BEZZANT

CONSTRUCTION CONTRACTS SPECIALISTS

Seminar Notes

Introduction to the
NEC 3 Engineering and Construction
Contract

BEZZANT LIMITED

Telephone: 01489 578877

Email: [email protected]

Website: www.bezzant.co.uk
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Basis and content of these Seminar Notes

Basis/terminology

These Seminar Notes are based on the NEC3 Engineering and Construction Contract (April
2013 Edition) (referred to in these Seminar Notes as ‘ECC’ or ‘ECC3’).

The main changes from the 2005 Edition (as amended 2006 and 2011) in the April 2013
Edition are as follows:
• new secondary option Y(UK)1 (Project Bank Account);
• clauses 61.1 and 61.3 as to notification of events as compensation events and the
application of the ‘time-bar’ in clause 61.3;
• clause 63.1 as to the dividing line between the first and second bullets in clause
63.1 (i.e. the division between work already done and work not yet done for the
purpose of the application of actual Defined Cost and forecast Defined Cost
respectively; and
• clauses 63.13 and 63.14 as to the use of rates and lump sums to assess
compensation events (instead of Defined Cost and Fee).

These Seminar Notes do not generally use the ECC system of italics for terms identified in
the Contract Data.

In these Seminar Notes:

• ‘SCC’ means the Schedule of Cost Components in ECC3, and
• ‘SSCC’ means the Shorter Schedule of Cost Components in ECC3.

Content of these Seminar Notes

Section No. / Title Page

1 Introduction 3
2 The contract and conditions of contract 8
3 Main Options A to F 13
4 Roles 19
5 Contractor’s main responsibilities 22
6 Works Information 24
7 Communications 27
8 Design 34
9 Risk management 39
10 Programme and related matters 43
11 Compensation events, procedure and assessments 59
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1 - Introduction

Background to the ECC form

The ECC is published by the Institution of Civil Engineers.

History of publication

Pre-ECC2

1991 consultative form (NEC – New Engineering Contract)

1993 first edition (NEC)

ECC2

1995 second edition (ECC – Engineering and Construction Contract)

1995 second edition Reprinted May 1995 with corrections
1995 second edition Reprinted November 1995 with amendments
1998 second edition Reprinted May 1998 with corrections

ECC3

2005 third edition (ECC3)

2006 Amendments June 2006 (to clause 32.1 as to the content of revised programmes
and Contract Data part one, deletion of optional entry for additional
compensation events)
2011 Amendments September 2011 (to dispute resolution Option W2 and secondary
option Y(UK)2 – due to the revisions to the Housing Grants, Construction and
Regeneration Act 1996 introduced by the Local Democracy, Economic
Development and Construction Act 2009)
2013 Amended third edition published in April 2013 incorporating the 2006 and 2011
amendments and a small number of other changes

Broad intention and approach / key features

Intended use of the ECC

• project management/collaborative contract

o Clause 10.1 – “mutual trust and co-operation”
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o early warning procedures

o stated time limits for actions
o programming
o quotations for extras (called ‘compensation events’)

Flexibility

• Type of work - engineering and construction work, whether

 civil
 electrical
 mechanical
 building

• Contractor design input - whether

 design of the whole of the works
 design of certain part(s) of the works (i.e. as stated in the Works Information)
 No design (of permanent works)
 Temporary works design only

• Employer design input

 Rest of the design (this is not expressed in ECC3 but is normally taken to be the
case by implication)
 Employer’s design should be completed pre-contract and set out in the Contract
Data (part one) as ‘Works Information’ (this is not expressed in ECC3 but if such
design is not completed at this stage and is issued during the course of the
contract there may be uncertainty as to what is deemed to be included in the
Prices and Accepted Programme and what is a compensation event)

• Compensation events – ECC3 best suited where

 there is only a small number of compensation events (i.e. an extensive number
and/or interaction of compensation events will make it impracticable if not
impossible to administer the compensation event system) and
 generally compensation events do not involve complex interaction of effects
(e.g. as to delay, disruption or cost)

• Procurement options

 Six different main options (Main Options A to F) – these include

 Lump sum (Main Option A)
 Bill of quantities (Main Option B)
 Target contract (two different versions – Main Options C and D)

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 Cost reimbursable (note: this is a ‘loose’ term – the amount payable is

more precisely defined) (Main Option E)
 Management contract (note: there is no express relief for the Contractor
where a breach of the main contract is caused by the default of a
Subcontractor) (Main Option F)

 Conditions of contract – comprise

 Core clauses
 (selected) Main Option clause (one of A to F)
 Option W1 or W2 (re: dispute resolution)
 (selected) Secondary option clauses

• Geographical area for intended use – International (including United Kingdom)

Clarity and simplicity

• Contract Data (document setting out key information and details)

• Ordinary language (provisions are generally expressed in the present tense - except
clause 10.1 and certain other clauses)

• Clause 10.1 – Employer, Contractor, Project Manager and Supervisor “shall act as
stated in this contract”

• Use of the word “may” to indicate actions that are permissible but not obligatory

• Short sentences/sub-clauses

• No cross-references between clauses

• Use of the words ‘fair, ‘reasonable’ and ‘opinion’ have been minimised

• Basis PM’s decision is stated in many cases – i.e. the reasons that may be used for
withholding acceptance without giving rise to a compensation event

• Logical structure / sections of topics

• User flow charts - available in a separate publication (not intended to be contract

documents)

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• No mechanisms for

 Provisional sums
 Nominating sub-contractors (i.e. for the Project Manager to instruct the
Contractor to enter into a sub-contract with a specific sub-contractor)

• ECC3 adopts a broadly consistent approach to dealing with compensation events in

terms of procedure, monetary basis for assessment and scope of adjustments, i.e.:

• procedurally; this will normally involve (amongst other things)

o notification of the compensation event,
o preparation and submission of alterations to the Accepted Programme
(with the quotation(s)),
o preparation and submission of quotation(s) (fully inclusive as to time and
monies in accordance with clause 63),
o implementation of the compensation event (i.e. implementation of the
assessment of the changes to the Prices, Completion Date(s) and Key Dates
if any – see clause 65.

• monetary basis for assessments -Defined Cost (as defined in the applicable main
option clause) + Fee (as defined in clause 11.2(8)).
(only exception, by agreement , regarding use of rates and lump sums).

• scope of adjustments - in principle, all compensation events may result in

changes to the Prices and delay to the Completion Date(s) and Key Date(s) if
any (depending on the circumstances etc).

Stimulus to good management

• Procedures
 Stated time limits for actions / communications
 Contribute positively to the management of the works and cost

• Foresight – applied collaboratively

 Mitigates problems
 reduces risk

• clear division of function and responsibility

• Examples
 clear allocation of risk

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 compensation events – consistent approach and (generally) clear definition

 Quotations for compensation events
 Early warning procedures
 Risk Register and risk reduction meetings
 Providing PM with different solutions to problems
 Programmes – see below

• Accepted Programme
 Much detail and information required, e.g.
 Timing and sequence
 details of methods
 Resources
 Actual progress details and effects
 Effects of implemented compensation events
 Regular updating/submissions
 Agreed document for management and entitlement purposes

Arrangement of the ECC3

The ECC3 includes the following sections of text:

• the core clauses (these are standard conditions applicable to all six Main
Options)

• the main option clauses (A to F – only one of which will apply)

• the dispute resolution option clauses (W1 and W2 – only one of which will
apply)

• the secondary option clauses (X1 to X7, X12 to X18, X20, Y(UK)1, Y(UK)2,
Y(UK)3 and Z – these are supplementary and normally some of these will be
incorporated in the contract. Option Z is for additional conditions of contract,
which may in fact be amendments and/or additions to the other conditions)

• the Schedules of Cost Components (these relate to the definition of ‘Defined

Cost’ under Main Options A to E)

• the Contract Data formats (parts one and two)

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2 – The contract and conditions of contract

The contract

The ECC does not define the contract. This is a matter for the parties in each case.

