contract 24. Transporting, etc.
24. Special Equipment 25. Consumables
25. Consumables 26. Unless included in the published list, cost of operatives is
26. Transporting, etc. included in the cost of people.
27. Materials to fabricate Equipment 27. Open market rates for Equipment not in the published list or
28. Unless included in the published list, cost of operatives is the list stated in the Contract Data
included in the cost of people
3. Plant and Materials 3. Plant and Materials
(At cost) (At cost)

4. Subcontractors 4. Subcontractors
Payments to Subcontractors Payments to Subcontractors

5. Equipment 5. Equipment
The following charges are identified separately: The following charges are identified separately:
51. Water, gas, electricity, telephone and internet 51. Water, gas, electricity, telephone and internet
52. Public authorities 52. Public authorities
53. Cancellation charges, etc., (a) to (h) 53. Cancellation charges, etc., (a) to (h)
54. Removal from the Site and disposal or sale of materials from 54. Removal from the Site and disposal or sale of materials from
excavation and demolition excavation and demolition

6. Manufacture and fabrication 6. Manufacture and fabrication

61. Total hours worked by employees by hourly rates stated in 61. The same as the SCC
the Contract Data

7. Design outside of the Working Areas 7. Design

The following components of cost of design of the works and 71. The same as the SCC
Equipment done outside the Working Areas
71. Amounts calculated by multiplying each of the rates for
people in the Contract Data by the total time appropriate to
that rate spent on design of the works and Equipment
outside the Working Areas in the Contract Data
72. Cost of travel to and from the Working Areas for the
categories of design people listed in the Contract Data

8. Insurance 8. Insurance
Deducted from the cost: Deducted from the cost:
• costs against which the contract required the Contractor to • cost of events for which the contract requires the Contractor
insure to insure
• Others costs paid to the Contractor by insurers • Others costs paid to the Contractor by insurers

Compensation events only Compensation events only

Contractor’s risks (clause 63.8) Contractor’s risks (clause 63.8)
The Fee The Fee
Fee percentage as stated in Contract Data part two Fee percentage as stated in Contract Data part two

assessment of the revised work to the retaining wall of £4000 in each scenario; taking one from
the other gives a total change to the Prices of £2000 in all three scenarios.

In each scenario the outcome is the same when using the SCC to assess the changes to the Prices
by omitting the original work and adding in the revised work, so that the outcome is the same in
each instance. This therefore removes the arguments about the use and applicability of rates,
prices and lump sums submitted at the time of tender.

65
Managing Change

Figure 2.3 Cross-section through a reinforced concrete retaining wall

0.300 m

Note: Overall length of reinforced

concrete retaining wall to be 10 m

1.500 m 100 mm uPVC drainage

channels at 1 m centres

0.400 m

1.000 m

2.14.3 Omissions If a Client omits work from a contract, the omission will be assessed using the SCC or shorter
(depending on the main Option) rather than simply omitting the relevant sums in the Activity
Schedule or the bill of quantities. The build-up for the omission in the form of a quotation will
include the tendered direct fee percentage.

This raises the issue of loss of profit on omitted work for the Contractor. The ECC is simply
silent on this matter. From a practical point of view small omissions are of little consequence,
unless they build up to such an extent that they become a large change or omission to the scope
of the works. Larger omissions, which affect the overall scope of the works, are a different
matter.

The ECC is based on the concept of the Client planning their works well. Nevertheless,
circumstances do occur when, no matter how well planned a project, the project is overtaken
by events. Let us consider an example where the Client owns a complex of buildings on one Site.

The project involves the construction of a new five-storey office block, which is to be linked to
an existing office block by a subway under the site link road to an existing basement entrance in
the existing office (Figure 2.4). This connection to the existing office block has been identified as
a separate activity on the Activity Schedule in an Option A contract.

Table 2.5 SCC low-, correct and high-price scenarios

Scenario A: Scenario B: Scenario C:

low price correct price high price

Tendered prices

Item
Original retaining wall £1000 £2000 £3000
(This could be a price for an activity in an
activity schedule or a bills of quantities item)

Total £1000 £2000 £3000

Assessment of change using the SCC

Assessment of the original work £2000 £2000 £2000

Assessment of the revised work £4000 £4000 £4000

Total of the changes to the Prices £2000 £2000 £2000

66
 Schedule of Cost Components and Short Schedule of Cost Components

Figure 2.4 Office block scheme

New office block B

Existing office block A
(built circa 1950s)

Ground level

New subway connection

Existing road

Twelve months into the project the Client’s facilities management team has identified that, due
to rapid growth, the existing office facilities need to be increased to cope with this growth. It has
also been identified that the existing office facilities are now below modern standards, and the
team has recommended that the existing office block is demolished and a new office built in its
place.

The Client has also decided that it would be more appropriate and less disruptive to their
operations on Site if the subway connection were repackaged into the new project. The work
on the subway is still some 6 months away.

The Project Manager issues an instruction and compensation event notification omitting the
new subway. The Contractor sends a quotation, which equals the value of £250 000 shown
on their tendered Activity Schedule for the project.

The Project Manager does not accept the quotation, and instructs the Contractor to provide a
revised quotation. The reason given is that the quotation is not in accordance with clause 63.1,
namely that that quotation has not been assessed on

g the actual Defined Cost of the work already done by the dividing date
g the forecast Defined Cost of the work yet to be done by the dividing date
g the resulting Fee.

The Contractor resubmits their quotation on this basis and in accordance with the contract. The
total omission is £243 348. This is the amount by which the Prices would be reduced according
to the compensation event, rather than the £250 000 originally included in the Activity
Schedule.

2.14.4 The Project The contract contains within it the facility for the Project Manager to make their own assess-
Manager’s assessment ment. If we imagine in the office block example that the Contractor refuses to provide a revised
quotation, then the Project Manager can make their own assessment (see also Section 1.9.1 of
Chapter 1 in this Book). The Project Manager’s assessment comes to £298 000. This means that
the amount by which the Prices would be reduced according to the compensation event would
be £298 000, rather than the £250 000 originally included in the Activity Schedule (always
remembering that the price inserted against an activity may not be reflective of its true price).
Since the reduction is larger than the originally included figure, it could be assumed that the
Contractor’s profit will be affected by this compensation event.

The figure of £298 000 is substantially higher than the one that the Contractor would have come
to if they had done the quotation themselves. It should be noted that the Project Manager does
not have to instruct the Contractor to resubmit their quotation – they could go straight to a

67
Managing Change

Project Manager’s assessment. It is unwise for the Contractor to get to such a point, since the
Project Manager will not have the same level of information in regard to the compensation
event as the Contractor themselves.

This being the case, and as long as they demonstrate that they have built up the quotation as
required by the contract using reasonable skill and care, there is no reason why their assessment
should not be acceptable.

Areas that will have a major influence on the assessment are

g programme durations
g output levels
g the critical path
g resource levelling, either on the whole or parts of the works for both People and
Equipment.

If a Contractor submits a quotation that is not in accordance with the requirements of the
contract, the Project Manager can make their own assessment. It is not a requirement of
the contract that the Project Manager gives the Contractor an opportunity to resubmit a
quotation before they make their own assessment.

2.14.5 Numerous small The ECC assumes that every compensation event is assessed individually. However, in the hurly-
compensation events burly of everyday projects this is rarely the case. Sometimes once one thing goes wrong or a
dimension is changed, it triggers a whole sequence of events, albeit each one being very minor.

In such an instance it may be appropriate for a number of these small compensation events on
related items to be grouped and assessed together (Table 2.6). In this way it is possible to
identify any possible knock-on effects that may not be evident from each single small compen-
sation event. It will also facilitate picking up what has been traditionally called the ‘disruption’
element of change.

2.14.6 Issue of Site The Project Manager may issue an instruction containing some revised Site Information
Information drawings drawings labelled ‘For information purposes only’.

The issue of Site Information drawings in itself is not a compensation event unless the issue of
that information requires a change to the Scope, in which case it will be a compensation event.

Project Managers should be mindful to issue only relevant Site Information drawings and not
just issue a blanket set of Site Information drawings. Hopefully, the Project Manager will have
reviewed the drawings to see if they have or are likely to have any implications on the Scope.

2.14.7 Occasions when There are certain occasions when the contract does not call for the use of Defined Cost as
Defined Cost is not used defined in the SCC.

Table 2.6 Compensation events grouped together for assessment

Lift shaft A

PMI No. CE No. Description Effect

Time: days Price: £

1 3 Additional reinforcement to waling beam A 0.25 1000.00

4 7 Missing rebar to waling beam B 0.50 500.00
8 9 Cut rebar on site to revised dimensions 0.75 500.00

Total 1.50 2000.00

68
 Schedule of Cost Components and Short Schedule of Cost Components

2.14.7.1 Uncorrected If a notified Defect is not corrected, the Project Manager assesses the cost of having the Defect
Defects corrected by other people. The cost will be whatever that is as assessed by the Project Manager.

The Project Manager notifies the Contractor that they have not corrected the defective
plasterwork in the entrance area of the new hotel within the defect correction period. The
Project Manager therefore assesses the cost of having the Defect corrected by other people,
and advises the Contractor of this fact.

2.14.7.2 Access to the Any cost incurred by the Client as a result of the Contractor not providing the facilities and
Site services they are to provide is assessed by the Project Manager and paid by the Contractor.

In the section for facilities and services to be provided by the Contractor, the Scope requires
the Contractor to provide a cleaner for the site accommodation. Four weeks after the start
of the contract, no cleaner has appeared, even after repeated requests by the Project
Manager. The Project Manager advises the Contractor that they have hired a cleaner for
the duration of the contract or until such time as they provide the cleaner as required by the
Scope. The Project Manager has assessed this cost to be £20 per day, and they advise the
Contractor that they will be required to pay this cost as detailed in clause 25.2.

2.14.7.3 Tests and The cost incurred by the Client in repeating tests after a Defect is found is assessed by the
inspections Project Manager and paid by the Contractor.

The Contractor offers up some completed watermain pipework as being completed and free
from Defects. The Scope requires the Client to carry out water tests on the pipework. The
pipework fails the test. A week later, the pipework, after being corrected, is retested and
passes the Client’s test. The Project Manager notifies the Contractor that they have assessed
the costs incurred by the Client in redoing the test, and advises that £896.00 is to be paid by
the Contractor.

2.14.7.4 Acceleration If the Project Manager has instructed the Contractor to submit a quotation for acceleration and
the Contractor chooses to do so, the quotation they submit is not required to be based on
Defined Cost.

Question
A Project Manager becomes aware after the contract is let that the data for the SCC and
SSCC in Contract Data part two have not been completed or that the Contractor is
struggling to complete the information. What should they do?

Answer
Strictly this is the Contractor’s problem; however, their failing to understand the SCC may
cause problems later in the project. So it may be in the interests of all involved to ensure
that they have understood the requirements of the contract.

2.14.7.5 Quotations The cost of people involved in a compensation event is based on the components of cost for
manual people listed in the SCC. If there are few compensation events, then this process is straight-
forward. However, if you have many compensation events the calculation of people costs for
each and every compensation event may be very time consuming. To overcome this, it may
be more practical to establish a quotations manual in which the initial People Rates (and other
components of cost) have been agreed and calculated using the SCC at the outset of the
contract. This has the advantages of

g establishing agreed rates at the outset of the contract

g providing consistency on multiple Sites/administration sites
g speeding up the assessment of compensation events.

