Clause 60.1(17) makes it a compensation event when the Project Manager corrects an assumption it stated about an earlier compensation event. It's the safety valve in the compensation event process: where an effect can't reasonably be forecast, the Project Manager states an assumption, the event is priced on that basis, and a correction fixes things if it proves wrong.
The assumption itself comes from clause 61.6, and is stated in the instruction to quote. The entry and clause numbers are the same in NEC3 and NEC4 ECC.
How it works
- An event arises whose effects are too uncertain to forecast reasonably.
- The Project Manager states an assumption in the instruction to submit quotations.
- The Contractor quotes on that assumption, and the event is implemented.
- Later, the assumption turns out to be wrong.
- The Project Manager corrects it by notification. That notification is a new compensation event, and it covers only the difference.
Because the correction is a notification, the Project Manager gives it and clause 61.1 applies at the same moment. If the Project Manager doesn't correct a wrong assumption, the Contractor should raise it and can notify under clause 61.3. Remember that compensation events can't be notified after the Defects Certificate has been issued (61.7).
An assumption, not a forecast
This is the key distinction. Once implemented, an assessment isn't revised just because its forecast turned out wrong (66.3 in NEC4, 65.2 in NEC3). The Contractor carries the risk of a poor forecast, and benefits from a good one.
| Forecast | Stated assumption | |
|---|---|---|
| Who makes it | The Contractor, in its quotation (or the Project Manager in its own assessment) | The Project Manager, in the instruction to quote |
| Who carries the risk if it's wrong | Whoever the assessment left it with | The Client: it's corrected in either direction |
| What happens if it's wrong | Nothing. The assessment stands | A new event under 60.1(17) |
What makes a useful assumption
An assumption has to be something you can later show to be right or wrong. "The contamination is limited" can't be tested; "there are 300m³ of hazardous material in zone B" can. Good assumptions are measurable, tied to one uncertainty and recorded in the instruction. A list of them can sit alongside other details in a compensation event register, so someone is responsible for checking them.
How it is usually evidenced
- The instruction containing the assumption.
- The quotation and how it relied on it.
- Records showing the true position: survey, measured quantities, a restart date or a third party's reply.
Worked example, in both directions
A fictional brownfield housing site on Option C, with illustrative figures and a 10% Fee. The Contractor finds contamination, and an earlier event is accepted. The extent isn't known, so the Project Manager states an assumption: 300m³ of material in zone B needs specialist disposal. The Contractor's quotation prices that at £95/m³, and the event is implemented.
| Actual volume | Difference | Defined Cost | With Fee | Effect on the Prices |
|---|---|---|---|---|
| 520m³ | +220m³ | +£20,900 | +£22,990 | Increase of £22,990 |
| 180m³ | -120m³ | -£11,400 | -£12,540 | Reduction of £12,540 |
The second row is the one people forget. In NEC4 ECC, the general rule is that a fall in Defined Cost doesn't reduce the Prices (63.3), but correcting an assumption is one of the exceptions (63.4). So the correction can work against the Contractor. NEC3 reaches a similar result through the main Option clauses, for example 63.10 in Option B.
Time can work the same way: if the assumption drove a change to the Completion Date, the correction has its own assessment of time. Whether a date can be brought back is a question to look at carefully; check your own contract and the rules on assessing delay.
How it is assessed
The dividing date is the day of the correction (63.1). Costs for work done by then are actual, and the rest is forecast. Only the effect of the change between the assumption and the truth is assessed, not the original event again. The usual quotation process applies from there.
What people get wrong
- Treating forecast errors as wrong assumptions. If nobody stated an assumption, you can't correct one. Contractors who assumed a number in their own quotation carry that risk, so if you want it treated as an assumption, ask the Project Manager to state it.
- Overusing assumptions. The contract reserves them for effects too uncertain to forecast reasonably. Using them for ordinary risks pushes that risk back to the Client and removes the point of risk allowances.
- Vague wording. If the assumption doesn't state a measurable fact, it will be hard to tell if it was wrong.
- Forgetting them. Assumptions can sit undisturbed for months. Review open ones each month, or you'll run out of time before the Defects Certificate.
- Reopening the whole event. A correction isn't a chance to reprice everything in the original quotation.
Examples of how assumptions arise are in the guides to stop instructions and physical conditions.
Related guides
- NEC Compensation Events: The Complete Guide
- Compensation Event: Client Breach of Contract
- Compensation Event: Prevention
- Compensation Event: Quotation for a Proposed Instruction Not Accepted
- Compensation Event: Client Taking Over Early
- Compensation Event: Materials or Facilities for Tests
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