It is therefore all the more important that the Parties either make or record their contract in
writing, preferably in a formal written agreement, and in so doing clearly identify the
documents which comprise the contract.

A sample Form of Agreement for an ECC contract is set out in the Appendices of the ECC
Guidance Notes.

The ECC contract should include:

• the core clauses
• the clauses of one of the six main options (A to F)
• one of the two dispute resolution options (W1 or W2 – normally W2 for
contracts in the UK – see ECC Guidance Notes)
• certain secondary option clauses (i.e. those selected by the Parties and so
identified in the Contract Data part one),
• (if the contract is a construction contract within the meaning of the (revised)
Construction Act) dispute resolution option W2 and secondary option Y(UK)2
• except for option F, the Shorter Schedule of Cost Components and, if option
C, D or E is selected, the Schedule of Cost Components (note: the preamble at
the head of such Schedules state that they are part of the conditions of
contract) and
• the Contract Data.

Other documents

Other documents when using the ECC will include:

• the Works Information
• the Site Information
• the Accepted Programme
• documents resulting from choosing certain secondary options, e.g.
performance bond

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Depending on the choice of main option, the documents will also include (other than in the
case of main option E or F):
• an activity schedule (main options A and C) or
• a bill of quantities (main options B and D).

Ambiguities and inconsistencies

The ECC does not state an order of precedence in the event of conflict between documents.
However, see clause 17 for a procedure dealing with ambiguities and inconsistencies, clause
60.3 (re: Site Information) and clauses 60.1(1) and 63.8 (re: Works Information).

On discovery of any ambiguity or inconsistency in or between the contract documents either

the Project Manager or Contractor gives the other notice and the Project Manager must
issue an instruction to resolve the matter (see clause 17).

If the instruction changes the Works Information, then it will in principle constitute a
compensation event (subject to clause 60.1(1)). Clause 60.1(1) in effect gives precedence to
the Works Information provided by the Employer over Works Information provided by the
Contractor for his design.

The ECC is silent however as to the rights of the Parties if the instruction does not change the
Works Information. Adjudication will be open to the Contractor, but will not necessarily
provide a complete remedy for the Contractor.

The Contractor is not expressly obliged to search for such problems, only to notify upon
discovery. But there is a risk for the Contractor if the ambiguity or inconsistency is not in the
Employer’s Works Information. There is also a risk for the Contractor if he ought to have
discovered an ambiguity or inconsistency in the course of performing his design obligations
under the contract.

Assessing the effects of ambiguities or inconsistencies (clause 63.8)

Clause 63.8 sets out how ambiguities or inconsistencies in the Works Information are to
be assessed (where the instructed resolution of the same constitutes a compensation
event – see clause 60.1(1)). The clause provides for the interpretation of the ambiguity or
inconsistency against the party who provided the Works Information that is changed by
the instruction resolving the ambiguity or inconsistency.

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ECC3 Definitions/Identified terms

Defined terms

The defined terms have capital initial letters and their definitions are set out in clause 11.2.
For example, the term ‘Working Areas’ is defined in ECC3 clause 11.2(18).

Identified terms

The terms in italics in the conditions of contract are called identified terms (see clause
11.1). Such terms are identified in the Contract Data, because they are specific to the
contract.

ECC does not provide for changing the identified terms as such. The conditions of
contract rely on defined terms to provide the flexibility. For example, the identified term
“working areas” is as stated in the Contract Data, however the defined term “Working
Areas” means “those parts of the working areas … … unless later changed in accordance
with this contract”.

Contract Date

Definition (Clause 11.2(4))

The Contract Date is defined as the date when the contract came into existence.

Purpose of the Contract Date

It is particularly relevant to the following compensation events:

• Unforeseen physical conditions under clause 60.1(12),
• Prevention event under clause 60.1(19) and
• Changes in the law under option X2.

conditions of contract (Contract Data part one, section 1)

The Employer must state the main option clause that is to apply, the secondary option
clauses that are to apply and the dispute resolution option (W1 or W2) that is to apply
(normally it will be option W2).

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Option Z

additional conditions of contract (Contract Data part one, optional statements)

Option Z may be used in order to incorporate additional conditions of contract (i.e.

additional to the core clauses, the selected main option, dispute resolution option and the
selected secondary options). Option Z is often used in practice to incorporate amendments
as well as additions to the ECC clauses.

Options Y(UK)

Y(UK)1 (Project Bank Account)

This secondary option, if incorporated in the conditions of contract, provides for payment to
the Contractor and Named Suppliers (which term is defined in Y(UK)1) to be made via a
project bank account.

If this option applies, the relevant information in respect of the following must be stated
in the Contract Data part one, optional statements:
• Whether the Employer is to pay any charges made and is to be paid any interest
paid by the project bank account
• If option Y(UK)1 and Y(UK)3 are both used, the Named Suppliers entitled to
enforce the provisions of Y(UK)1 direct

Also, the relevant information in respect of the following must be stated in the Contract
Data part two, optional statements:
• The project bank
• named suppliers

Unless otherwise stated in the Contract Data, the Contractor is entitled to the interest paid
by the project bank account and is required to pay any charges made by the project bank
account (clause Y1.3 of option Y(UK)1 refers). Such charges and interest are not included in
the Defined Cost (clause Y1.3 refers). Consequently, such charges (where to be paid by the
Contractor) would be deemed to be covered by the Fee (clause 52.1 refers).

Option Y(UK)2

This deals with the Housing Grants, Construction and Regeneration Act 1996 (as
amended). It provides an additional compensation event, regarding suspension of
performance, and amends the provisions on payment.

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Option Y(UK)3

Option Y(UK)3 facilitates third parties enforcing the contract between the Employer and the
Contractor if and to the extent so provided in the Contract Data part one, but otherwise
seeks to deny third parties having a right to enforce the contract.

Y(UK)3 can be used together with Y(UK)1 (Project Bank Account) to facilitate enforcement of
Y(UK)1 by Named Suppliers.

Law

law of the contract (Contract Data part one, section 1)

The law of the contract is identified in the Contract Data part one.

Clause 12.2 provides the contract is governed by the law of the contract.

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3 – Main options A to F

Main option clauses

Option A (priced contract with activity schedule)

Option A is based on lump sum prices, subject to adjustments in accordance with the
contract (which are normally mainly for compensation events under the contract). The
lump sum prices are inserted in the Activity Schedule and their total (called the tendered
total of the Prices) is inserted in part two of the Contract Data.

Payment (in terms of the ‘Price for Work Done to Date’) is made against completed
activities or (or where applicable) groups of activities. Consequently, there is no
entitlement to payment of portions of the lump sum prices in the Activity Schedule.

Option C (target contract with activity schedule)

Option C is a target price system (commonly called a target cost with pain/gain share
arrangement).

The target is the total of the Prices (being the lump sum prices stated in the activity
schedule identified in part two of the Contract Data), as changed in accordance with the
contract (normally mainly for compensation events). This figure is then compared with
the Price for Work Done to Date. The difference is then apportioned according to the
share ranges and share percentages stated in part one of the Contract Data (see clause
53).

The Contractor’s share (i.e. the pain/gain share) is not applied in payments under the
contract until after Completion of the whole of the works (see clause 53). This could be of
considerable risk to the Employer.

Unlike in Option A, the Activity Schedule is not used for payment purposes under Option
C (other than for calculating the Contractor’s share), as payment is based on the Defined
Cost and Fee.

The target price is not reduced if the Project Manager accepts a proposal by the Contractor
to change the Works Information provided by the Employer so that the Defined Cost is
reduced (see clause 63.11).

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Activity Schedule (Options A and C)

The term ‘Activity Schedule’ is defined in clause 11.2(20) of main options A and C.

The Activity Schedule should consist of a breakdown of the Contractor’s tendered total of
the Prices into individual lump sum prices against activities forming part of the work by
the Contractor under the contract.

The activities should relate to the operations on the Accepted Programme under the
contract (see clause 31.4).