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Managing Change

2.14.7.6 Disallowed Cost Finally, recognising the Client’s potential vulnerability the SSCC includes for People Rates
under cost-based contracts, the ECC includes the concept of Disallowed Cost, a full and lengthy
definition of which is provided in main Option clauses C11.2(26), D11.2(26), E11.2(26) and
F11.2(27). Generically, the definition is a list of things for which the Contractor will not be reim-
bursed; that is, any costs incurred against the headings identified will be deducted from Defined
Cost. Most of the things included could be said to derive from some ‘shortcoming’ of the
Contractor or failure to conduct their operations to acceptable standards. This immediately
introduces an element of discretion, which falls to be exercised by the Project Manager, a
subject that has recently turned the spotlight on the Project Manager’s implied duty to act
impartially and in good faith. Examples of Disallowed Cost include

g cost that the Project Manager decides is not justified by the Contractor’s accounts and
records
g the cost of correcting Defects after Completion
g Plant and Materials not used to Provide the Works (after allowing for reasonable
wastage)
g resources not used to Provide the Works (after allowing for reasonable availability and
utilisation) or not taken away from the Working Areas when the Project Manager
requested.

Although payments to Subcontractors for work that is subcontracted constitute Defined Cost,
lest Contractors run away with the idea that their administration of subcontracts can be to some
lesser standard, Disallowed Cost includes the following Subcontractor-specific checks:

g cost which should not have been paid to a Subcontractor in accordance with their
Subcontract
g cost that the Project Manager decides results from paying a Subcontractor more for a
compensation event than is included in the accepted quotation or assessment for the
compensation event.

So, given that the Contractor is clearly at risk that some of their Defined Cost will not be
reimbursed, how should they cover themselves against this eventuality, given, for example, that
some Disallowed Cost is almost inevitable (e.g. the cost of correcting Defects after Completion)?
The answer while simple is not always obvious. Any Defined Cost that the Contractor antici-
pates incurring but which may be the subject of a Disallowed Cost deduction has to be recov-
ered through the Fee, and consequently the fee percentage will need to include an allowance for
protecting against this risk. Clearly, some Clients, depending on their choice of Project
Manager, will be regarded by Contractors as more ‘risky’ than Others, and this may be reflected
in the tendered fee percentage.

2.15. Preliminaries Appendix 3 in this book provides practical examples of how people costs are built up and how
and people costs the traditional calculation compares to the SCC and SSCC, and how this relates to the fee
2.15.1 Introduction percentage.

Appendix 4 gives a comparison of a traditional preliminaries build-up for the SCC and SSCC.

Both of these appendices serve to clarify the interrelationship between traditional practice and
the ECC.

70
Managing Change
ISBN 978-0-7277-6188-0

ICE Publishing: All rights reserved

http://dx.doi.org/10.1680/mc.61880.071

Appendix 2
Example quotations for compensation events

Section A: Based on the SCC

(Only used for main Options C, D and E.)

A2.1. Introduction In this section we set out an example of a quotation based on the SCC for a hypothetical
compensation event on the project named Spring Field.

The compensation event is for the provision of a new footbridge over the existing Spring Dyke
following the realignment of Spring Road. For the purposes of this example, it is assumed that
the new footbridge will be a new section of works (created by a supplemental agreement) to the
existing contract for Spring Field.

We also assume for the purposes of this example that the contract has been let on an ECC
Option C target contract with Activity Schedule.

This example sets out a format for the presentation of the quotation, and includes build-ups,
supporting notes and comments on some of the issues surrounding the preparation of quota-
tions for ECC4.

Figure A2.1 shows a sectional view of the proposed new footbridge. A programme for the works
has been prepared, and is shown in Figure A2.2.

Figure A2.1 Proposed new footbridge over Spring Dyke

Prefabricated
steel footbridge
Ground level

Brick wing wall

Footbridge
support steelwork
Foundations

Existing dyke

71
72
Managing Change

Figure A2.2 Programme for the new footbridge over Spring Dyke

Spring Field – New Footbridge

23 May ’12 30 May ’12 06 Jun ’12 13 Jun ’12 20 Jun ’12 27 Jun ’12 04 Jul ’12 11 Jul ’12 18 Jul ’12 25 Jul ’12 01 Aug ’12 08 Aug ’12
Activity
ID No. Task Name 23/05 30/05 06/06 13/06 20/06 27/06 04/07 11/07 18/07 25/07 01/08 08/08 Finish

1 Start Date 23/05/12

2 F100 Design 27/05/12

3 F200 Fabricate footbridge 03/06/12

4 F250 Set up site 10/06/12

5 F260 Enabling work 17/06/12

6 F270 Footbridge foundations 24/06/12

7 F300 Assemble footbridge on site 01/07/12

8 F400 Brick wingwalls 05/07/12

9 F500 Paint bridge 16/07/12

10 F600 Clear site 29/07/12

11 F700 Electric lighting 22/07/12

12 Planned Completion 05/08/12

13 Completion 12/08/12
 Example quotations for compensation events

A2.2. Contract Data The following is an example of a quotation for the new footbridge.
example
Contract Data part two, extracted from the documents that are part of the contract used to
produce this example quotation, is shown below.

A2.2.1 Contract Data g The Contractor is

part two – data
Name Virtual Contracting Limited
provided by the
Address Virtual House
Contractor
Virtual Lane
A2.2.1.1 Statements
Virtual City
given in all contracts
g The fee percentage is 10%.
g The working areas are the Site and the area indicated on drawing FYK001 as lay-down
and prefabrication facilities.
g The key people are
(1) Name Joe Bloggs
Job Site Agent
Responsibilities ...........................................................................
Qualifications ...........................................................................
Experience ...........................................................................
(2) Name John Public
Job QS
Responsibilities ...........................................................................
Qualifications ...........................................................................
Experience ...........................................................................
g The following matters will be included in the Early Warning Register:
– flooding
– unchartered services
g The Scope for the Contractor’s design is in the document entitled ‘Contractor’s Proposal’.
g The programme identified in the Contract Data is in the document entitled ‘Contractor’s
Programme’.

A2.2.1.2 Option C g The activity schedule is in the document entitled ‘Activity Schedule’.
g The tendered total of the Prices is £1843.00.

A2.2.1.3 Data for the g The listed items of Equipment purchased for work in the contract, with an on cost
SCC charge, are
Equipment time-related on cost charge per time period
Adjustable height restriction £100.00 per week
framework for vehicles
g The rates for special Equipment are
Equipment rate
Bridge jack £50 per week
g The rates for Defined Cost of manufacture or fabrication outside the Working Areas are
category of person rate
Foreman £20
Fabricators £20
g The rates for Defined Cost of design outside the Working Areas are
category of person rate
Draughtsman £30
g The categories of design people whose travelling expenses to and from the Working
Areas are included as a cost of design of the works and Equipment done outside of the
Working Areas are
None

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Managing Change

A2.3. Defined Cost Defined Cost (clause 11.2(24)) is the cost of the components in the SCC less Disallowed Cost.

A2.4. Direct fee The fee percentage covers such items as

percentages
g Head office charges and overheads:
– loss of money insurance – loss of money due to theft
– fidelity guarantee insurance – act of fraud or dishonesty
– fire insurance – permanent premise and contents.
g Components not covered in the SCC include, for example:
– insurance premiums,
W professional indemnity insurance (contractor-designed work)
W the Client’s liability insurance
W vehicle insurance
W public liability insurance
W all-risks insurance – loss or damage to permanent and/or temporary works and also
covers Equipment and Plant and Materials (constructional plant)
W corporation tax
– advertising and recruitment costs
– sureties and guarantees
– indirect payments to staff on overseas contracts.
g The Contractor’s profit.

Figure A2.3 shows the composition of Defined Cost.

Figure A2.3 Composition of Defined Cost

THE PRICE FOR WORK DONE TO DATE

DEFINED COST

Main options A and B Main options C, D and E Main option F

Short Schedule of Schedule of Payments due to

Cost Components Cost Components Subcontractors
(clause 11.2(23)) (clause 11.2(24))
and
Less Disallowed Cost
prices for work done by the
(clause 11.2(26))
Contractor (clause 11.22(25))

74
 Example quotations for compensation events

A2.5. SCC example We will now look at an example quotation for a compensation event for the ECC followed by
quotation an example of a Subcontractor’s quotation.

A2.5.1 Defined cost

Table A2.1 Example quotation for a compensation event

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 1
Brief Description of Works: Provision of Footbridge to Spring Dyke Due Date: 1 July 20XX
to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
1 PEOPLE
Activity F250 – Set up site
(5 days)
No. hours Total hours Rate
Foreman 1 24 24 15.00 360.00
Labourers 4 40 160 10.51 1681.60
Ganger 1 40 40 8.00 320.00 2361.60

Activity F260 – Enabling Work

(5 days)
No. hours Total hours Rate
Foreman 1 16 16 15.00 240.00
Labourers 3 40 120 10.51 1261.20 1501.20

Activity F270 – Footbridge Foundations

(5 days)
No. hours Total hours Rate
Foreman 1 40 40 15.00 600.00
Labourers 3 50 150 10.51 1576.50
Ganger 1 40 40 8.00 320.00 2496.50

Activity F300 – Assemble Footbridge on site

(5 days)
No. hours Total hours Rate
Foreman 1 50 50 15.00 750.00
Ganger 1 50 50 8.00 400.00
Steel fixers 4 50 200 12.00 2400.00
Crane operator 1 50 50 12.00 600.00
Banksman 1 50 50 11.00 550.00
Labourers 2 50 100 10.51 1051.00 5751.00
PEOPLE c/f £12 110.30

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Managing Change

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 2
Brief Description of Works: Provision of Footbridge to Spring Dyke Due Date: 1 July 20XX
to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
PEOPLE b/f £12 110.30
Activity F400 – Brick Wingwalls
(2 days)
No. Days Total days × hours Total hours Rate
Foreman 1 2 2 10 20 15.00 300.00
Bricklayers 4 2 8 10 80 12.00 960.00
Labourer 2 2 4 10 40 10.51 420.40 1680.40
Activity P500 – Paint Bridge
(5 days)
No. Days Total days × hours Total hours Rate
Painters 2 5 10 10 100 12.00 1200.00 1200.00
Activity P600 – Clear Site
(5 days)
No. Days Total days × hours Total hours Rate
Foreman 1 5 5 8 40 15.00 600.00
Labourer 2 5 10 10 100 10.51 1051.00 1651.00
PEOPLE c/f £16 641.70

76
 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 3
Brief Description of Works: Provision of Footbridge to Spring Dyke Due Date: 1 July 20XX
to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
PEOPLE b/f £16 64170
Activity F260 – Enabling Work
(5 days)
g People who are directly employed by the Contractor and whose normal place of
work is not the Working Area but are working in the Working Areas
Supervision of the erection of temporary works by Head Office – temporary works
supervisor
Team Leader 1 day 80.00
g People who are not directly employed by the Contractor but are paid for by
him according to the time worked while they are in the Working Area –
component 14
Inspection of the erected 1 day 150.00 230.00
temporary works by
Independent Third Party
PEOPLE TOTAL CARRIED TO SUMMARY 5 £16 871.70

