An NEC Option C compensation event changes the target, not what the Contractor is paid along the way. The Contractor is paid Defined Cost plus Fee for the work, less Disallowed Cost, whichever way the event goes. The assessment changes the Activity Schedule, which is the total of the Prices, and that feeds the share calculation at the end.
That means the value of a compensation event often has a smaller and later effect than the same event under Option A. The overall rules are in the compensation events guide, and the general workings of the share are in target cost and share.
What moves and what doesn't
| Item | Effect of an implemented compensation event |
|---|---|
| Total of the Prices (the target) | Rises or falls by the assessment (NEC3 C63.12: as changes to the Activity Schedule) |
| Month-by-month payment | No direct change. Still follows cost plus Fee |
| Completion Date and Key Dates | Move as for any other Option |
| Contractor's share | Changes at the end, as the gap between target and final cost is different |
A worked calculation
A fictional Option C contract with illustrative figures. The original target is £4,000,000, and the share range says the Contractor takes 50% of any difference up to 10% either way, which keeps this example simple. Real share ranges have several bands in the Contract Data.
| No events assessed | Event assessed at £200,000 | |
|---|---|---|
| Target (total of the Prices) | £4,000,000 | £4,200,000 |
| Final Price for Work Done to Date | £4,300,000 | £4,300,000 |
| Excess over target | £300,000 | £100,000 |
| Contractor pays 50% | £150,000 | £50,000 |
In this example, the event's £200,000 assessment is worth £100,000 to the Contractor, and the Client's outturn is £100,000 higher. So what matters isn't the headline value alone, but its effect through the share.
Why the forecast still matters
People sometimes treat target adjustments as paper exercises, because payment follows cost anyway. It's a mistake, for two reasons:
- A forecast sticks. Once implemented, the target doesn't move if the actual cost of the event differs (66.3; NEC3 65.2). So under-forecasting pushes the Contractor towards a pain share, and over-forecasting gives it a gain share. The Project Manager needs to scrutinise these figures as carefully as it would under a priced contract.
- Actual cost is visible. Unlike Option A, both sides can see cost as it comes in. That makes it tempting to assess the event after the work is done and adopt its actual cost as the change. The rules still call for a forecast of work not yet done at the dividing date, so a quotation prepared late needs to keep to that basis.
For the Client, slow implementation has a further cost. If a pile of unassessed events builds up, nobody knows the real target, and the share forecast can't be trusted. That's a common complaint on target cost jobs, and also the reason it pays to keep them moving. Each forecast of total Defined Cost (NEC3 20.4) should be read together with the target that's current at the time.
Contractor's proposals and reductions
Under NEC3 ECC Option C, the Prices go down for a Works Information change that saves money, but not if the Contractor proposed changing the Employer's Works Information and the Project Manager accepted (C63.11). The Prices aren't reduced in that case, so the saving goes through the share and both sides gain. The NEC4 subcontract has the same approach for Option C. Check the clause in your own NEC4 ECC, and see pain and gain share.
The Shorter Schedule of Cost Components can be used by agreement to assess events under NEC3 Option C (C63.15), with the Project Manager also free to use it. In NEC4, agreed rates or lump sums are in clause 63.2.
Common mistakes
- Confusing target value with payment. A quotation doesn't get added to the next certificate as extra money.
- Carrying the wrong clause number for the share: it moved from C53 in NEC3 to clause 54 in NEC4.
- Mixing Disallowed Cost with the event's assessment. Disallowed Cost is deducted from what's paid, while the assessment sets the target. See Disallowed Cost.
- Leaving the Activity Schedule untouched. Target changes should appear on it.
- Treating the event as worthless because "the Client pays cost anyway". The Completion Date still moves, and so does the share.
Related guides
- NEC Compensation Events: The Complete Guide
- Compensation Events Under Option E
- Can a Compensation Event Be Notified Without an Early Warning?
- Compensation Event vs Relief Event
- Implementing a Compensation Event
- Compensation Events Under Option A
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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.