The Activity Schedule is not used for payment purposes under Option C (other than for
calculating the Contractor’s share), as payment is based on the Defined Cost and Fee.
Accordingly, the Activity Schedule is not used in the calculation of the Price for Work
Done to Date (Option C).

Clause 54.1 makes clear that the information in the Activity Schedule is not Works
Information or Site Information.

The ECC does not provide that work covered by the Works Information in the Contract Data
but not covered by the Activity Schedule is a compensation event. It is therefore important
that in the case of options A and C the Contractor should not rely on the descriptions, items
or any quantities in the Activity Schedule as being a complete statement or representation
of the scopes of the works, supply and services to be provided by him (see clause 54.1).

The Contractor must therefore (in the case of options A and C) make whatever
measurements, investigations and other checks are necessary to satisfy himself that his
tendered total of the Prices covers the whole scope of the work, supply and services
required by the contract (irrespective of what may be included in the Activity Schedule),
other than work etc due to compensation events.

Contractor’s proposals to change the Employer’s Works Information (Option C)

The target price is not reduced if the Project Manager accepts a proposal by the Contractor
to change the Works Information provided by the Employer so that the Defined Cost is
reduced (see clause 63.11).

Contractor’s share (Option C)

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The Contractor’s share (i.e. the pain/gain share) is not applied in payments under the
contract until after Completion of the whole of the works (see clause 53). This could be of
considerable risk to the Employer.

Option B (priced contract with bill of quantities)

Option B is a price based on a bill of quantities identified in the Contract Data part two
(called the ‘Bill of Quantities’). It would seem that Option B is a re-measurement contract
for the items in the Bill of Quantities and with payment based on the quantity of work
completed by the Contractor. Mistakes in the Bill of Quantities as referred to in clauses
60.4, 60.5 and 60.6 of option B are dealt with as compensation events and the Bill of
Quantities is to be changed accordingly. Similarly, instructed changes to the Works
Information (other than the exceptions stated in clause 60.1(1)) are dealt with as
compensation events and the resultant changes to the Prices are applied in the form of
changes in the Bill of Quantities.

Note that the criteria stated in clause 60.4 (third bullet) in order to give rise to a
compensation event under the clause may be achieved under an NEC3 subcontract even
where it is not achieved under an ECC3 contract (because the rate and/or the total of the
Prices referred to in the clause will be different in the main contract – even assuming that
the main contract incorporates main option B or D).

The total of the Bill of Quantities (called the tendered total of the Prices) is inserted in
part two of the Contract Data.

The term ‘Bill of Quantities’ is defined in clause 11.2(21) of main options B.

Option D (target contract with bill of quantities)

Option D is a target price system like that under main option C, except the target price is
based on the Bill of Quantities. The target price is adjusted for compensation events and
for re-measured quantities for the items in the Bill of Quantities. This adjusted target
price is then compared with the Price for Work Done to Date under the contract. The
difference is then apportioned according to the share ranges and share percentages
stated in part one of the Contract Data.

The Contractor’s share (i.e. the pain/gain share) is not applied in payments under the
contract until after Completion of the whole of the works (see clause 53). This could be of
considerable risk to the Employer.

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Unlike in Option B, the Bill of Quantities is not used for payment purposes under Option D
(other than for calculating the Contractor’s share), as payment is based on the Defined
Cost and Fee.

As with option C, the target price is not reduced if the Project Manager accepts a proposal by
the Contractor to change the Works Information provided by the Employer so that the
Defined Cost is reduced (see clause 63.11).

The term ‘Bill of Quantities’ is defined in clause 11.2(21) of main options D.

Main Options B and D – Bill of Quantities and method of measurement

The Contractor must identify the bill of quantities that has been priced by him and which
is the basis for the tendered total of the Prices stated in the Contract Data part two.

Clause 55.1 makes clear that the Bill of Quantities is not Works Information (or Site
Information). As such, it does not limit the scope of the work to be provided by the
Contractor.

The term ‘Bill of Quantities’ is defined in clause 11.2(21) of main options B.

The Employer must identify the method of measurement and the applicable amendments to
it. Logically, it should be the method (including the amendments) used in the preparation of
the bill of quantities.

Corrections are to be made for mistakes in the bill of quantities and differences in
quantity as provided in clauses 60.4 to 60.6.

Option E (cost reimbursable contract)

Option E is based on allowable Defined Cost plus the Fee. As such it is not strictly cost
reimbursable in all respects.

Option F (management contract)

Option F is based on allowable Defined Cost plus the Fee. As such it is not strictly cost
reimbursable in all respects. Furthermore, the Defined Cost is relatively limited in
comparison with Options C to E.

In short, Option F is possibly too much risk for too little reward and opportunity for the
Contractor.

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Option C or D - Contractor’s share percentages and the share ranges

The Contractor’s share percentages and share ranges are stated in the Contract Data part
one. The share range percentage is derived by

dividing
the final Price for Work Done to Date (PfWDtD), which comprises Defined
Cost and the Fee,
by
the final total of the Prices, including the implemented assessments for
compensation events under the contract.

A share range of 100% marks the break-even point (i.e. final PfWDtD equals the final total
of the Prices).

A share range of less than 100% therefore indicates that the PfWDtD is less than the final
total of the Prices, whereas a share range greater than 100% indicates that PfWDtD is
greater than final total of the Prices.

The Contractor’s share percentage operates as a bonus for the Contractor where the
share range is below 100% or as his liability where the share range is above 100%.

The difference between the final PfWDtD and final total of the Prices as referred to above
is apportioned to the relevant share range or ranges (see clause 53) and the Contractor’s
share percentage(s) is applied according to such apportionment.

As stated above, the Contractor’s share is not applied in payments under the contract
until after Completion of the whole of the works. This could be of considerable risk to the
Employer.

The Contractor’s share is assessed for the second and final time for inclusion in the final
amount due, which will normally be after the Supervisor issues the Defects Certificate.

Main Options C, D and E – Price for Work Done to Date

Clause 11.2(29)

The definition of The Price for Work Done to Date refers to the total Defined Cost which
the Project Manager forecasts will have been paid by the Contractor before the next
assessment date plus the Fee.

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This is intended to put the Contractor in (approximately) a cash neutral position as

regards cash flow, so that he should not incur significant financing charges.

Note therefore that financing charges are not included in the Schedule of Cost
Components.

The provision is not clear on whether, as regards such forecasts, the Defined Cost has to
be for work done before the assessment date or how it deals with sums determined from
rates and percentages stated in the Contract Data or Contractor’s Equipment under cost
components 22 and 23 of the SCC or provide any pre-conditions as regards Plant and
Materials stored outside the Working Areas (see however clause 71).

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4 - Roles
Introduction

The ECC3 sets out the responsibilities and roles of the following parties:
• the Employer
• the Project Manager
• the Supervisor
• the Contractor
• Subcontractors
• the Adjudicator

Separate functions of Employer's designer and Contractor's designer are assumed but not
mentioned in the contract.

The role played by the Engineer, Architect or Supervising Officer in other standard forms is
divided between the Project Manager, the Supervisor, the Employer's designer and the
Adjudicator.

The Employer

The Employer's role under the ECC3 is traditional in that he hands over the day-to-day
administration tasks to his representatives (in this case to the Project Manager and
Supervisor).

The Project Manager

The Project Manager is appointed by the Employer.

The Project Manager is to manage the contract for the Employer.

ECC3 does not place any restrictions on who may be the Project Manager or require the
appointment of an individual.

ECC3 places considerable authority in the hands of the Project Manager. It assumes that he
has the Employers' authority to carry out the actions and make decisions in his role of
Project Manager under the contract between the Employer and the Contractor.

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If his contract with the Employer constrains him in any way, as for example in the case of a
limit on the amount which the Project Manager may accept as a compensation event
assessment, then it is the responsibility of the Employer and Project Manager to ensure that
all the approvals are given in time to enable the Project Manager to comply with the time
periods under the conditions of contract.

The Project Manager may delegate any of his actions under the contract (see clause 14.2).
However, prior notice (in accordance with clause 13) to the Contractor is required in order to
effect such delegation under ECC3.