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Managing Change

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 4
Brief Description of Works: Provision of Footbridge Date: 1 July 20XX
to Spring Dyke Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
2 EQUIPMENT
Activity F250 – Set up site
2 Equipment
Contractor’s offices
Section office – 1 No. at 10 m 6 weeks @ £30/week 180.00
Contractor’s site huts
Store 6 weeks @ £20/week 120.00
Site toilet 6 weeks @ £25/week 150.00 450.00
Activity F250 – Set up site (5 days)
21 Hired/Rented Equipment
(at hire rate or rental rate multiplied by the time for which the Equipment is
required)
Dumper 5 days @ £50/week 50.00
Lorry 5 days @ £100/day 500.00
Shovel say 10.00
Hand-saw say 20.00 580.00
Activity F260 – Enabling work (5 days)
Dumper 5 days @ £50/week
Hired Equipment 50.00
Lorry 5 days @ £100/day
Excavator 5 days @ £200/day 500.00
1000.00 1550.00
Activity F270 – Footbridge Foundations (5 days)
Dumper 5 days @ £50/week
Hired Equipment 50.00
Concrete mixer 5 days @ £20/day 100.00
Wheelbarrow 5 days @ £5/day 25.00 175.00
EQUIPMENT c/f £2755.00

78
 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 5
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
EQUIPMENT b/f £2755.00
Activity F300 – Assemble Footbridge on Site
(2 days)
Dumper 2 days @ £10/day 20.00
Lorry 1 day @ £100/day 100.00
Setting out equipment say 40.00 160.00

22 Payments for Equipment which is not listed in the Contract Data but is owned,
purchased or hired by the Contractor
Hired Equipment 50.00
Crane (incl. driver, delivery 2 days @ £50/day 100.00 100.00
and removal from site)

Activity F400 – Brick Wingwalls (2 days)

Dumper 2 days @ £10/day 20.00
Hired Equipment
Lorry 2 days @ £100/day 200.00
Concrete mixer 1 day @ £40/day 40.00 260.00

Activity F500 – Paint Bridge (5 days)

Hired Equipment
Trestles 5 days @ £10/day 50.00 50.00

Activity F600 – Clear site (5 days)

Dumper 7 days @ £10/day 70.00
Hired Equipment
Lorry 5 days @ £100/day 500.00 570.00
EQUIPMENT c/f £3895.00

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Managing Change

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 6
Brief Description of Works: Provision of Footbridge Date: 1 July 20XX
to Spring Dyke Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
EQUIPMENT b/f £3895.00
Activity F250 – Set up site
23 Payments for Equipment purchased for work in this contract listed with a
time-related charge
g Adjustable height restriction @ £100/week 4 weeks £400.00 £400.00
framework for vehicles

Activity F300 – Assemble footbridge

24 Payments for special Equipment listed in the Contract Data
g Bridge Jacks 4 No. @ £50/week 4 weeks £800.00
Additional item of special Equipment
g Bridge deck lifting eyes @ £10/week 4 weeks £40.00 £840.00

Activity F250 – Set up site

25 Payments for the purchase of Equipment which is consumed
g Sacrificial framework 10 sheets @ 20 200.00
g Fuel for Generator 10 litres @ 80p/litre 8.00 208.00

Activity F300 – Assemble footbridge

26 Unless included in the hire or rental rates, payments for
g Transporting crane to and from site 100.00
g Erecting and dismantling crane 100.00
g Modifying jib of crane to lift bridge sections 500.00 700.00
27 Payments for purchase of materials used to
construct or fabricate Equipment
Materials for modifying jib of crane to lift bridge sections
g Steel sections/RSAs 250.00
g Lifting eye and chains 200.00 450.00
28 Unless included in the hire rates, the cost of
operatives is included in the cost of people
EQUIPMENT TOTAL CARRIED TO SUMMARY 5 £6493.00

80
 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 7
Brief Description of Works: Provision of Footbridge to Spring Dyke Due to Road Date: 1 July 20XX
Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
3 PLANT AND MATERIALS
Activity F200 – Fabricate footbridge
31 Purchasing Plant and Materials
Materials for Footbridge
g Durasteel 100 m2 @ £50 5000.00
g RSA 45×45 mm 100 m @ £5 500.00
g Black bolts 500 No. @ £2 1000.00
g Stainless steel handrails 60 @ £100 6000.00 12 500.00

Activity F270 – Footbridge Foundations

Concrete 80 m3 @ £50 4000.00
Formwork 20 sheets @ £20 400.00 4400.00

Activity F400 – Brick wing walls

Bricks 2000 No. @ £0.05p 100.00
g Providing and removing packaging
Providing storage boxes for the delivery £10.00 10.00
of bridge bolts
(Returned pallet) (−£10) (−10.00)
Disposal of polystyrene and cellophane 50.00 50.00
wrapping around special bricks
g Samples and tests
Brick sample £50 50.00
Paint sample board £50 50.00
32 Cost is credited with payments received
for disposal of Plant and Materials
Surplus brick – restocked by stockist Less £200.00 (−200.00) 50.00
PLANT AND MATERIALS TOTAL CARRIED TO SUMMARY 5 £16 950.00

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Managing Change

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 8
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
4 SUBCONTRACTORS
The following components of the cost of Subcontractors
41 Payments to Subcontractors for work which is subcontracted without taking into account any
amounts paid to or retained from the Subcontractor by the Contractor, which would result in
the Client paying or retaining the amount twice
Activity F700 – Electric lighting to footbridge
Spring Electrics 7692.00
CHARGES TOTAL CARRIED TO SUMMARY 5 £7692.00

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 9
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
5 CHARGES
Activity F250
51 Payments for provision and use in Working Areas of
1 Payment for temporary connection charges by Water Authority 50.00
2 Payment for temporary connection and disconnection of electrical supply to LEB 50.00 100.00
52 Payments to public authorities
1 Local Authority inspection charge 50.00 50.00
53 Payments for (a) to (h) e.g. 53(c)
1 Payment to Mr Jones for access to the Working Area and loss of crops 500.00 500.00
54 Payments made and received by the Contractor for the removal from Site and disposal and 0.00 0.00
sale of materials from excavations and demolition
CHARGES TOTAL CARRIED TO SUMMARY 5 £650.00

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 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 10
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
6 MANUFACTURE AND FABRICATION
6 The following components of cost of manufacture and
fabrication of Plant and Materials, which are
g Wholly or partly designed specifically for the works and
g Manufactured or fabricated outside the Working Areas

Activity F200 – Fabrication of footbridge

61 The total of the hours worked by employees multiplied by the hourly rates stated in the
Contract Data for the categories of employees listed
Employee Costs
Foreman 5 days × 8 hours 40 @ £20 800.00
Fabricators, 8 men 5 days × 8 hours 320 @ £20 6400.00 7200.00
Subtotal 7200.00
MANUFACTURE AND FABRICATION TOTAL CARRIED TO SUMMARY 5 £7200.00

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Managing Change

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 11
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
7 DESIGN
Activity F100 Design
71 The total of the hours worked by employees multiplied by the hourly rates stated in the
Contract Data for the categories of employees listed.
(a) Employee Costs 6000.00
Draughtsman, 4 men×10 hours per day × 5 days = 200 hours @ £30
72 The cost of travel to and from the Working Areas for the categories of design employees in the
Contract Data
(b) Travel costs (in Contract Data part two included in employee hourly rate) N/A 6000.00
DESIGN TOTAL CARRIED TO SUMMARY 5 £6000.00
8 INSURANCE
The following are deducted from cost:
g the cost of events for which the contract requires the Contractor to insure N/A
and
g other costs paid to the Contractor by the insurer N/A
INSURANCE TOTAL CARRIED TO SUMMARY 5 N/A

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 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 12
Brief Description of Works: Provision of Footbridge to Spring Dyke Due Date: 1 July 20XX
to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED COMPLETION: SECTION OF WORKS AFFECT ON KEY
F100 to F700 1 Day AFFECTED: 3A DATE: Area 1–5 Days
SUMMARY
1. PEOPLE 16 871.70
2. EQUIPMENT 6493.00
3. PLANT AND MATERIALS 16 950.00
4. SUBCONTRACTORS 7692.00
5. CHARGES 650.00
6. MANUFACTURE AND FABRICATION 7200.00
7. DESIGN 6000.0
8. INSURANCE N/A
Subtotal £61 856.70
RISK ALLOWANCES 0.00
Subtotal £61 856.70
Fee 10% 6185.67
TOTAL DEFINED COST 5 £68 042.37

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Managing Change

A2.5.2 Defined Cost Table A2.2 shows an example of the Spring Electrics quotation for their works in relation to the
Subcontractor’s work new footbridge. For the purposes of this example, we have assumed that the Subcontractor is on
an Engineering and Construction Subcontract main Option C and has prepared a quotation
using the SCC. It should be noted that it is highly likely the Subcontractor will submit their
quotation in the form of a lump sum. It will be up to the Contractor to break the lump sum
down to put into their own quotation.

Table A2.2 Example of a Subcontractor’s quotation

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
(Schedule of Cost Components)
To: Virtual Contracting Limited No: 25
From: Spring Electrics Sheet: 1
Brief Description of Works: Electrics to new footbridge Date: 25 June 20XX
ACTIVITY NO./NOS: G100 DELAY TO PLANNED SECTION OF WORKS AFFECT ON KEY
COMPLETION: 0 Days AFFECTED: 3A DATE: Area 1–5 Days
1 PEOPLE
Activity F700 – Electric lighting to footbridge
No. Days Total days hrs Total hrs Rate
Foreman 1 2 2 10 20 20.00 400.00
Electrician 7 2 14 10 140 15.00 2100.00
Trainee electrician 1 2 2 10 20 5.50 110.00
£2610.00
2 EQUIPMENT
Percentage adjustment for listed Equipment (Contract Data part two). . . . . .%
EQUIPMENT TOTAL CARRIED TO SUMMARY 5 £0.00
3 PLANT AND MATERIALS
Lights 20 No. @ £100.00 2000.00
Cabling 180m @ £10.00 1800.00 3800.00
4 SUBCONTRACTORS 0.00
5 CHARGES
CHARGES TOTAL CARRIED TO SUMMARY 5 £0.00
6 MANUFACTURE AND FABRICATION
MANUFACTURE AND FABRICATION TOTAL CARRIED TO SUMMARY 5 £0.00
7 DESIGN
DESIGN TOTAL CARRIED TO SUMMARY 5 £0.00
8 INSURANCE
Deduct from cost:
g The cost of events which this contract requires the Contractor to insure
and
g Other costs paid by the insurer
INSURANCE TOTAL CARRIED TO SUMMARY 5 £0.00
9 RISK
RISK TOTAL CARRIED TO SUMMARY 5 £0.00

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 Example quotations for compensation events

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
(Schedule of Cost Components)
QUOTATION FOR COMPENSATION EVENT
(Schedule of Cost Components)
To: Virtual Contracting Limited No: 25
From: Spring Electrics Sheet: 1
Brief Description of Works: Electrics to new footbridge Date: 25 June 20XX
ACTIVITY NO./ DELAY TO PLANNED COMPLETION: 0 SECTION OF WORKS AFFECT ON KEY
NOS: G100 Days AFFECTED: 3A DATE: Area 1–5 Days
SUMMARY
1. PEOPLE 2610.00
2. EQUIPMENT 0.00
3. PLANT AND MATERIALS 3800.00
4. SUBCONTRACTORS 0.00
5. CHARGES 0.00
6. MANUFACTURE AND FABRICATION 0.00
7. DESIGN 0.00
8. INSURANCE 0.00
9. RISK 0.00
TOTAL 5 £6410.00
10. FEE fee percentage (see Contract Data part two) 20% £1282.00
TOTAL DEFINED COST 5 £7692.00

A2.6. Supporting Supporting notes seeking to amplify and support the example quotation given in Section A2.2
notes above are now provided under the following headings:

g ‘People – calculation of people (labour) costs’

g ‘Example schedule of people rates from a quotations manual’
g ‘Example calculation for percentage for Equipment purchased for work included in the
contract’
g ‘The Contractor’s risk allowances’
g ‘The Activity Schedule’
g ‘Some reminders’.

