NEC Compensation Events: The Complete Guide

A compensation event is an event listed in an NEC contract that entitles the Contractor to have the Prices and, where the event causes delay, the Completion Date and Key Dates reassessed. It is NEC's single route for dealing with change, late information, Client failures and certain unforeseeable risks, and it applies in both directions: the Project Manager notifies some events and the Contractor notifies the rest.

This guide covers the NEC4 Engineering and Construction Contract (ECC) and flags where NEC3 ECC differs. Other NEC forms use the same broad idea with their own periods and lists, and Z clauses can change any of it, so check your own contract before relying on a number here. For the place of compensation events in the wider contract, start at the NEC contracts hub.

What makes something a compensation event

Three things have to line up. The event appears on the contract's list, it is not the Contractor's fault, and it affects Defined Cost, Completion or a Key Date. If you are new to the idea, read what a compensation event is first, because it replaces several separate concepts you may know from other contracts: variations, extensions of time and loss and expense are all handled through this one mechanism.

NEC4 ECC lists 21 core events at clause 60.1. NEC3 ECC lists 19. Further events sit in the main and secondary Options. The two lists are set out in full in the NEC4 ECC compensation events table and the NEC3 ECC table with the differences marked. In broad groups they look like this:

Group	Events under 60.1
Instructions and changed decisions	(1), (4), (7), (8), (17)
Late or missing input from the Client or Others	(2), (3), (5), (16)
Replies and acceptances	(6), (9)
Tests and searches	(10), (11)
Ground and weather	(12), (13)
Early take over	(15)
Client liabilities, breach and prevention	(14), (18), (19)
NEC4 only: rejected proposed instruction, extra listed events	(20), (21)

Abstract lists are hard to apply on site, so the worked compensation event examples take typical situations and follow each one through to a result.

The process at a glance

The sequence runs: notify, decide, quote, reply, implement. Our step-by-step process guide goes through it in order, and the flow chart explained in words follows each decision point and where it leads. The standard periods in NEC4 ECC and NEC3 ECC are the same, unless your contract amends them:

Step	Who	Period	Clause
Notify an event arising from an instruction, certificate or changed decision	Project Manager	At the time of that communication	61.1
Notify any other event	Contractor	Within 8 weeks of becoming aware	61.3
Decide whether it is a compensation event	Project Manager	1 week, or longer if the Contractor agrees	61.4
Submit quotation	Contractor	3 weeks from the instruction	62.3
Reply to quotation	Project Manager	2 weeks from submission	62.3
Submit revised quotation, if instructed	Contractor	3 weeks from the instruction	62.4
Own assessment, if needed	Project Manager	The quotation period, from when the need became apparent	64.3

Notifying: who does it and when

Getting notification right matters more than anything else in this process, because it is the stage at which rights can be lost. Our guide on how to notify a compensation event covers who sends what, and what a good notice contains.

Three clauses deserve their own attention:

Clause 61.1 covers events the Project Manager or Supervisor brings about, such as an instruction changing the Scope. The Project Manager notifies these at the same moment.
Clause 61.3 is the eight-week time bar on the Contractor. Miss it and, for most events, the Prices and dates stay as they are.
Clause 61.4 is the Project Manager's decision on a Contractor's notification, including the tests it applies and what happens if it says nothing.

Early warnings run alongside all of this, but they are a separate duty. A compensation event can be notified without an early warning; it does not have to be preceded by one. The cost of not warning comes through clause 61.5, where the Project Manager can state that a warning could have been given, and the event is then assessed as though it had been. The wider duty is covered in the early warnings guide.

Quotations and replies

A quotation sets out the proposed change to the Prices, any delay to the Completion Date or a Key Date, the details behind both and any changes needed to the Accepted Programme. The guide to quotations for compensation events explains what to include, and when alternative quotations come into it.

The clock is set by clause 62.3, which fixes the times to submit and reply. The times can be extended, but only by agreement before they run out. From there the Project Manager has three possible responses.