Designers

The designers may be the Employer's or the Contractor's depending on the design
arrangement in the contract.

The Employer’s designer's role is to develop the design to meet the Employer's objectives to
the point where tenders for construction are to be invited.

If a 'design and construct' contract is envisaged, the Employer's designer's role is restricted
largely to providing a performance specification together with standards for design and
materials which he may wish to specify for inclusion in the Works Information.

Under the ECC3 the Employer's designer is not referred to in the contract between the
Employer and the Contractor. However, the Employer should ensure that the Project
Manager's brief includes management of the designer's activities.

The Project Manager should have ready access to the designer for advice.

The Supervisor

The Supervisor is appointed by the Employer. He can be an in-house person or someone

from outside.

The Supervisors role is concerned with the quality, testing and correcting defects in executed
works. It is similar in these respects to that of a resident engineer or architect who may be
assisted by an inspector or Clerk of Works. In some circumstances it would be appropriate
for the clerk of works to carry out this role.

The Supervisor and Project Manager could, presumably, be the same person, but this is not
the intention of the ECC3.

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If the Contractor seeks to challenge decisions/actions/in-actions of the Supervisor then this

is under option W1 or W2 as applicable.

The Supervisor may delegate any of his actions under the contract (see clause 14.2).
However, prior notice (in accordance with clause 13) to the Contractor is required in order to
effect such delegation under ECC3.

The Adjudicator

The Adjudicator is appointed jointly by the Employer and the Contractor for the contract.

The Employer should insert his choice of Adjudicator in part one of the Contract Data. If the
Contractor does not agree with the choice, then a suitable alternative person will need to be
agreed before entering into the contract.

Alternatively, the Employer may propose a list of acceptable names, and the successful
tenderer may be asked to select one of them to be Adjudicator.

The Adjudicator becomes involved only when a dispute is referred to him.

As a person independent of both Employer and Contractor, he/she is required to give a

decision on the dispute, within stated time limits.

If either Party does not accept his/her decision, they may proceed to the tribunal (either
arbitration, the courts or other tribunal, as stated in the contract).

The Contractor

One of the Contractor’s main responsibilities is to Provide the Works in accordance with the
Works Information (clause 20.1 refers). The terms ‘Provide the Works’ and ‘Works
Information’ are defined in clause 11.2.

This may or may not include design, which is one part of the flexible arrangements under the
ECC3.

Mutual trust and co-operation

A key feature of the ECC3 is that by clause 10.1 it requires the Employer, Contractor, Project
Manager and Supervisor to act in a “spirit of mutual trust and co-operation”. The effect of
this is however not set out in detail in ECC3.

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5 – The Contractor’s main responsibilities

The Contractor’s main responsibility – To Provide the Works in accordance with the Works
Information (clause 20.1)

ECC3 states that the “Contractor Provides the Works in accordance with the Works
Information” (see clause 20.1).

The phrase “Provide the Works” is defined in clause 11.2(13) in wide terms. The definition
encompasses doing the work necessary to complete the “works” in accordance with the
contract and all incidental work, services and actions which the contract requires. The term
‘works’ is identified in the Contract Data. Consequently, the scope of the work that the
Contractor is undertaking is wider than the scope of the works as described in the Contract
Data. Furthermore, the obligation requires completion of the works in accordance with the
contract.

The defined term ‘To Provide the Works’ should be construed in conjunction with clause 21
as to design by the Contractor. As such, the defined term ‘To Provide the Works’ may or
may not include design of a part or parts of the works, depending on what is stated in the
Works Information.

Acceptances - Contractor remains responsible

Clause 14.1 makes clear that acceptance by the Project Manager or Supervisor of a
communication for the Contractor or of his work does not change his responsibility.

Most of the traditional forms provide for retained responsibility on an equivalent basis.

Illegal or impossible works (clause 18)

If the Works Information requires the Contractor to do anything which is illegal or

impossible:
• then as soon as the Contractor becomes aware of it he must notify the
Project Manager and
• then if the Project Manager agrees, an instruction must be issued changing
the Works Information.

Such instructions will normally give rise to a compensation event under clause 60.1(1)
subject however to the exceptions stated in clause 60.1(1) and provided that the instruction
did not arise from a fault of the Contractor.
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Prevention (clause 19)

Clause 19 deals with what are likely to be very rare extreme events stopping the Contractor
completing the works. Clause 60.1(19) provides a corresponding compensation event.
Whilst clause 19/60.1(19) events are likely to be very rare occurrences under ECC3 they may
be more common under an NEC3 Subcontract. As such, clauses 19 and 60.1(19) pose a
potentially significant risk to the Contractor under an NEC3 subcontract.

Co-operation (Clause 25)

The Contractor is obliged to:

• co-operate with 'Others' in obtaining and providing information, and
• co-operate with Others and share the Working Areas with them as stated in
the Works Information.

Others are defined in clause 11.2(10) and include organisations not involved in the contract.

Definition of ‘Others’ – clause 11.2(10)

The definition seems too wide, as it does not put any express limits on the people and
organisations classed as ‘Others’.

It would seem to include other contractors engaged directly by the Employer and
statutory undertakers (where not a Subcontractor or supplier of the Contractor).

Compensation event – clause 60.1(5)

This specifically refers to the Employer or Others

• not working ‘within the times shown on the Accepted Programme’
• not working ‘within the conditions stated in the Works Information’
• carrying out work ‘on the Site that is not stated in the Works Information.’.

Consequently, the Employer takes a potentially considerable risk (on a compensation event
basis) as regards performance by ‘Others’.

Limitation of liability (secondary option X18)

Option X18 provides various limitations on the liability of the Contractor towards the
Employer. The monetary limits are to be stated in the Contract Data.

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6 – Works Information

Definition and identification

Definition

The term ‘Works Information’ is defined in clause 11.2(19).

Identification (Contract Data)

The Works Information provided by the Employer is identified in the Contract Data part one.

The Works Information provided by the Contractor for his design, if any, is identified in the
Contract Data part two.

Purpose

The purpose of the Works Information is to

(1) specify and describe the works in appropriate detail,
(2) state any constraints on how the Contractor is to Provide the Works, and
(3) provide certain other items of information as referred to in the clauses of
the conditions of contract (see below).

The Works Information identified in the Contract Data will usually be in the form of
drawings, specifications and/or other documents and sets down the obligations as to work
and design (amongst other things).

It is important that the Works Information is separated into that provided by the Employer
and that provided by the Contractor, because of the allocation of precedence and
responsibility for the information (see clauses 60.1(1), 63.8 and 80.1 (fourth bullet)).

Matters to be included in the Works Information

It is necessary for the Works Information to provide certain other information in order for
the ECC clauses to operate (in addition to specifying and describing work and stating
constraints as stated in the definition). This includes information on the following matters,
amongst others:

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Clause Brief description of matter to be included in the Works

Information

11.2 work to be done by the Completion Date (i.e. the scope of the work
to be done by the Contractor by such date in order to constitute
Completion under the contract). This needs to be dealt with
separately for each section of the works.

20.1 the works to be provided

the works can be defined by way of (amongst others):

• general and/or detailed descriptions

• general and/or detailed drawings and/or specifications

the specifications may include methods and/or performance

requirements

• statement of constraints, e.g. on access, sequence, method,

timing

• lists of acceptable subcontractors and/or suppliers for

particular tasks or materials

21.1 parts of the works to be designed by the Contractor

21.2 particulars of the Contractor’s design to be submitted for

acceptance by the Project Manager

25.1 sharing of working areas with Others

35 use of part of the works before take over

73.2 materials from excavations and demolitions for which the

Contractor is to have title

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Changes to the Works Information (clause 14.3)

The Project Manager is empowered to instruct changes to the Works Information (see
clause 14.3). These are normally called ‘variations’ under other forms of construction
contract.

There is not however any express limitation or control on the scope, type or number of such
instructions. There will be implied limits, but what those limits are under any particular
contract will depend on the interpretation of that contract.