A2.6.1 People – This is based upon (clause 63.1)

calculation of people
(labour) costs g the Defined Cost (as defined by the SCC) of the work already done
g the forecast Defined Cost of the work not yet done
g the resulting Fee.

The Fee (clause 11.2(8)) is defined as the sum of the amounts calculated by applying the fee
percentage to Defined Cost. It is important to note that tender rates and prices are not used
to assess change, and in all instances the cost for the different grades of people involved will
be based on

g a payroll printout showing the required information

g proof of other payments such as lodging allowances
g other documentary evidence.

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Managing Change

Table A2.3 Example of a Contractor’s payroll

Payroll build-up based on the Schedule of Cost Components Traditional calculation of hourly rates for labour based on
the Working Rule Agreement
General Operative Mr X for Period 1: 4-week period from 1 to 30 June General Operative Mr X for Period 1: 4-week period from 1 to
20XX 30 June 20XX
11 Wages and Salary Basic rate of pay (classification – General
(Figure made up of Basic Rate, Additional Operative, Skill Rate 1, 2, 3, 4, Craft Rate)
Payments for skill, National Insurance and
Training Levy Allowance from traditional build-
up opposite) [Items marked with an asterisk] 1161.21 213 hours @ 4.78 1018.14∗
Additional payment for skilled work WRA
(Schedule 1 –
0.00 classification i, ii, iii) 0 hours @ 4.78 0.00∗
12 Payments for
(a) Bonuses and incentives Bonus – guaranteed minimum and production
213.00 bonus 213 hours @ 1.00 213.00
(b) Overtime 131.45 Non-productive overtime 27.5 hours @ 4.78 131.45
Annual Wage (A) 1362.59
National Insurance employers contribution
incl. in 11 @ 10% of (A) 136.26
Training allowance or industrial training levy,
incl. in 11 e.g. CITB Training Levy 0.50% of PAYE (A) 6.81
(c) Working in special circumstances WRA Schedule 2 – Working in adverse
conditions e.g. stone cleaning, tunnels, sewer
0.00 work, working at height 0.00
(d) Special allowances
(e) Absence due to sickness and holidays 94.92 Holiday credit 4 weeks @ 23.73 94.92
27.25 Sick pay allowance @ 2% of (A) above 27.25
Paid Total & Allowances (B) 1627.83
(f ) Severance related to work on this contract 24.42 Allowance for severance pay 1.5% of (B) 24.42
13 Payments in relation to people for
(a) Travel 0.00 WR.5 Travel allowances 0.00
(b) Subsistence and lodging WR.15 Subsistence (where applicable)
508.48 4 weeks × 7 nights × £18.16 per night 508.48
(c) Relocation 0.00
(d) Medical examinations 0.00
(e) Passport and visas 0.00
(f ) Travel insurance 0.00
(g) Items (a) to (f ) for dependants 0.00
(h) Protective clothing 8.31 Protective clothing 0.50% of (B) 8.13
(i) Meeting the requirements of the law Employers liability and public liability insurance
32.56 2% of (B) 32.56
( j) Pensions and life insurance 0.00 Industry pension scheme 0.00
(k) Death benefit WR.21 Benefit schemes
3.85 (Death benefit stamp) say 3.85
(l) Occupational accident benefits
(m) Medical aid 33.37 Health Insurance say 33.37
(n) A vehicle 0.00
(o) Safety training 0.00
Total 2238.64 Total cost for period 1 5 £ 2238.64
incl. in fee Safety officer’s time, QA Policy/inspection and all
percentage other costs and overheads, say 2.433% 54.47
Note: These items are included in the calculation
of labour costs using the Working Rule
Agreement but are not a Component of People
Costs in the ECC
Total annual cost of general operative 5 £ 2238.64 Total annual cost of general operative 5 £ 2293.11
Total hours worked 5 £ 213.00 Total hours worked 5 £ 213.00
Cost per hour 5 £ 10.51 Cost per hour 5 £ 10.77

88
 Example quotations for compensation events

Table A2.3 shows a typical example of a Contractor’s payroll printout and a build-up for the
cost of people based on the components in the SCC.

In theory, this exercise based on the Contractor’s accounts and records is needed for each and
every category of people on each and every quotation for a compensation event. This principle
is adequate where compensation events are few and far between, but on larger projects it may
not be so practical.

Some Clients and Contractors have agreed on larger projects to do this exercise once a month or
every quarter to establish a list of agreed rates to use for quotations. Some have developed what
are called quotation manuals that are included at the time of tender to establish the first people
costs and other costs for use to assess compensation events. This document is then reviewed
every month, with a set of project-wide rates for the month or period ahead. This is particularly
useful on large, multi-location projects that have large teams of people.

Although this is not strictly ECC policy, it is a practical way of providing consistency of
approach across a project and reduces the need for too many people to have to get involved
in establishing the Defined Cost of people, and reduces the fears of the Contractor in having
to adopt an open-book approach on sensitive commercial information.

It also makes the audit of compensation events a great deal simpler.

A2.6.2 Example schedule Table A2.4 gives an extract from a quotations manual that shows the agreed hourly rates to be
of people rates from a used in the assessment of compensation events during a month or period.
quotations manual

Table A2.4 Example schedule of people rates from a quotations manual

The following are the agreed rates for use on compensation events during the period
1–30 June 20XX

Staff Grade/level Hourly rate: £

Project Director A 50.00
Agent B 35.00
Site Foreman C 30.00
QS D 25.00
Engineer E1 25.00
Engineer E2 23.00
Engineer E3 15.00
Planner P 30.00
Buyer B 20.00
Labour Grade/level Hourly rate: £
Ganger S1 8.00
Bricklayer S2 10.00
Labourer S3 7.00a
Painter S4 9.00
Foreman S6 12.00
Steel fixer S7 10.00
Crane operator S8 8.00
Banksman S9 7.00
a
Rates used for forecast compensation events need to take into consideration future wages and material increases

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Managing Change

Table A2.5 Schedule of Equipment purchased for the project – examples

Item A – purchase B – period C – sale price D – difference E – time-related on-cost

price required between purchase and charge (see Contract
sale price (A–C) Data part two)

Dumper truck £15 000.00 3 months Say £13 000.00 £2 000.00 £20 per week for
maintenance and repairs
Tunnel-boring £150 000.00 12 months Say £120 000.00 £30 000.00 £500 per month for
machine maintenance and repairs

A2.6.3 Example The ECC has a practical and realistic way of looking at Equipment purchased specifically for
calculation for work on a project:
Equipment purchased
for work included in ‘Payments for Equipment purchased for work included in this contract listed with a time-
the contract related on cost charge, in the Contract Data, of
g the change in value over the period for which the Equipment is required and
g the time-related on cost charge stated in the Contract Data for the period for which the
Equipment is required.’ (SCC cost component 23)

A good example of this may be the purchase of a tunnel-boring machine, which could be new or
refurbished, used for 12 months on a project. At the end of the project the tunnel-boring
machine can be sold on to others.

An example calculation for cost component 23 for an item of Equipment purchased for the
project is given in Table A2.5.

A2.6.4 Contractor’s risk The contract states in clause 63.8 that

allowances
‘The assessment of the effect of a compensation event includes risk allowances for cost and
time for matters which have a significant chance of occurring and are not compensation
events.’

It should be remembered that the Contractor carries all risks except those specifically taken by
the Client in the Contract.

The key phrases here are matters that have ‘significant chance of occurring’ and are ‘not compen-
sation events’.

The conceptual idea is that the Contractor includes in quotations for compensation events for
the ‘risks’ they carry under the contract in the same way as when they are tendering for the
work.

The first exercise for the Contractor to undertake is to identify possible risks carried by them
under the contract that have a significant chance of impacting the work that is the subject of
the compensation event, including those transferred in new or amended contract conditions.
Examples are potential or possible events on a particular project, such as boundary conditions,
late flights, attempted suicides, eco-warriors and endangered species. The Contractor can make
use of risk reduction meetings (clause 16.3) to discuss these matters with the Project Manager.

It therefore may be prudent for the Contractor or even the Client at an earlier stage to identify
risks carried by the Contractor. It is suggested that such a list or pro forma could be suggested/
included in the Scope so that it is clear from the outset how the Contractor’s cost and time risk
allowances are to be included and in what format they should be submitted with each quotation.
An example of a Contractor’s risk allowances schedule is given in Table A2.6.

In the example given in this appendix there may be no similar items in the original tender, there-
fore the rule should be to include for risks that have a significant chance of occurring.

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 Example quotations for compensation events

Table A2.6 Sample list of risk events that may need to be considered by the Contractor when preparing quotations

Contract title: Spring Field Contract No: 2012/23 Quotation No: 41 – New Footbridge
Item Description Probability How to include (in Assessment details/ Impact assessment/ Mitigation details/
No. (significance: low/ people rates, etc.) assumptions time, cost time, cost
medium/high)
People
1 Wage increases New labour rates Included in rates Not applicable None Not applicable
as of 1 July 20XX
2 Labour availability Low Not applicable Not applicable Not applicable Not applicable
3 Subcontractor’s availability Low Not applicable Not applicable Not applicable Not applicable
4 Industrial relations Low Not applicable Not applicable Not applicable Not applicable
5 Attendance on
Subcontractors (welfare
facilities)
Equipment
6 Equipment (constructional New rates as of Included in rates Not applicable None Not applicable
plant) increases 1 May 20XX
7 Equipment breakdown/ Low Allowances made in Not applicable Not applicable Not applicable
maintenance output rates
8 Attendance on Low Allowances made in Not applicable Not applicable Not applicable
Subcontractors output rates
(Equipment, e.g. scaffold,
cranes, etc.)
Plant and Materials
9 Plant and Materials High Shortage of rebar Built into the Not applicable Buffer time built
availability (shortages, for foundations programme for the into the
long lead-in times), works programme
delivery delays, etc.
Subcontractors
10 Defective work Low Allowance made in Build into the Not applicable Not applicable
the output rates programme
11 Non-performance Low Allowance made in Build into the Not applicable Not applicable
the output rates programme
Manufacture and fabrication
12 Manufacture and
fabrication delays
Design
13 Design liability (increases Low Design liability and Not applicable Not applicable Not applicable
in design liability) and PI already covered
professional indemnity (PI) in main contract
insurance
14 Equipment design and Low Not applicable Not applicable Not applicable Not applicable
temporary works
15 Permanent design Low Not applicable Not applicable Not applicable Not applicable
Workmanship/quality
16 Workmanship/defective Medium Allowance made in Not applicable Not applicable Not applicable
work/quality – setting out, output rates
etc.
17 Subcontractor’s Low Not applicable Not applicable Not applicable Not applicable
performance
Method of working/constraints, etc.
18 Method of working Medium Method of working
may require
adjacent road
closure

