Compensation Events Under Options B and D

Options B and D add their own compensation events to the core list. For an NEC Option B compensation event, the question is usually whether a change in quantity, or a mistake in the Bill of Quantities, moves beyond simple remeasurement. Clauses 60.4 to 60.7 set out when it does.

Most quantity differences are not events. A remeasured contract pays for what is actually done, at the rate in the Bill of Quantities. The events apply when a change in quantity changes the economics or delays the job, or where the bill itself is wrong. The clause numbers are the same in NEC3 and NEC4 ECC. See the guides to Option B and Option D for the wider picture.

The four clauses

Clause	What it covers	Key condition
60.4	A final quantity differs from the bill and the Defined Cost per unit changes	Three tests, including a 0.5% threshold. See below
60.5	A quantity difference delays Completion or a Key Date's Condition	No threshold and no need for a change in unit cost
60.6	A mistake in the bill is corrected	The mistake departs from the method of measurement rules, or it's due to ambiguity or inconsistency
60.7	An assessment rule rather than an event	On correcting an inconsistency with another document, the Contractor is taken to have treated the bill as correct

Clause 60.4: the three tests

1. The difference doesn't come from a change to the Scope (Works Information in NEC3). If it does, it's a 60.1(1) event.
2. It makes the unit Defined Cost go up or down.
3. The bill rate multiplied by the final total quantity is over 0.5% of the Prices as they stood in total on the Contract Date.

The third test uses the final total quantity, not the difference, which many people get wrong. And it can work in either direction: if the unit cost falls, the affected rate is reduced.

Worked figures

A fictional road improvement on Option B, with illustrative figures. On the Contract Date, the Prices total £4,200,000, so the threshold is £21,000.

Item	Bill qty	Final qty	Rate	Rate x final qty	Over threshold?
Excavate to tip	1,000m³	2,400m³	£30	£72,000	Yes
Kerb type B	400m	900m	£20	£18,000	No
Drainage gully	30 nr	12 nr	£2,000	£24,000	Yes

Excavation. A larger volume allows a bigger plant, cutting Defined Cost by £4 per m³. Tests one to three are met, so this is an event and the rate is reduced. With an illustrative 10% Fee, the rate drops by £4.40 to £25.60. That's a saving to the Client.

Kerb. The quantity more than doubled, but it fails the threshold, so the bill rate simply applies to the 900m. The Contractor isn't able to reopen the rate, even if the unit cost changed.

Gully. The quantity fell. Fixed costs like setting up the gang are spread over fewer gullies, so Defined Cost per gully rises by £300. It's above the threshold, so the Contractor can notify, and a higher rate is assessed.

Clause 60.5: when quantities cause delay

This event has no threshold. If the kerb quantity above had pushed planned Completion back by four days, the Contractor could notify under 60.5 for that delay, regardless of the 0.5% test and whether the unit cost changed. So a bigger quantity at the same rate may still bring time and related cost. It needs a link to the programme, so see how delay is assessed.

Clauses 60.6 and 60.7: mistakes in the bill

A mistake is corrected by the Project Manager, and each correction is a compensation event, which may reduce the Prices. Only two kinds of mistake qualify: departures from the method of measurement's rules on item descriptions or division into items, and those due to ambiguity or inconsistency. An error in the Contractor's own pricing isn't one of them, and neither is a poor estimate of a quantity, as that's left to remeasurement.

For example, a bill measures 150mm sub-base, and the drawings show 200mm. Under 60.7, the Contractor is taken to have priced what the bill says, so correcting the inconsistency brings an increase for the extra 50mm. If the bill says 200mm and the drawings show 150mm, the correction may lead to a reduction.

How the changes are assessed

Under Options B and D, changed Prices are expressed as changes to the bill (63.15 in NEC4, 63.13 in NEC3):

• Work not yet done with a bill item: a changed rate, quantity or lump sum.
• Work not yet done with no bill item: a new priced item, compiled using the method of measurement unless agreed otherwise.
• Work already done: a new lump sum item.

The figures still derive from Defined Cost and the Fee, following the usual assessment, rather than from the bill rates directly, although the two sides can agree otherwise. Under Option D, the changes also move the target, and so affect the share calculation. Under NEC4, a Contractor's accepted proposal to change the Scope is treated differently in each: 63.12 for Option B (the value engineering percentage) and 63.13 for Option D.

What people get wrong

• Treating remeasurement as a compensation event. A higher quantity at the bill rate needs no event, because it's already paid.
• Using the difference for the 0.5% test. Use the final total quantity times the rate.
• Taking the threshold from today's Prices. It's fixed by the Prices as they stood on the Contract Date.
• Missing the time bar. Quantities may be known only near the end, and 61.3 runs from when you become aware. Track items running over early and notify as soon as an event is clear.
• Project Managers overlooking reductions. 60.4 and 60.6 can both bring the Prices down, but only if somebody raises them.
• Mixing up the method of measurement. The Contract Data names it. Check descriptions against that one, not whichever you're used to.

Related guides

• NEC Compensation Events: The Complete Guide
• Compensation Event: Quotation for a Proposed Instruction Not Accepted
• Compensation Event: Additional Events in the Contract Data

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.