The related compensation event is in clause 60.1(1), subject however to the exceptions
stated in clause 60.1(1).

Note however that a compensation event arising under clause 60.1(1) will not be assessed if
it arises from a fault of the Contractor (see clauses 61.1 and 61.4).

Ambiguities and inconsistencies (clause 17)

On discovery of ambiguity or inconsistencies in or between the contract documents either

the Project Manager or Contractor gives the other notice and the Project Manager must
issue an instruction to resolve the matter (see clause 17).

If the instruction changes the Works Information, then it will in principle constitute a
compensation event (subject to clauses 60.1(1)). Clause 60.1(1) in effect gives precedence
to the Works Information provided by the Employer over Works Information provided by the
Contractor for his design.

The ECC3/2013 is silent however as to the rights of the parties if the instruction does not
change the Works Information. Adjudication will be open to the Contractor, but will not
necessarily provide a complete remedy for the Contractor.

The Contractor is not specifically obliged to search for such problems, only to notify upon
discovery. But there is a risk if the discrepancy is not in the Employer’s Works Information.

Assessing the effects of ambiguities or inconsistencies (clause 63.8)

Clause 63.8 sets out how ambiguities or inconsistencies in the Works Information are to
be assessed (where the instructed resolution of the same constitutes a compensation
event – see clause 60.1(1)). The clause provides for interpretation of the ambiguity or
inconsistency against the party who provided the Works Information that is changed by
the instruction resolving the ambiguity or inconsistency.

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7 - Communications

Communications (clause 13)

Generally

Clause 13 requires communications (as defined in 13.1 - including certificates, instructions

etc) to be in a form which can be "read, copied and recorded” (Clause 13.1).

Communications have effect when received (at the notified address or, if none notified, at
the address stated in the Contract Data) (see clause 13.2).

Notifications (clause 13.7)

It is a requirement that any notification required by the contract is to be communicated

separately. This is important since it should result in important contract notifications not
being overlooked or being lost amongst other issues. For example, submission of an
application for payment that identifies compensation events does not have effect as
notification of such compensation events.

It is also very important due to the provisions of clauses 61.3 and 63.4 regarding the time-
bar on notifying compensation events.

Period for reply

Where the contract requires the Project Manager, Supervisor or Contractor to reply to a
communication, then they must do so within the period for reply stated in the Contract Data
(see clause 13.3) except
• where for a particular communication a different period for reply is stated in
the contract (see clause 13.3)
• if an extended period is agreed in accordance with clause 13.5 (however the
extension must in order to apply have been agreed before the expiry of the
period for reply)

Late or lack of communication by the Project Manager or Supervisor may be a compensation

event (see clause 60.1(6)).

Accordingly, late communication does not give an automatic right to proceed in the absence
of a reply required by the contract.

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Acceptances

Introduction

The Project Manager has potentially wide powers to withhold acceptances but is at risk of
causing compensation events in using those powers (see clauses 13.8 and 60.1(9)).

Withholding acceptances – clause 13.8

This clause empowers the Project Manager to withhold acceptances of submissions by

the Contractor.

Compensation event - clause 60.1(9)

If the withholding of the acceptance is for a reason not stated in the contract (then other
than in the case of the two exceptions stated in clause 60.1(9)) it is a compensation event
(see clause 60.1(9)).

The Contractor therefore needs to carefully review the contract documents before
entering into the contract and indeed before tendering or otherwise making an offer to
enter into the contract to check and satisfy himself as regards the reasons stated for
withholding acceptances. This is particularly relevant as regards acceptances of designs,
programmes and Subcontractors.

Stating reasons for not accepting

Clause 13.4 obliges the Project Manager to state his reasons for ‘not acceptance’.

Taking account of the reasons stated by the Project Manager

Clause 13.4 obliges the Contractor to re-submit ‘taking account of these reasons’ (i.e. the
reasons stated by the Project Manager for him not accepting).

It is not clear whether clause 13.4 obliges the Contractor to amend his submission strictly
in accordance with the reasons stated by the Project Manager. In any event, if the reason
is not stated in the contract (or one of the two exceptions stated in clause 60.1(9)) the
withholding of the acceptance will be a compensation event.

‘more information is needed in order to assess the Contractor’s submission fully’ (clause
13.4)
This provides enormous potential for dispute as to the level of detail for submissions.

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Key examples of matters submitted for acceptance

Clause Matter Stated reasons for withholding acceptance

(briefly)

13.4 Any communication by the more information is needed in order to

Contractor assess the Contractor’s submission fully

15.1 Contractor’s proposal for not necessary for Providing the Works or will
adding to the Working Areas be used for work not in the contract

21.2 particulars of Contractor’s non compliance with Works Information or

design as the Works with applicable law
Information requires

23.1 particulars of design of design will not allow the Contractor to

Equipment Provide the Works in accordance with the
Works Information, the Contractor’s
accepted design or the applicable law

24.1 replacement key person relevant qualifications and experience not as

good as person to be replaced

26.2 name of proposed appointment will not allow the Contractor to

Subcontractor Provide the Works

26.3 proposed conditions of see clause 26.3

subcontract

31.1 first programme (if not in see clause 31.3

Contract Data)

32.2 revised programme see clause 31.3

44.2 change to the Works changes applies only if the Project Manager
Information to allow a Defect accepts the Contractor’s quotation
to remain uncorrected

62 quotation for compensation see clauses 62 and 64

event

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Clause Matter Stated reasons for withholding acceptance

(briefly)

85.1 Contractor’s policies and they do not comply with the contract
certificates of insurance

Withholding acceptance

Whenever the Project Manager withholds his acceptance of any particular communication
then he is required to state his reasons for so doing (see clause 13.4).

As regards withholding acceptance:

• if it is for a reason stated in the contract, then it is not a compensation event

(see clause 13.8)

• if it is not for a reason stated in the contract (and it is by the Project

Manager), then it is a compensation event (see clause 60.1(9)), unless it is
one of the excepted matters stated in that clause, which are (briefly):

• regarding a quotation for acceleration

• regarding a proposal not to correct a Defect.

• however, clause 13.4 appears to give the Project Manager some scope to
avoid such a compensation event, by empowering him to require more
information in order to assess the Contractor’s submission fully (provided
that it is necessary for the Project Manager to have the information in
order to so assess the submission)

Contractor remains responsible

Clause 14.1 makes clear that acceptance by the Project Manager or Supervisor of a
communication for the Contractor or of his work does not change his responsibility.

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Instructions – power to issue / compliance

The Contractor must comply with instructions under the contract (see clause 27.3).

The powers to issue instructions are mainly conferred on the Project Manager but, for
certain matters, on the Supervisor.

Instructions – types (note: not all of them are compensation events)

The types of instruction, not all of which are compensation events, include the following:

Clause Person authorised type of instruction (brief description) related

to give the compensation
instruction event clause

14.3 Project Manager changes the Works Information 60.1(1)

14.3 Project Manager changes a Key Date 60.1(4)

16.2 Project Manager or attend an risk reduction meeting

Contractor

17.1 Project Manager * resolving ambiguity or inconsistency in 60.1(1) if the

or between the documents which are instruction
part of the contract changes the
Works
Information
(note
exceptions)

18.1 Project Manager * change the Works Information 60.1(1)

appropriately, if the Project Manager
agrees that the Works Information
requires the Contractor to do anything
which is illegal or impossible

23.1 Project Manager submit particulars of the design of an

item of Equipment

24.2 Project Manager remove an employee

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Clause Person authorised type of instruction (brief description) related

to give the compensation
instruction event clause

32.2 Project Manager submit a revised programme

34.1 Project Manager stop or not start work or re-start or start 60.1(4)
it

36.1 Project Manager submit a quotation for acceleration

42.1 Supervisor search for a Defect (see clause 42.1 for 60.1(10)
the scope of such instructions)

44.2 Project Manager change to the Works Information so that

a Defect does not have to be corrected

61.1 & 61.4 Project Manager * submit quotation for a compensation

event (except in certain cases - see
clauses 61.1 and 61.4)