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Managing Change

Contract title: Spring Field Contract No: 2012/23 Quotation No: 41 – New Footbridge
Item Description Probability How to include (in Assessment details/ Impact assessment/ Mitigation details/
No. (significance: low/ people rates, etc.) assumptions time, cost time, cost
medium/high)
19 Access restrictions Low Not applicable Not applicable Not applicable Not applicable
20 Limitations of working Low Not applicable Not applicable Not applicable Not applicable
space
21 Existing overhead and Medium Not applicable Not applicable Not applicable Not applicable
underground services
22 Excesses in insurances Low Not applicable Not applicable Not applicable Not applicable
23 Security of the Site (eco- Low Not applicable Not applicable Not applicable Not applicable
warriors)
24 Impact on future work Low Not applicable Not applicable Not applicable Not applicable
(other sections of work,
other packages, etc.)
25 Output rates/productivity Low Not applicable Not applicable Not applicable Not applicable
26 Health and safety
Special safety requirements
Client’s risks in the contract
27 Weather conditions Low If arises it will be a Not applicable Not applicable Not applicable
compensation event
28 Nature of the ground Low If arises it will be a Not applicable Not applicable Not applicable
compensation event
29 Working around other Low If arises it will be a Not applicable Not applicable Not applicable
contractors compensation event
Changes in the law (secondary Option X2)
30 Secondary Option X2; if Low Secondary Option Not applicable Not applicable Not applicable
applicable, the Client X2 is included in
takes the risk for changes the contract. If it
in the law (landfill tax, arises it will be a
employment law flexible compensation event
hours, etc.)
Unforeseen risks
31 Foot-and-mouth disease Low Not clear in the
contract who has
this risk

It should be noted that where a Project Manager makes their own assessment, they should be
making allowances for clause 63.8. In this way, it is visible how and what has been included in
the quotation.

It would be prudent to call for this information when the Contractor submits their tender. Risk
management should now become part of the assessment of a compensation event.

Therefore, if the Contractor can demonstrate that, for example, the ditch referred to has a
significant chance of flooding, then the Contractor should be allowed to make allowance for this
risk.

It is not the intention in the ECC for a blanket percentage to be added to each compensation
event, as has been the temptation in some contracts; risk for each compensation event should be
considered for each event. Contractors sometimes produce documents with all sorts of risks
equating to a blanket percentage add-on to all compensation events, for example 25%. This
is blatantly incorrect, and is a dangerous tactic for the Contractor since it means that they are
not considering the risk issues properly on each compensation event, which should be of con-
cern to both Parties and is a key principle of the ECC.

92
 Example quotations for compensation events

Table A2.7 Matters to be added to the Early Warning Register

Contract No: 2012/23 Quotation No: 41 – New Footbridge

Matters

Description Probability How to include Assessment details/ Impact Mitigation details/time,

(significance: (in people rates, assumptions assessment/time, cost
low/medium/high) etc.) cost

Planning Low Not applicable Approval received Delay to the Working closely with the
approval for the by 1 May 20XX project start date Project Manager and local
bridge delayed authority to gain planning
permission. Looking at the
possibility of pre-assembly
off Site

Examples of Contractor’s risk items are

g wage increases
g Plant and Material increases
g winter working (productivity outputs, etc.)
g Equipment hire rate increases
g a change in charges
g defective work
g maintenance time for Equipment (constructional plant).

In some instance the Client reallocates risks such as

g late flights
g road closures
g weather
g unforeseen ground conditions.

Care also needs to be taken to ensure that allowances are not duplicated: for example, allowance
made in output rates in the programme and further allowances made in the rates and prices.

In the ECC the Client is required to list in Contract Data part one item 1, ‘General’, the matters
to be included in the Early Warning Register (clause 11.2(8)). Likewise, the Contractor is
required to do the same in Contract Data part two.

The intent of this Early Warning Register is to identify from the outset of the contract the
potential risks associated with the contract. The risk is described, and also the actions to be
taken to avoid or reduce the risk.

The Early Warning Register is about identifying and managing risk. Only compensation events
allocate the risk between the parties.

Table A2.6 shows how a Contractor could show risk allowances associated with a compensation
event. This example is by no means meant to be comprehensive. However, it does indicate how
carefully both the Contractor and Client should consider risks associated with each compen-
sation event. As well as identifying the specific risks for an event, it may also highlight new risks
that should be identified on the contract Early Warning Register (Table A2.7).

A2.6.5 Activity Schedule Table A2.8 shows how the quotation for this compensation event may translate into new activi-
ties in the build-up to an Activity Schedule.

A2.6.6 Some reminders g Cost and time effects of change are valued and adjusted collectively.
g Emphasis on pre-pricing/pre-assessment of compensation events using forecasts (Defined
Cost as defined in the SCC) of work not yet done.

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94
Managing Change

Table A2.8 Example Activity Schedule build-up

Schedule of Cost Components

1 2 3 4 5 6 7 8
Activity Plant and Manufacture
No Description Total: £ People Equipment Materials Subcontractors Charges and fabrication Design Insurance Risk
F100 Design 6000.00 6000.00
F200 Fabricate footbridge 19 700.00 12 500.00 7200.00
F250 Set up the Site 4649.60 2361.60 1638.00 650.00
F260 Enabling work 3281.20 1731.20 1550.00
F270 Footbridge foundations 7071.50 2496.50 175.00 4400.00
F300 Assemble footbridge on Site 8001.00 5751.00 2250.00
F400 Brick wingwalls 1990.40 1680.40 260.00 50.00
F500 Paint the bridge 1250.00 1200.00 50.00
F600 Clear the Site 2221.00 1651.00 570.00
F700 Footbridge lighting 7692.00 7692.00
Subtotals: £ 61 856.70 16 871.70 6493.00 16 950.00 7692.00 650.00 7200.00 6000.00 0.00 0.00
fee percentage 10% 6185.67
TOTAL DEFINED COST 5 £68 042.37
 Example quotations for compensation events

g Tendered rates and prices are not generally used to assess change (in all main Options
rates and lump sums can be used by agreement).
g Costs of work already done based on Defined Cost.
g Assessments not revisited or adjusted when based on assumptions that are later
corrected.
g Cost based on Defined Cost as defined in the SCC.
g Time based on entitlement, not need.
g Assessment to include Contractor’s risk allowances (clause 63.8).
g A compensation event may create new risk matters that need to be included in the
contract Early Warning Register.

Section B: Based on the SSCC

B2.1. Introduction The SSCC is used to assess compensation events for main Options A and B.

B2.1.1 Cost component 1 The people cost component has been simplified in item 11 to amounts calculated by multiplying
– people each People Rate by the total time appropriate to that rate spent within the Working Areas.

Table B2.1 shows an extract of the people element of a quotation using the SSCC.

B2.1.2 Cost component 2 This covers amounts for Equipment in the published list identified in Contract Data part two
– Equipment adjusted by the percentage adjustment listed in Contract Data part two. The published list, for
example, will be the CECA Daywork Schedule, the RICS Daywork Schedule or such.

The entry in Contract Data part two is as follows:

g The published list of Equipment is the edition current at the Contract Date of the list
published by CECA
g The percentage for adjustment for Equipment in the published list is −30%
g The rates for other Equipment are
Equipment rate
................................. .................................
................................. .................................

B2.1.3 Cost component 3 The same as the SCC.

– Plant and Materials

Table B2.1 Example extract of the people element of a quotation using the SSCC

PEOPLE
Activity F250 – Set up site
(5 days)

Category No. hrs total hrs rate

of people
Foreman 1 24 24 12.00 288.00
Labourers 4 40 160 10.00 1600.00
Ganger 1 40 40 7.00 280.00 2168.00

Activity F300, etc. 10 000.00

Total for people = £12 168.00

TOTAL FOR PEOPLE = £12 168.00

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Managing Change

B2.1.4 Cost component 4 Same as the SCC.

– Subcontractors

B2.1.5 Cost component 5 Same as the SCC.

– charges

B2.1.6 Cost component 6 This has been simplified to amounts paid by the Contractor (item 61 of the SSCC).
– manufacture and
fabrication

B2.1.7 Cost component 7 The same as the SCC.

– design

B2.1.8 Cost component 8 The same as the SCC.

– insurance

B2.1.9 Allowance The same as the SCC (see section A2.6.4 above).
Contractor’s risk
Table B2.2 provides an example of a quotation using the SSCC for the Contractor’s direct
works only. Any subcontract element would be produced in an identical format by the Sub-
contractor using their tendered fee percentages. The Contractor adds their subcontract fee
percentage to the amount of the Subcontractor’s quotation.

Table B2.2 Example quotation using the SSCC

CONTRACT: SPRING FIELD

QUOTATION FOR COMPENSATION EVENT
(Short Schedule of Cost Components)
To: Project Manager No: 41
From: Virtual Contracting Limited Sheet: 3
Brief Description of Works: Provision of Footbridge to Spring Dyke Date: 1 July 20XX
Due to Road Realignment
ACTIVITY NO./NOS: DELAY TO PLANNED SECTION OF WORKS AFFECT ON KEY
A500 COMPLETION: 0 Days AFFECTED: 3A DATE: Area 1–0 Days
1. PEOPLE 896.00
2. EQUIPMENT 560.00
3. PLANT AND MATERIALS 600.00
4. SUBCONTRACTORS 0.00
5. CHARGES 0.00
6. MANUFACTURE AND FABRICATION 0.00
7. DESIGN 0.00
8. INSURANCE N/A
Subtotal £2056.00
9. RISK ALLOWANCES 0.00
Subtotal (Defined Cost of other work – clause 11.2(8)) £2056.00
10. FEE fee percentage 10% 205.60
TOTAL DEFINED COST 5 £2261.60

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 Example quotations for compensation events

Section C: Based on rates or lump sums – all main Options

For all main Options, if the Project Manager and Contractor agree, rates or lump sums can be
used to assess compensation events (clause 63.2).

C3.1. Introduction An example is provided in this section of a quotation where the Project Manager and Contractor
have agreed that a compensation event for a proposed change to the Scope should be assessed
using rates or lump sums (Table C2.1).

The inclusion of the use of rates and prices to assess compensation has been included to cover
situations where it may not be practicable to use the SCC or SSCC to assess the change in the
Prices. The compensation event is for the relatively small change to the Scope, and involves one
additional trapped gully and 3 m of additional pipework to the drainage system (Figure C2.1).
This change has been identified several weeks before the works are due to commence, and there-
fore there are no programme implications occurring due to this compensation event. For the
purposes of this example, we assume that the contract has been let on ECC Option B priced
contract with a bill of quantities.