Accept. The event is implemented.
Ask again. A revised quotation can be instructed once the reasons have been explained.
Assess. The Project Manager says it will make its own assessment. See when the Project Manager assesses a compensation event for the four triggers under clause 64.

If there is no reply at all, the Contractor has a remedy. It can notify the failure, and if a further two weeks pass in silence the quotation counts as accepted. The guide on treated acceptance after a failure to reply explains how this works across 61.4, 62.6 and 64.4. It catches out Project Managers who assume that not answering keeps their options open.

How the money and time are worked out

NEC prices a compensation event by its effect on cost, not by tender rates. The change to the Prices comes from what the work up to the dividing date actually cost (Defined Cost), a forecast of Defined Cost for the remaining work, and the Fee on both. Assessing a compensation event under clause 63 sets out the rules, including risk allowances and when the Prices can go down.

Time is assessed separately, using the programme. Delay is measured by how much later the event makes planned Completion, compared with the Accepted Programme in force at the dividing date. The guide on assessing delay to Completion explains why that measure protects the Contractor's terminal float, and why it makes an out-of-date Accepted Programme such a problem. See also what the Accepted Programme is.

Once the quotation is accepted, the assessment notified or the quotation treated as accepted, the event is implemented. Implementing a compensation event explains what then changes and why the result is normally final, even if the forecast turns out wrong.

How the main Option changes things

The process above is the same under every main Option. What differs is what the change to the Prices means for the people paying and being paid.

Option	A change to the Prices means	Guide
A	A different lump sum: the Activity Schedule changes, and that is what the Contractor gets paid	Compensation events under Option A
C	A different target: payment still follows cost, but the share calculation moves	Compensation events under Option C
E	A different forecast: the Contractor is paid its cost anyway, but time and budget still matter	Compensation events under Option E

Options B and D add their own events for differences between billed and final quantities, and for corrected mistakes in the Bill of Quantities (60.4 to 60.6). More on choosing between them is in the main Options guide.

Keeping track of them

A live contract can have many events running at once, each with its own clock, so a tracker is close to essential. Keeping a compensation event register sets out the fields worth holding and the statuses to use, and how to report on the result. The contract doesn't call for one, but disputes over time bars and treated acceptance usually turn on the dates a register holds.

Comparing it with other contracts

People arriving from other forms often look for a concept NEC doesn't have. Relief from delay damages without any money, for example, is common elsewhere but isn't a standard NEC category. The page on compensation events and relief events explains the difference and how such a risk is usually handled under NEC. If your background is in JCT, the JCT and NEC comparison gives a broader map.

Where people go wrong

Treating an early warning as the notification. The eight weeks keep running until a separate compensation event notice goes in.
Waiting until the cost is known. Notification doesn't need a price. The quotation comes later, and the forecast rules are designed for uncertainty.
Quoting on actual cost after the event. Quotations are expected to be prompt and to rely on forecasts for work not yet done. Holding back until the work is finished defeats that design.
Assuming float is shared. Delay is measured at planned Completion, so an event absorbed by float within the programme may give no time at all, and that is the intended result.
Project Managers leaving replies unanswered. A missed reply can be a compensation event in its own right under 60.1(6), and it can lead to treated acceptance.
Letting the Accepted Programme go stale. With no acceptable programme, the Project Manager assesses the event using its own view of the remaining work (64.2).

The main differences between NEC3 and NEC4

Topic	NEC3 ECC	NEC4 ECC
Core events	60.1(1) to (19)	60.1(1) to (21)
Instruction to quote with the Project Manager's notice	61.1	61.2
Proposed instructions	61.2 and 62.3	Clause 65
Delay assessment	63.3, against the Accepted Programme	63.5, against the Accepted Programme in force at the dividing date
Early warning effect on assessment	63.5	63.7
Implementing	Clause 65	Clause 66

Quoting the wrong edition's clause number in a notice is an easy way to start an argument, so check which edition you are on before reusing a template from another job.

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This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.