61.2 Project Manager submit quotation for a proposed

instruction or a proposed changed
decision

62.1 Project Manager submit alternative quotations for a

compensation event

62.3 & 62.4 Project Manager submit a revised quotation

73.1 Project Manager * how to deal with an object of value or 60.1(7)

of historical or other interest found
within the Site

82.1 Project Manager not to replace loss of or repair damage (see indemnities
to the works, Plant or Materials in clause 83)

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Clause Person authorised type of instruction (brief description) related

to give the compensation
instruction event clause

92.2 Employer following termination, to leave the Site,

remove any Equipment, Plant and
Materials from the Site and assign the
benefit of any subcontract or other
contract related to the performance of
the contract

* denotes that the conditions of contract require the instruction to be given (i.e. mandatory
instructions)

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8 - Design
Employer’s Works Information

The Employer’s design (including specification) input should be completed pre-contract and
set out in the Contract Data part one as ‘Works Information’. This is not expressed in the
ECC, however if such design is not so completed and set out in the contract but rather is
completed during the course of the contract there is the considerable risk of uncertainty as
to what is deemed to be included in the Prices and Accepted Programme and what is a
compensation event.

Supply of design information

The design information will include the following as relevant:

• the Employer’s design information included in the Works Information
identified in part one of the Contract Data,
• the Contractor’s design information included in the Works Information (if any)
identified in part two of the Contract Data
• the design information to be prepared by the Contractor for the parts of the
works which the Works Information states he is to design (see clause 21.1)

However, the ECC is silent on the matter of further design information to be provided in
order to complete the design of the works, where and to the extent that the Works
Information incorporated in the Contract Data does not state that the Contractor is to design
the relevant part or parts of the works and such Works Information does not in terms of the
specification and description of such part or parts of the works constitute a complete and
adequate design that can be constructed without the need for any further design work or
decisions (other than in the case of ambiguity and inconsistency, for which see clause 17,
illegal or impossible requirements, for which see clause 18, and possibly as a result of a
decision reached at a risk reduction meeting, for which see clauses 16.3 and 16.4).

This issue may arise because clause 14.3 empowers the Project Manager to change the
Works Information but does not seem to oblige him to do so in order to provide necessary
design information additional to that, if any, required from the Contractor pursuant to
clause 21.

However, the definition of Works Information (see clause 11.2(19)) contemplates that it will
be in:
• documents as stated in the Contract Data
• instructions given in accordance with the contract
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The implication of the definition of the Works Information and of clause 21.1 would seem to
be that the remaining design information (i.e. beyond that required from the Contractor
under clause 21) is therefore to be provided by the Project Manager by way of instructions
under clause 14.3 (or under one of the other clauses referred to above, i.e. 16.4, 17 or 18).

It would be better if the contract contained an express term dealing with the responsibility
for providing further design information for the construction of the works (beyond that
required under the clauses mentioned above). In any event, the Contractor ought to ensure
that all his programmes specifically identify the further design information required from the
Employer and, for each element of that design, the date when he requires the information
from the Employer/Project Manager. See clause 31.2 (re: ‘things to be provided by the
Employer’) and clause 60.1(3) (re: compensation event - late supply of ‘something’), which
may possibly be relevant.

Parts of the works to be designed by the Contractor (clause 21)

Meaning of the term ‘design’

The term ‘design’ is not defined in ECC3. Subject to the provisions of the particular contract,
the term would seem to contemplate a wide meaning, so as to cover both the selection of
the type of works to satisfy a requirement(s) (e.g. piled or mass foundations) and of Plant
and Materials (i.e. materials, goods and other items) for inclusion in the relevant works.

Design work

The matter of the design of the works (or parts of the works) should not be stated in the
description of the works. This is because the ECC contemplates that the preparation of
the design of the works is work relating to the works and not part of them.

The Works Information should state the parts of the works, if any, that the Contractor is to
design (see clause 21.1).

Submission of particulars of the Contractor’s design of parts of the works

The Works Information should specify the design particulars that the Contractor is to
submit to the Project Manager for acceptance (see clause 21.2).

The particulars could include, for example, drawings, details, specifications and/or
calculations.

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The Contractor is not entitled to proceed with the relevant work until the Project
Manager has accepted the design submission by the Contractor under clause 21.2. This
therefore places a risk on the Project Manager of causing a compensation event under
the contract as a result of late acceptance.

The period within which the Project Manager must reply, in order to avoid a
compensation event for late reply, is the period for reply stated in the Contract Data part
one unless a different period is stated elsewhere in the contract.

The reasons for not accepting the design particulars, without causing a compensation
event, are stated in the ECC as only:
• more information is needed in order to assess the Contractor’s submission fully
(see clause 13.4)
• the design does not comply with either
o the Works Information or
o the applicable law
(see clause 21.2)

Further reasons may be stated elsewhere in the contract, for example in the Works
Information or in any additional conditions of contract.

Submission of design for acceptance in parts (clause 21.3)

The Contractor is entitled to submit his design for acceptance under clause 21.2 in parts “if
the design of each part can be assessed fully”. If any such design cannot be assessed fully,
then the Contractor is at risk of the Project Manager validly withholding acceptance
pursuant to clause 13.4, which provides “A reason for withholding acceptance is that more
information is needed in order to assess the Contractor’s submission fully”. A withholding
pursuant to clause 13.4 is not a compensation event (see clause 60.1(9)).

Limitation of the Contractor’s liability for his design to reasonable skill and care (Option
X15)

If option X15 forms part of the conditions of contract then the Contractor's liability for his
design is limited to some extent. However, the wording does not follow the normal method
of defining the liability in terms of a duty to exercise reasonable skill and care. It uses the
unusual method of providing an exclusion of liability so far as the Contractor proves that he
used reasonable skill and care to ensure that his design complied with the Works
Information.

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Option X15 is therefore based on a reverse burden of proof and does not clearly apply to the
Contractor’s designs (if any) included in the Works Information incorporated in the Contract
Data. The reverse burden of proof will not necessarily match exactly the liability of the
Contractor’s insurer, if any, under a professional indemnity insurance policy in respect of
design.

additional compensation event (option X15)

Clause X15.2 provides an additional compensation event for correcting Defects for which the
Contractor is not liable under the contract. This is an extremely important clause for the
Contractor, because clause X15.1 only deals with his liability (and, unlike clause X15.2, does
not confer on him rights to an increase in the Prices or extension of time for correcting such
Defects).

Design of Equipment (clause 23)

The term ‘Equipment’ is defined in clause 11.2(7). The definition is broad enough to
include temporary works (not forming part of the works).

The Contractor has to submit particulars of the design of an item of Equipment if the
Project Manager so instructs.

Whilst clause 23.1 is clear that the submission is for acceptance it is not clear whether the
Contractor has to await acceptance before using the Equipment. Presumably this should
be implied as otherwise it renders clause 23.1 somewhat irrelevant. However, the ECC3
Guidance Notes state that acceptance is not a pre-condition to the Contractor proceeding
to use the Equipment.

Further, neither clause 23.1 nor clause 60.1 provides that such an instruction is a
compensation event. This is a potential problem for the Contractor as regards the cost
and time in complying with clause 23.1, particularly given that the Project Manager will
be entitled to the period for reply (stated in the Contract Data) to reply.

Statutory and other approvals of design (clause 27.1)

The obligations on the Contractor under this clause are an onerous risk, as the clause could
be construed as including statutory approvals, in which case it could possibly include

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planning consents, etc. If this is not the case, then it is possible that it could be implied that
the Contractor obtains such approvals and permissions in respect of his designs.

Furthermore, the ECC does not specifically define as a compensation event late approvals
from Others or design modifications to the Contractor’s own designs which are necessary to
secure approvals from Others. Note that ‘Others’ is a defined term (see clause 11.2(10)).