Table C2.1 Example quotation using rates and lump sums

CONTRACT: WOOLLEY NEW ESTATE ROAD

RATES AND LUMP SUMS
CONTRACTOR’S QUOTATION
To: Project Manager CE No: 4.00
From: Crackon Contractors Sheet: 1 of x
Brief Description of Works: Additional trapped gully Date: 1 July 20XX
required adjacent to new footpath to office block B
as shown on drawing reference C123 R1 dated
1 July 20XX
ACTIVITY NO./NOS: DELAY TO PLANNED SECTION OF WORKS KEY DATES
500 Drainage works COMPLETION: None AFFECTED: None AFFECTED: None
In accordance with clause B63.13 (or A63.14, D63.13 dependent on the main Option Subtotal total
selected) of the conditions of contract the Project Manager and Contractor have agreed to
assess this compensation event using rates and lump sums. This is because the change is
relatively small and the use of the Shorter SCC would be unduly lengthy in relation to the
value of the compensation event.
BQ Reference Description Unit Quantity Rate
I112.1 Vitrified clay pipes with flexible m 3 17.03 51.09
joints, etc., depth not
exceeding 1.5 m
K320 Gullies, trapped, vitrified clay m 1 241.83 241.83
Total 5 £ 322.21

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Managing Change

Figure C2.1 Example drawing reference C123 R1 dated 1 July 20XX

5 mm recess
Gully chamber top
Kerb as
detailed Finished
road level Mortar bed 10 mm thick min.
20 mm thick max.
(see note 7)

Brickwork

Plastic rising liner cut to

suit depth of brickwork
50

Square to circular
conversion section
(see gully type scheule)

450 mm min. diameter

above this level
85 min.
150 d

Class ST4 in situ concrete

surround 150 mm thick min.
ia.

220 min.

400 mm min. diameter

above this level

Plastic gully with in situ cast concrete surround

Verge width as specified

Bends
Drain as where
specified necessary
150 pipe
dia.
mm

Group S2 drain
600
min
.

Gully connection detail

Group S3 drain

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Appendix 3
Example people cost calculations

A3.1. Introduction This appendix looks at the comparison of how people (labour costs) would be calculated tra-
ditionally by contractors, and how this compares with the SCC.

It also shows how these costs interact with each other and how they can be calculated and dealt
with.

Table A3.1 compares side by side the SCC and a traditional build-up. It highlights the differ-
ences between the two calculations and indicates how these differences in the costs are to be
dealt with when using the SCC.

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Managing Change

Table A3.1 Calculation of people costs – side-by-side comparison of the SCC and a traditional calculation of labour costs

Rate build-up based on Schedule of Cost Components Traditional calculation for labour costs
Annual cost of wages
(Based on Construction Industry Joint Council – Working Rule
Agreement)
11 Wages and salary Basic rate of pay (Classification – General
(Figure made up of Basic Rate, Additional Operative, skill rate 1, 2, 3, 4, Craft Rate)
Payments for skill, National Insurance and
Training Levy Allowance from traditional
build-up opposite)
14 723.10 2694 hrs @ 4.78 12 877.32
Additional payment for skilled 0 hrs @ 4.78
work WRA Schedule 1 –
Classification i, ii, iii 0.00
12 Payments for
(a) bonuses and incentives 2694.00 Bonus – guaranteed minimum 2694 hrs @ 1.00 2694.00
and production bonus
(b) overtime 2007.60 Non-productive overtime 420 hrs @ 4.78 2007.60
Annual wage (A) 17 578.92
incl. in 11 National Insurance, employer’s
contribution @ 10% of (A) 1757.89
incl. in 11 Training Allowance or Industrial
Training Levy, e.g. CITB Training
Levy 0.50% of PAYE (A) 87.89
(c) working in special circumstances WRA Schedule 2 – Working in
adverse conditions, e.g. stone
cleaning, tunnels, sewer work,
0.00 working at height 0.00
(d) special allowances
(e) absence due to sickness and holidays 1230.85 Holiday credit 52 wks @ 23.67 1230.85
351.58 Sick pay allowance @ 2% of (A) 351.58
above
Paid total and allowances (B) 21 007.13
(f ) severance related to work Allowance for severance pay
on this contract 315.11 1.5% of (B) 315.11
13 Payments in relation to people for
(a) travelling 0.00 WR.5 Travel allowances 0.00
(b) subsistence and lodging WR.15 Subsistence (where applicable)
5974.64 47 weeks × 7 nights × £18.16 per night 5974.64
(c) relocation 0.00
(d) medical examinations 0.00
(e) passport and visas 0.00
(f ) travel insurance 0.00
(g) items (a) to (f ) for dependants 0.00
(h) protective clothing 105.04 Protective clothing 0.50% of (B) 105.04
( j) contributions, levies or taxes imposed by law Employer’s liability and public
420.14 liability insurance 2% of (B) 420.14
(k) pension and life insurance 0.00 Industry pension scheme 0.00
(l) death benefit 50.00 WR.21 Benefit schemes (death benefit stamp) say 50.00
(m) occupational accident benefits
(n) medical aid and health 452.51 Health insurance say 452.51
insurance
(o) a vehicle 0.00 Vehicle (assumed dealt with separately)
(p) safety training 0.00 Safety Training (demonstration on ongoing commitment to safety)
Total annual cost = £ 28 324.57 Total annual cost = £ 28 324.57
These items need to be Safety officer’s time, QA Policy/inspection and all other 708.11
included in the fee costs and overheads say 2.5%
percentage Note: These items are included in the calculation of
labour costs using the Working Rule Agreement but
are not a Component of People Costs in the full SCC
Total annual cost of general operative 5 £ 28 324.57 Total annual cost of general operative 5 £ 29 032.68
Total hours worked = £ 2694.00 Total hours worked 5 £ 2694.00
Cost per hour = £ 10.51 Cost per hour 5 £ 10.78

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Appendix 4
Comparison between traditional preliminaries
build-up and how they relate to the Schedule
of Cost Components and the Short Schedule
of Cost Components

A4.1. Introduction This appendix aims to clarify by way of comparison how a traditional preliminaries build-up
and the ECC relate to each other. In particular, a traditional example build-up of preliminaries
is given. This is then compared to the SCC and the SSCC to show how they are dealt with
(Table A4.1).

The key changes to the SCC and SSCC in NEC4 compared with NEC3 are

g People:
– people whose normal place of working is not the Working Area are paid
proportionally to the time they spend in the Working Area.
g Subcontractors:
– Subcontractors are now a cost component
– payments to Subcontractors for work that is subcontracted without taking into
account any amounts paid to or retained from the Subcontractor by the Contractor,
which would result in the Client paying or retaining the amount twice.
g Charges:
– Defined Cost is now actual Defined Cost and there is no longer a Working Area
Overhead applied to the cost of people.

Some items that were deemed to be in the Working Area Overhead are not included as items of
actual Defined Cost within the other cost components.

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Managing Change

Table A4.1 Comparison between a traditional tender build-up for staff, Site on-costs and other items and how and
where they are included in the SCC and the SSCC (numbers denote the cost component)
Item description £ ECC
SCC SSCC
Contractor’s Site on-costs – time-related
Site staff salaries
Agent 30 weeks £450 13 500.00 People People
Senior engineer 30 weeks £380 11 400.00 People People
Engineers 30 weeks £300 9000.00 People People
General foreman 30 weeks £400 12 000.00 People People
Office manager 30 weeks £400 12 000.00 People People
Timekeeper 30 weeks £240 7200.00 People People
Storeman/checker 30 weeks £200 6000.00 People People
Typist/telephonist 30 weeks £150 4500.00 People People
Cost clerk 30 weeks £240 7200.00 People People
Quantity surveyor 30 weeks £450 13 500.00 People People
Fitter

Site staff expenses (1% of staff salaries) People People

Attendant labour
Chainman 30 weeks £190 5700.00 People People
Driver 30 weeks £220 6600.00 People People
Office cleaner (part-time) 30 weeks £80 2400.00 People People

General yard labour

(loading and offloading, clearing site, rubbish, etc.)
Ganger – 1 No. 30 weeks £220 6600.00 People People
Labourer – 2 No. 30 weeks £220 6600.00 People People

Plant Maintenance (Contractors’s own constructional plant)

Equipment in the ECC
Fitter 30 weeks £350 10 500.00 People (note People (note
Equipment 28) Equipment 28)
Fitters mate 30 weeks £300 9000.00 People (note People (note
Equipment 28) Equipment 28)
Total carried forward 5 £ 143 700.00

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 Appendix 4

Item description £ ECC

SCC SSCC
Total brought forward 143 700.00
Contractor’s Site on-costs – time-related
Site transport – staff
Agent’s car 30 weeks £100 3000.00 Equipment/People 13(n) Equipment/People 11
Engineer’s car 30 weeks £90 2700.00 Equipment/People 13(n) Equipment/People 11
4 × 4 utility car 30 weeks £150 4500.00 Equipment Equipment
(for general use on Site)

Site transport – labour

Bus – two trips per day 30 weeks £250 7500.00 Equipment Equipment

Contractor’s offices
Mobile office 30 weeks £120 3600.00 Equipment Equipment
(10 staff × 8 m2 = 80 m2)
Section offices (1 No. at 10 m2) 30 weeks £30 900.00 Equipment Equipment

Contractor’s site huts

Stores hot 30 m2 30 weeks £20 600.00 Equipment Equipment
2
Canteen 70 m 30 weeks £100 3000.00 Equipment Equipment
Washroom 30 m2 30 weeks £25 750.00 Equipment Equipment
Staff toilets 30 weeks £30 900.00 Equipment Equipment
Site toilets 30 weeks £30 900.00 Equipment Equipment

Rates Nil Equipment Equipment

General
General office expenditure 30 weeks £50 1500.00 Charges Charges
Telephone calls and rental 30 weeks £50 1500.00 Charges 51 Charges 51
Furniture rental 30 weeks £35 1050.00 Equipment Equipment
Canteen and welfare rental 30 weeks £40 1200.00 Equipment Equipment
Surveying equipment rental 30 weeks £30 900.00 Equipment Equipment
Testing equipment rental 30 weeks £25 750.00 Equipment Equipment
Lighting and heating offices 30 weeks £45 1350.00 Charges 51 Charges 51
Water supply 30 weeks £20 600.00 Charges 51 Charges 51
Small tools (1% of labour cost) say 5000.00 Equipment Equipment
Protective clothing say 2500.00 People People
(0.5% of labour cost)
Road lighting
Cleaning roads
Road sweeper 30 weeks £50 1500.00 Equipment Equipment
Labour 30 weeks £150 4500.00 People People
Progress photographs say 1000.00 Equipment Equipment
Total Contractor’s Site on-costs – time-related 5 £ 195 400.00

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Managing Change

Item description £ ECC

SCC SSCC
Contractor’s Site on-costs – non-time-related
(These costs are unlikely to be affected by compensation events)
Erect and dismantle offices
Mobile say 500.00 Equipment Equipment
Site offices say 500.00 Equipment Equipment
Toilets say 500.00 Equipment Equipment
Wiring, water, etc. say 500.00 Equipment Equipment
Erect and dismantle other buildings
Stores say 500.00 Equipment Equipment
Welfare say 500.00 Equipment Equipment
Toilets say 500.00 Equipment Equipment
Wiring, water, etc. say 500.00 Equipment Equipment
Telephone installation say 500.00 Charges 51 Charges 51
Furniture and office equipment
Purchase cost less residual value say 500.00 Equipment Equipment
Survey equipment and setting out
Purchase cost, pegs, paint, profiles, etc. say 700.00 Equipment 25 Equipment 25
Canteen and welfare equipment
Purchase cost less residual value say 1500.00 Equipment Equipment
Electrical installation
Water supply
Connection charges say 500.00 Charges 51 Charges 51
Site installation say 500.00 Charges Charges 51
Transport of plant and equipment say 500.00 Equipment Equipment
Stores compounds and huts say 500.00 Equipment Equipment
Sign boards and traffic signs say 500.00 Equipment Equipment
Insurances
Contractors ALL risk (1.5% on £500 000) 7500.00 fee % fee %
Allow for excesses 200.00 fee % fee %
General Site clearance say 1500.00 People/Equipment People/Equipment
Total Contractor’s Site on-costs – non-time-related 5 £ 20 700.00

104
 Appendix 4

Item description £ ECC

SCC SSCC

Client’s and Consultant’s requirements on Site –

time-related
(Details of the requirements will be defined in the Scope)
Attendant labour 30 weeks £100.00 3000.00 People People
2
Offices 40 m 30 weeks £100.00 3000.00 Equipment Equipment
Transport 2 4 × 4 utility cars 30 weeks £300.00 9000.00 Equipment Equipment
Telephone calls and rental 30 weeks £25.00 750.00 Charges 51 Charges 51
Furniture and Equipment 30 weeks £25.00 750.00 Equipment Equipment
Survey equipment 30 weeks £25.00 750.00 Equipment Equipment
2
Heating and lighting 40 m 30 weeks £30.00 900.00 Charges 51 Charges 51
Office consumables 30 weeks £20.00 600.00 Charges 53(h) Charges 53(h)
Office cleaning 30 weeks £20.00 600.00 People/Subcontractor People/Subcontractor
Total Client’s and Contractor’s requirements –
time-related 5 £ 19 350.00

Item description £ ECC

SCC SSCC

Client’s and Consultant’s requirements on Site – non-time-related

(Details of the requirements will be defined in the Scope)
Erection and dismantling of engineer’s offices say 500.00 Equipment 26 Equipment 26
Toilets say 250.00 Equipment Equipment
Telephone installation say 200.00 Charges 51 Charges 51
Electrical installation say 200.00 Charges 51 Charges 51
Furniture and Equipment
Purchase price less residual value say 2000.00 Equipment Equipment
Progress photographs say 250.00 Equipment 25 Equipment 25
Total Client’s and Consultant’s requirements – time-related 5 £ 3400.00

Item description £ ECC

SCC SSCC
Temporary works not included in unit rates
Temporary fencing
500 m chestnut fencing – materials 500 m £10 5000.00 Plant and Materials Plant and Materials
Plant say 1000.00 Equipment Equipment
Labour 200 man-hours £10 2000.00 People People
Traffic diversions say 2000.00 People/Plant and People/Plant and
Materials/Equipment Materials/Equipment
Footpath diversion say 500.00 People/Plant and People/Plant and
Materials/Equipment Materials/Equipment
Site access roads say 4000.00 People/Plant and People/Plant and
Materials/Equipment Materials/Equipment
Total temporary works not included in unit rates 5 £ 14 500.00

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Managing Change

Item description £ ECC

SCC SSCC
General purpose constructional plant (Equipment)
and plant not included in unit costs
Wheeled tractor
Hire 30 weeks £240 7200.00 Equipment (21 Equipment (published
externally hired or 22 schedule or list in
internally hired) Contract Data)
Driver 30 weeks £1250 37 500.00 People (28 unless People (26 unless
included in hire rates included in hire rates)
or depreciation and
maintenance charge)
Consumables 30 weeks £50 1500.00 Equipment 25 Equipment 25
Crane 20 m, 15 tonne
Hire 30 weeks £250 7500.00 Equipment Equipment
Driver 30 weeks £1250 37 500.00 People People
Consumables 30 weeks £50 1500.00 Equipment Equipment
Sawbench
Hire 30 weeks £30 900.00 Equipment Equipment
Consumables 30 weeks £10 300.00 Equipment Equipment
Compressor 21 m3 silenced
Hire 30 weeks £200 6000.00 Equipment Equipment
Consumables 30 weeks £20 600.00 Equipment Equipment
Pumps
Hire 30 weeks £50 1500.00 Equipment Equipment
Consumables 30 weeks £20 600.00 Equipment Equipment
Total general purpose constructional plant not
included in unit costs 5 £ 102 600.00

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Appendix 5
Interrelationship between the Contractor’s and
the Subcontractor’s share on target cost
contracts

A5.1. Introduction This appendix aims to clarify by way of an example the interrelationship between the Contrac-
tor’s and the Subcontractor’s share on target cost contracts.

Table A5.1 shows how the Contractor’s share is calculated.

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Managing Change

Table A5.1 Interrelationship between the Contractor’s and the Subcontractor’s share on target contracts (assuming that
the Price for Work Done to Date is less than the total of the Prices)

Main Contractor ECC Option C or D Target Cost Contract Subcontractor A ECC Subcontract Option C or D Target
Cost Contract

Contractor’s share 50/50 of the difference between the Subcontractor’s share 50/50 of the difference
total of the Prices (target) and the Price for Work Done between the total of the Prices (target) and the
to Date (Defined Cost) Price for Work Done to Date (Defined Cost)
Subcontractor’s share 50% of under- or overspend
Tendered total of the Prices (target cost) £220 000.00 Tendered total of the Prices £200 000.00
(target cost)

(£200 000.00 from Subcontractor plus

fee percentage of 10% = £220 000.00)
Price for Work Done to Date (Defined £192 500.00 Price for Work Done to Date (Defined £150 000.00
Cost) (including Fee) Cost) (including Fee)
(£175 000.00 from Subcontractor plus
Contractors’s fee percentage of
10% = £192 500)
Difference (saving) (A) £27 500.00 Difference (saving) (A) £50 000.00

Calculation for the Defined Cost Calculation for the Defined Cost
Price for Work Done to Date (Defined £192 500.00 Price for Work Done to Date (Defined £150 000.00
Cost) Cost)
Contractor’s share Subcontractor’s share
(Difference between total of the Prices (Difference between total of the Prices
and the Price for Work Done to Date) and the Price for Work Done to Date)
from (A) above from (A) above
£27 500.00 × 50% £13 750.00 £50 000 × 50% £25 000.00

Total paid to Contractor 5 £206 250.00 Total paid to Subcontractor 5 £175 000.00
(by Client to Contractor) (by Contractor to Subcontractor)

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Index

Abbreviations used:
CE, compensation event; SCC, Schedule of Cost Components; SSCC, Short Schedule of Cost Components.

acceleration, quotation for, 8, 23, 69 Clients

acceptance of quotations see quotations liability in conditions of contract, 11
Accepted Programme, 7, 13, 18, 23, 25, 26, 27 not allowing access to and use of each part of Site, 7
access (to Site), 69 not providing material/facilities/samples for tests and
Client not allowing access to and use of each part of inspection, 13
Site, 7 on-site requirements, 105
access date, 7 responsibilities, 9
activity schedule and Activity Schedule, 18, 24, 45, 46, 48, work to be done, 7
66, 67 risks, 92
build-up, 94 collaborative management, 4
in example quotation for CE, 71, 73, 87, 93–95 communications, not replying to, 7–8, 38
additional CEs, 6, 14–15, 17, 22, 32 compensation events (CEs), 3–42, 67, 68, 71–98
additional reimbursement, 9 additional, 6, 14–15, 17, 22, 32
Adjudicator and adjudication, 22, 26, 29, 33 believing an event is a CE, 21, 37
advanced payment to Contractor, 17 complicating factors, 18, 42
ammending contracts prior to execution, 31 correction to an assumption about, 3, 21
assessment (evaluation/valuation/administration) evaluation/valuation/assessment/administration, 5,
CEs, 5, 18–20, 26–28, 45–46, 46, 46–47, 68 18–20, 26–28, 45–46, 46–47, 48, 50, 56, 68
of changes, 45 programme in, 27–28
to prices, 18–19, 23, 45, 64, 65 rates and prices in, 97
quotations, 26–27, 68 financial effects see financial effects
assessment date, 63 frequently asked questions, 29–33
attendant labour, 102 grouping, 30–31
audits, 63–64 implementation, 28
list of events and where to find them, 6–14
Bill of Quantities (and bill of quantities), 15–16, 17, 24, 45, summary, 15
46, 48, 67, 97 meaning, 5–6
breach of contract, 13, 30 notification, 20–22
build up numerous small, 68–69
Activity Schedule, 94 procedure, 35–42
payroll, 88 background, 4–5
preliminaries, 70, 101–106 flow charts, 18, 38–41
Rate, 100 quotation see quotation
building information management, 17 removing, 31–32
revisiting, 19
charges as cost component roles of Project Manager and Contractor relating to, 18
in example quotation for CE, 82, 101 SSC/SSCC and, 45–46, 46–47, 48, 50, 56, 63, 65, 67, 68–69
SCC, 54, 82 Completion, 13
in final calculation for presentation for amount due delays, 17, 25
for payment, 62 in example quotation for CE, 75–87
SSCC, 59, 96 unpreventable events not stopping completion of whole
in final calculation for presentation for amount due of works, 13–14
for payment, 62 Completion Date (and changes to it), 18, 22
claims, 29 changes, 18

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Managing Change

Completion Date (and changes to it) (continued ) see also time issues and timescales
delays, 23, 25, 33 decisions, changed, 8, 20, 28, 36
conditions of contract, Clients liability in, 11 Defect(s)
constructing as cost component, SCC, 53 CEs and, 8
Consultant’s requirements on Site, 105 corrected, 64, 69
consumables uncorrected, 69
SCC, 53, 62 defect correction period, 69
SSCC, 58, 59 defects date, 8, 29
contra proferentem rule, 9 Defined Cost, 16, 17, 18, 19, 24, 25, 28, 30, 48–49, 68
contract(s), amending prior to execution, 31 definition, 48–49
contract(s) occasions when not used, 68
breach of, 13, 30 SCC and/or SSCC, 44, 45, 48–49, 50, 52, 54, 55, 56, 58,
cost-based contract see cost-based contracts 59, 63, 65, 68–69, 101
cost-reimbursable-type, 31, 55 in example quotation for CE, 71, 74, 75–85, 86, 87,
lump sum contract see lump sum 89, 93, 94, 95, 96
management contract, 48 subcontractor’s work, 86
payment during, 45, 46, 46–47 target cost contracts, 108
payment for Equipment purchased for work included in, delays, 17
52, 60, 73, 90 to Completion see Completion; Completion Date
payroll (payments to people), 88, 100 to Key Dates, 25
priced-based contract, 45–46, 48 tests and inspections causing unnecessary delay, 8
target cost contract, 5, 46, 107–108 design
Contract Data, 2 as cost component
CEs and, 5, 7, 8, 10, 11, 13, 14, 15, 22, 25 in example quotation for CE, 84
SCC and/or SSCC, 44, 48, 49, 50, 51, 53, 54, 55, 56, 57, SCC, 55, 84
58, 59, 61, 63, 64, 65, 68–69, 90, 93, 95 SSCC, 59, 96
Equipment not listed in, 52, 58, 60, 65, 79 limitation of Contractor’s liability for, 17
example, 73–74 risk relating to, 91
payments for Equipment, 52, 53, 60, 61, 65, 73, 79, 80 direct cost, 54, 59
Contract Date, 9, 13, 15, 16, 17, 74, 95 Disallowed Cost, 25, 49, 54, 59, 70, 74
Contractors dismantling as cost component
actions required with CEs, 38–39 SCC, 53, 104
assessment of CE by, 26 SSCC, 58, 104
limitation of liability (for their design), 17 drawings, Site Information, 108
management Contractor, 48 duties see roles and responsibilities
notification of CEs by, 21–22, 37, 38
offices, 103 early warnings, 9, 23, 24, 30
payments to see payments Early Warning Register, 93, 95
people directly employed by, 51, 54, 60, 65, 77 eight weeks since becoming aware of a CE, 4, 21–22,
risk see risk 29
roles (relating to CEs), 18 employees see people
share, target cost contracts, 107–108 Engineering and Construction Contract (basic references),
cost, 43–70 1–2
components see Schedule of Cost Components; Equipment
Short Schedule of Cost Components as cost component, 51–53, 60–61, 78–80
Defined see Defined Cost in example quotation for CE, 78–79
direct, 54, 59 SCC, 51–53, 60–61, 65, 78–80, 102
Disallowed, 25, 49, 54, 59, 70, 74 SSCC, 57–58, 61, 65, 102
unit, plant not included in, 105 risk relating to, 91
cost-based contracts, 46–47, 48 erection as cost component
cost-reimbursable-type contracts, 31, 55 SCC, 53, 104
target cost contracts, 5, 46, 107–108 SSCC, 58, 104
evaluation see assessment
dates execution, amending contracts prior to, 31
Contract Date, 9, 13, 15, 16, 17, 74, 95 expenses, site staff, 102
defects date, 8, 29
Key Dates see Key Dates fabrication see manufacture and fabrication
Price for Work Done to Date, 17, 25, 45, 46, 47, 48, 64, facilities, Materials, Client not providing them for
108 inspection and tests, 13