Design co-ordination and integration

The ECC is silent on the matter of co-ordination of design information and integration of the
Contractor’s design (if any) with the Employer’s design, particularly as regards post contract
designs by each party.

The obligations in this respect should therefore be clearly set out in the Works Information,
as otherwise it may be a considerable area of risk and dispute.

It would seem that the Contractor is obliged to co-ordinate and integrate his designs with
the Works Information. If however the relevant Works Information was issued as an
instruction by the Project Manager then the Contractor will have rights on a compensation
event basis, subject however to the exceptions stated in clause 60.1(1) and provided that
the instruction did not arise from a fault of the Contractor.

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9 – Risk management

Matters to be included in the Risk Register

Purpose of the Risk Register

ECC3 uses a Risk Register to identify and manage risk (not to allocate responsibility for it).

Definition (core clause 11.2(14))

The Risk Register is a defined term under clause 11.2(14).

It is a register of the risks listed in the Contract Data and the risks notified as early
warning matters.

Risks may be identified in part one and/or part two of the Contract Data.

As such, the Risk Register under ECC3 is not established until after the contract is formed.

The Risk Register also includes a description of the risk and a description of the actions
which are to be taken to avoid or reduce the risk. It would therefore seem that the
actions decided at risk reduction meetings and recorded in the Risk Register become
obligations under the contract.

Listing risks in the Contract Data

The risks are listed in the Contract Data under the reference to the ‘Risk Register’.

This does not make them compensation events.

Revising the Risk Register (core clause 16.4)

The Project Manager is to update the Risk Register for early warning matters.

At ‘risk reduction’ meetings any proposals which avoid or reduce the effect on the
registered risks are to be dealt with and decisions are to be sought as to which risks have
been avoided or have passed and can therefore be removed from the Risk Register (see
clause 16.3).

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The Project Manager under clause 16.4 is to revise the Risk Register and to record the
decisions made on risk at each ‘risk reduction’ meeting, and if any decision requires a
change to the Works Information, then the Project Manager is to issue an instruction for
such change.

Early warning (clause 16)

Introduction

Early warning is dealt with specifically at clause 16, which contemplates advance knowledge
and then collaboration between Contractor and Project Manager in respect of risks.

Early warning matters (clause 16.1)

Subject to the last sentence of clause 16.1, early warning notification is required in respect
of any matter which could:
• increase the total of the Prices (e.g. normally as a result of a compensation
event),
• delay Completion (e.g. as a result of a compensation event or other matter),
• delay meeting a Key Date (e.g. as a result of a compensation event or other
matter) or
• impair the performance of the works in use (e.g. a design fault).

Both the Project Manager and Contractor are required to give notice once they become
aware, subject however to the following regarding prior notification as a compensation
event (see clause 16.1).

Matters not required to be notified as early warning matters (core clause 16.1)

Clause 16.1 provides that early warning is not required of a matter for which a
compensation event has previously been notified.

‘increase the total of the Prices’ (clause 16.1)

This will cover compensation events, except where they do not lead to an increase in the
total of the Prices (for example, an instruction omitting work).

In the case of main options C and D, an early warning notice is not required under clause
16.1 for an increase in Defined Cost except in cases where there is an increase in the Prices

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(but even then not if the matter has previously been notified as a compensation event – see
clause 16.1, last sentence).

The Contractor is entitled to give an early warning under core clause 16.1 of any matter that
could increase his total cost. Note this is wider in scope than Defined Cost.

In the case of main options E and F, the Prices include all the Defined Cost, consequently the
scope of early warning notices under clause 16.1 deal with all increases in Defined Cost.

‘delay Completion’ (clause 16.1)

‘Completion’ is a defined term (see clause 11.2(2)).

It seems to mean impact on the critical path to Completion in respect of the whole of the
works or, where option X5 applies, of a section of the works.

‘delay meeting a Key date’ (Clause 16.1)

It seems to mean impact on the critical path to meeting the Key Date.

‘impair the performance of the works in use’ (clause 16.1)

This could for example be a workmanship or design problem.

'The Contractor may … by notifying... any other matter which could increase his total
cost’ (clause 16.1)

This makes it clear the Project Manager must consider ways of avoiding the Contractor’s
risk events as well as the Employer’s. In the case of main options C and D, there would
normally be a mutual interest in doing so because of the risk sharing arrangements.

risk reduction meetings (clause 16)

Either the Contractor or Project Manager may instruct a risk reduction meeting (see clause
16.2).

At such meeting proposals for overcoming/dealing with the relevant matter and/or action to
be taken should be dealt with and recorded by the Project Manager (see clauses 16.3 and
16.4).

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The Contractor and the Project Manager will therefore have duties under this clause
which could impact on the Contractor’s ability to make programme or cost decisions
without any influence from the Project Manager or Employer.

Failure to notify (clauses 61.5 and 63.5)

Failure by the Contractor to give a required early warning may affect the assessment of the
compensation event concerned and in effect prejudice his rights to time and/or money
adjustment should the Project Manager operate the procedure on this (see clauses 61.5 and
63.5).

Contractor’s duty to mitigate risk, delay, etc

In our opinion, the Contractor does have some duty to mitigate or overcome risks, delays,
etc by reason of various clauses in the conditions, including
• clause 10.1 - duty to act in a spirit of mutual trust and co-operation,
• clause 16.3 - duty to co-operate at risk reduction meetings,
• clauses 11.2(14) and 16 - duty to take actions agreed at risk reduction meetings,
• clauses 30.1 and 30.3 - duty to do the work so that Completion is on or before the
Completion Date (similarly for Key Dates),
• clause 62.1 - duty where instructed or Contractor decides to submit alternative
quotations for different ways of dealing with compensation events and
• clause 63.7 - assessments of compensation events based upon the assumption
that the Contractor reacts competently and promptly, etc.

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10 – Programme and related matters

starting date

The starting date is identified in the Contract Data part one, item 3.

ECC3 does not provide a mechanism for changing the starting date.

The starting date should be a date after the Contract Date and before the first access
date.

Whilst this is not expressed in ECC3, logically the Contractor should not carry out work
under the contract until the starting date. However, ECC3 does not stipulate that work
shall not be carried out before the starting date.

ECC3 does not expressly require the Contractor to commence work on the starting date.
It therefore seems that he is entitled but not obliged to commence work on the starting
date.

The starting date is:

• to be shown on each programme that the Contractor submits for
acceptance (see clause 31.2, first bullet),
• relevant to certain procedural requirements, e.g.
o first assessment date (for interim payments) not later than the
assessment interval after the starting date (see clause 50.1),
o submission of revised programmes for acceptance (see clause 32.2)
and
o submission of forecasts of the total Defined Cost (Main Options C,
D, E and F, clause 20.4),
• relevant to risk - from the starting date, the Contractor carries risks not
carried by the Employer (see clause 81.1) and
• relevant to insurance – The insurances required by clause 84 are to provide
cover from the starting date.

Site access and use (clause 33)

Definition of the access dates

The access date(s) is/are identified in the Contract Data part one, item 3.
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There will either be one such date for the whole of the Site or different dates for different
parts of the Site.

ECC3 does not provide a mechanism for changing any access date. However, see the
following comments on clauses 33.1 and 60.1(2).

Employer’s obligation to allow access (clause 33.1)

Clause 33.1 provides the Contractor with only the right of access to and use of parts of
the Site which is necessary for the work included in the contract. This would not seem to
be the same as possession, however the Contractor will normally need possession in
order to carry out his obligations under the CDM Regulations.

By clause 33.1, the Employer’s obligation to allow access to the Site is defined by
reference to whichever is the later of the access date identified in the Contract Data and
the access date shown on the Accepted Programme in accordance with the 12th bullet in
clause 31.2.

Compensation event for late access (clause 60.1(2))

It is a compensation event if “the Employer does not allow access to and use of part of
the Site by later of its access date and the date shown on the Accepted Programme”. The
Employer is therefore not bound by the access date stated in the Contract Data if the
Accepted Programme shows a later date for access.