110
 Index

Fee, 18, 25, 49, 65 CEs, 15–17

definition, 25, 49 in rates and lump sum example quotation, 97
fee percentage, 18, 25, 49, 50, 51, 56, 66, 70, 74 management Contractor, 48
direct, 56, 67, 74 manufacture and fabrication costs, 83, 86, 91, 94
subcontract, 96, 108 in example quotation for CE, 83
financial effects of CEs (CEs), 48 in final calculation for presentation for amount due for
evaluation/assessment, 45–46, 48, 50, 56 payment, 63
forecast of CEs, 5, 19 in SCC, 53, 54–55, 63, 65, 83
five-point test, 21, 22, 23 in SSCC, 58, 59, 63, 65, 96
force majeure, 14 materials
forecasts Client not providing materials for inspection and tests,
of financial effects of CEs, 5, 19 13
of work not yet done, 24–25 payments for use in construction or fabrication of
Equipment, 53
general yard labour, 102 see also Plant and Materials
Met Office, 10, 11, 32
hire of Equipment, 52 modifying Equipment as cost component
historical object of interest, 8, 20 SCC, 53
hourly labour rates, 89 SSCC, 58
traditional calculation, 88 multiple projects on same site, 64
Housing Grants, Construction and Regeneration Act
(1996), 17 NEC see New Engineering Contracts
huts, 103 New Engineering Contracts (NECs – family), 1
NEC4, 2
Information Execution Plan, 17 compared with NEC3, 101
inspection, 69 notification of CEs, 20–22
Client not providing material/facilities/samples for, 13 by Contractor, 21–22, 37, 38–39, 41
delay due to, 8 by Project Manager see Project Manager
instructions (for submitting quotations with CEs), 20–22, flow charts, 38–41
23, 26, 28, 36
insurance as cost component offices, Contractor’s, 103
SCC, 55, 65, 84 omissions of work, 67–68
in example quotation for CE, 84 on-costs, Site, 101–104
SSCC, 60, 65, 96 on-Site requirements of Client’s and Consultant’s, 105
operatives as cost component
Key Dates, 25 SCC, 53
CEs and, 5, 7, 17, 18, 21, 22, 23, 25 SSCC, 58
in example quotation, 75–87 Options
delay to, 25 main see main Options
Option A, 24, 30, 44, 45, 45–46, 47, 48, 49, 50, 55, 56,
labour 64, 66, 74, 85
attendant, 102 Option B, 5, 18, 24, 30, 44, 45, 46, 47, 48, 49, 56, 64, 66,
costs see people 74, 95, 97
general yard, 102 Option C, 30, 46–47, 48, 49, 60, 63–64, 71, 73, 86, 108
hourly rates see hourly labour rates Option D, 44, 45, 46–47, 48, 49–50, 63–64, 71, 74, 95,
law (legal matters) 108
changes in, 17, 92 Option E, 44, 45, 46–47, 48, 49–50, 63–64, 71, 74, 95
Contractor notifying CE more than 8 weeks after Option F, 24, 48
becoming aware of it, 29 Option X2, 17, 92
force majeure, 13 Option X10, 17
legal matters see law Option X12, 17
liability Option X14, 17, 47
Clients, in conditions of contract, 11 Option X15, 17
Contractor’s, limitation (for their design), 17 Option Y(UK)2, 17
lump sums, 31, 45, 46, 48, 86, 97 Option Z, 7, 9, 10, 19
‘min-lump sum’, 19 secondary, 17, 22, 32
Others/other people, 7, 22
main Options, 15–17, 44, 45, 47, 48, 49, 51, 56, 64, 66, 74, defects corrected by, 68
95 work to be done by, 7

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payments, 59 notification by PM, 20–21, 36

to Contractor, 45 roles (relating to CEs), 18
advanced, 54 published list
amount due, 17, 46, 47, 60–63, 64 Equipment in, 57, 58, 61, 65, 74, 95
for Equipment in SCC, 52–53 Equipment not in, 58, 61
final calculation for presentation, 60–63
final calculation and presentation, 60–63 quality, risks relating to, 91
for materials used in construction or fabrication of quotations for acceleration, 8, 23, 69
Equipment, 53 quotations for CEs, 23–27, 36, 37, 71–98
to people (Contractor’s payroll), 88, 100 acceptance, 26, 28, 36
to Subcontractor, 54, 65, 70, 82, 101 not accepted, 14, 20, 21, 68
people/personnel/employees/staff assessment, 26–27
costs (labour costs), 60, 69, 75, 77, 87–89, 95, 101, 102, examples, 71–98
103 SCC, 71–95
in example quotations for CEs, 75–77, 95, 99–100 SSCC, 95–96
in SCC, 51, 60, 75–77, 87–89, 102 failure to submit, 23, 26, 42
in SSCC, 56, 57, 60, 95, 102 format, 33
in supporting notes, 87–89 manual, 69, 89
directly employed by Contractor, 51, 54, 60, 65, 77 what to include, 23–24
expenses, 102
People Rates, 57, 64, 69, 74, 89 rainfall, 11, 12
risk relating to, 91 rates/Rates, 97, 103
see also Others build up, 100
performance, suspension, 17 People, 57, 64, 69, 74, 89
personnel see people unit, temporary works not included in, 105
physical conditions, 4, 8–9, 28, 31 reimbursement, 44, 46, 47, 48, 49, 50, 56
plant additional, 9
Contractors’s constructional plant, 102 cost-reimbursable-type contracts, 31, 55
general purpose constructional plant, 102, 106 direct, 50, 56
not included in unit costs, 106 indirect, 56
Plant and Materials, 53–54, 58–59, 81, 91 replying to communications, not, 7–8, 38
Client not providing materials for inspection and tests, 13 responsibilities see roles and responsibilities
as cost component, 61, 81, 85, 86, 94 risks, 90–93
in final calculation and presentation for amount due Client’s, 92
for payment, 61 Contractor’s, 90–93
SCC, 53–54, 63, 65, 83, 105 allocation/reallocation, 10, 31, 32, 93
SSCC, 58–59, 65, 96, 105 allowances, 90–93
risk relating to, 91 examples, 93, 96
preliminaries build-up, 70, 101–106 transferability, 31
Price(s) roles and responsibilities (incl. duties) relating to CEs
changes to, 18–19, 23, 24–25 Clients see Clients
assessment, 18–19, 23, 45, 66, 67 Contractors, 18
reduction of, 28 Project Managers, 18
Price for Work Done to Date, 17, 25, 45, 46, 47, 48, 64,
108 safety requirements/matters, 7
price(d)-based contracts, 5, 45–46, 48 special, 92
see also lump sum salaries and wages, 88, 100, 102
programme samples, 81
Accepted Programme, 7, 13, 18, 23, 25, 26, 27 Client not providing them for inspection and tests, 13
in assessment in CEs, 27–28 Schedule of Cost Components (SCC), 43–70
Project Manager (PM), 36 components of cost, 49–55
acceptance of CE by see quotations example quotation for CE based on, 71–95
assessment of CE by, 26–28, 68 final calculation and presentation for amount due for
instructions to submit quotation by, 20–22, 23, 26, 28, payment, 60–63
36 practical issues, 64–70
notification of CEs and, 20–21, 36 short form see Short Schedule of Cost Components
failure of PM concerning notification of CE, 22, 30, summary of use, 48, 85, 87
33 traditional preliminaries build-up compared with/related
flow chart, 38–39 to, 101–108

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understanding the role, 44 site on-costs, 102–103

when to use, 45–46 stated in CE procedures, 19
Scope, 2 submitting quotations, 23
CEs in, 6–7 time required for item of Equipment, 58
Short Schedule of Cost Components (SSCC), 43–70, weather measurements, 10
101–108 see also dates
components of cost, 56–60 traditional contracts, 4, 10
example quotation for CE based on, 95–96 labour cost calculations, 100
final calculation and presentation for amount due for preliminaries build-up, 101–106
payment, 60–63 transport as cost component
practical issues, 64–70 SCC, 53, 103
traditional preliminaries build-up compared with/related SSCC, 58, 103
to, 101–108
use, 64 unit costs, plant not included in, 105
summary, 48 unit rates, temporary works not included in, 105
when to use, 45–46
Site (and site) valuation see assessment
access see access
Client’s requirements on, 105 wages and salaries, 88, 100, 102
Consultant’s requirements on, 105 weather, 10–11, 32
multiple projects on same site, 64 occurs on average less frequently than once in 10 years,
object of value or historical or other interest, 8, 20 10, 11, 12
on-costs, 101–104 weather data, 10, 11, 12
Site Information, 2, 9 weather measurement, 10, 11, 32
drawings, 108 work (and works)
staff see people already done, 18, 19, 24, 68, 87, 95
Subcontractors completion of see Completion
as cost component, 101 design outside, 55, 63, 73
in example quotation for CE, 82, 86 difference between final total quantity of work done and
in final calculation for presentation for amount due the quantity stated for an item in Bill of Quantities,
for payment, 61 15–17
quotation for CE from Subcontractor, 86 efficient and effective management of, 4–5
SCC, 54 not yet done, 18, 24–25, 93
SSCC, 59 omissions, 67–68
fee percentage, 96, 108 payment for Equipment purchased for (included in
payments to, 54, 61, 65, 70, 82, 101 contract), 52, 60, 73, 90
risks see risks Price for Work Done to Date, 17, 25, 45, 46, 47, 48, 64,
share, target cost contracts, 107–109 108
supporting notes in example quotation for CE, 87–95 section affected in example quotation for CE, 75–87
take over of part of, 13, 21
take over of part of works, 13, 21 temporary, not included in unit rates, 105
target cost contracts, 5, 46, 107–108 to be done by Client and Others, 7
temporary works not included in unit rate, 106 Working Areas, 50, 101
tests, 8, 69 manufacture and fabrication outside, 54, 55, 56, 59, 63,
Client not providing material/facilities/samples for, 13 65, 73
time issues and timescales in SCC, 50, 51, 53, 54, 55, 61, 62, 63, 65, 73, 101
Client’s and Consultant’s requirement on Site, 102 in SSCC, 56, 57, 58, 59, 65, 73, 101
eight weeks since becoming aware of, 4, 21–22, 29 workmanship, risks relating to, 91

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