Commencement and Completion (clause 30)

The Contractor is obliged to:

• not to start on Site until the first access date and
• do the work so that
• Completion is "on or before the Completion Date" and
• the Condition stated for each Key Date is met by the Key Date.

The Project Manager decides when Completion has been achieved in accordance with the
contract and certifies the same “within one week of completion” (see clauses 30.1 and 30.2).

The ECC3 does not require a specific request for the completion certificate, but the
Contractor would nevertheless be best advised to make a request in writing.

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Completion is defined in clause 11.2(2). The level/scope of completion, e.g. 100% or certain
items permitted to be outstanding, required for Completion should be stated in the Works
Information.

For example, ECC3 does not state whether Completion includes testing and/or
commissioning of the works and/or the handover of as-built and/or O&M information. The
Parties should ensure that this is made clear in the Works Information.

Progress

ECC3 does not contain any express obligation on the Contractor to proceed with due
diligence, and/or regularly and diligently and/or without any undue delay. However, some
form of progress obligation could arise by virtue of his obligation to do the work so that
Completion is on or before the Completion Date (see clause 30.1) and the Condition stated
for each Key Date is met by the Key Date (see clause 30.3).

The ECC does not seem to oblige the Contractor to comply with his Accepted Programme.
The ECC seems to treat the future part of the Accepted Programme as a plan and not as an
undertaking by the Contractor that he will strictly comply with the Accepted Programme.
Note however that certain compensation events arise by virtue of non-compliance by, for
example, the Employer or Others with the Accepted Programme.

Furthermore, poor progress is not a specified ground for termination (although it could
possibly give rise to a right of termination under reason R11 or R14 in clause 91).

Sectional completion (option X5)

Option X5 should be used where Completion of the works by defined sections by specific
dates is required.

In which case, the Contract Data should be used to set out the delay damages (assuming
Option X7 is to apply) separately for each section.

Late Completion (of the works or a section where sectional Completion applies)

If the Contractor fails to achieve Completion by the Completion Date (as adjusted under the
ECC) then he will be liable in damages to the Employer.

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Common law (unliquidated) damages will apply, unless the breach of the Completion
obligation is covered by a liquidated damages provision.

Option X7 (if selected and incorporated into the contract) provides for delay damages for
late Completion (i.e. liquidated damages for delay) to be stated in the Contract Data. The
rate(s) should be in pounds per day.

ECC 3 Contract Data provides for daily rates for either each section or the whole of the
works.

Clause X7.2 provides for interest where there is an overpayment of delay damages as a
result of the fixing of a later Completion Date.

Option clause X7.3 provides for a reduction in damages for the earlier take over of parts of
the works. Note that the reduction is not assessed pro-rata the Prices of the parts taken-
over relative to the Prices of the whole of the works, which is the basis used under other
standard forms.

Key Dates

Introduction

The provisions for Key Dates are an optional system (not a secondary option), which if
required is established by inserting the relevant details in the Contract Data part one.

Key Dates are useful for interfaces between the works and other parts of a project of
which they form part.

Key Dates are for matters that do not constitute Sectional Completion. They are not to be
seen as an alternative to Sectional Completion.

Definition of a Key Date and Condition (core clause 11.2(9))

Both a Key Date and its Condition are defined in clause 11.2(9). The definition refers to
the key date (if any) and the corresponding condition stated in the Contract Data.

The Condition is in effect what has to be done in terms of work in order to meet the Key
Date.

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Contractor’s obligation to meet Key Dates (core clause 30.3)

The Contractor is to do the work so that the Condition stated for each Key Date is met by
the Key Date.

Failure to meet a Key Date (core clause 25.3)

The Contractor’s liability for not meeting a Key Date is stated in clause 25.3. The Project
Manager is to assess the amount of such liability (on the basis stated in clause 25.3). The
Contractor is therefore at risk that the amount may be much greater than he expected, as
the amount is not liquidated at contract award.

The Project Manager is to assess such additional cost within four weeks of the date when
the Condition for the Key Date is met.

Clause 25.3 states that the Employer’s right to recover the additional cost is his only right
in these circumstances.

Instructed changes to Key Dates (core clause 14.3)

The Project Manager is empowered to issue an instruction changing a Key Date, and such
an instruction will be a compensation event pursuant to clause 60.1(4).

The Contractor is obliged by clause 27.3 to comply with such an instruction.

There appears to be nothing preventing the Project Manager from instructing earlier
achievement of a Key Date, and which would involve the Contractor in implementing
accelerative measures.

One question that arises is what would be the position if the Contractor believed it was
not possible to comply with an instruction changing a Key Date. Clause 18.1 (illegal and
impossible requirements) only provides relief if the Works Information requires him to do
something that is ‘illegal or impossible’.

It would seem both sensible and reasonable, especially in view of the overriding
requirement to work in a spirit of mutual trust and cooperation, that the Project Manager
does not issue unreasonable instructions, or that after discussion with the Contractor he
withdraws, or makes reasonable modification to, the instruction.

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In any event, if Contractor’s statutory obligations as to health and safety will override his
contractual obligations to comply with such an instruction should it be inappropriate to
do so on such grounds.

ECC3 does not specifically empower the Project Manager to give an instruction changing a
‘condition’ stated in the Contract Data in respect of a Key Date, notwithstanding the
reference in clause 11.2(9) to changes. However, clause 63.9 recognises that an
instruction changing the Works Information may make the description of a Condition for a
Key Date incorrect. If this occurs then the Project Manager is obliged to correct the
description and such correction is to be taken into account in assessing the compensation
event for the change to the Works Information (see clause 63.9).

Early warning (core clause 16.1)

The list of early warning matters now includes any matter which could delay meeting a
Key Date.

Quotations (core clause 62.2)

Quotations for compensation events and for acceleration are also to include the changes
to the Key Dates.

Programme float (core clause 63.3)

The rule in clause 63.3 as to ownership of terminal float (i.e. the period between planned
Completion as shown on the Accepted Programme and the Completion Date) similarly
applies in respect of Key Dates (in respect of the period between the planned date for
meeting the Key Date as shown on the Accepted Programme and the Key Date).

Acceleration

Introduction

ECC3 does not seem to empower the Project Manager to impose acceleration on the
Contractor in order to mitigate the effects of compensation events, except perhaps by
way of clause 62.1 where it is practicable to do so or by way of risk reduction meetings
under clause 16.1 or, in the case of Key Dates, by giving an instruction under clause 14.3
changing a Key Date.

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Clause 36

The clause deals with agreed acceleration not imposed acceleration.

Instruction to submit quotation (clause 36.1)

This clause empowers the Project Manager to instruct the submission of a quotation for
achieving Completion before the Completion Date (this can apply separately to a
section(s) where sectional Completion is incorporated in the contract by option X5). He
also states changes to the Key Dates to be included in the quotation.

Under clause 36.1, the Project Manager is not entitled to simply instruct acceleration or
to avoid accepting a quotation (for a compensation event) stating a later Completion Date
merely because he wants the Contractor to meet the current Completion Date.

Content of quotation for acceleration under clause 36

It includes four things:

• proposed changes to the Prices,
• proposed change to the Completion Date,
• a revised programme and
• the changed Key Dates

Response to instruction to submit quotation (clause 36.2)

The clause seems to give the Contractor discretion as to whether to submit the quotation
or to simply give reasons for not doing so. There will often be many reasons in practice
that the Contractor may sensibly use for declining to give a quotation.

Acceptance of a quotation for acceleration (main options A to D, clause 36.3)

The Project Manager, when accepting a clause 36 quotation for acceleration, must then
change the Completion Date, Key Dates and Prices accordingly and accept the revised
programme.

Contrast this with clause 65 regarding compensation events, where implementation is the
changes to the Prices, the Completion Date(s) and Key Dates and it is silent on whether
the alterations to the Accepted Programme included in the quotation are also accepted
(as regards creating a new Accepted Programme).

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Acceptance of a quotation for acceleration (main options E and F, clause 36.4)

This is as clause 36.3 except acceptance does not change the Prices.

Overview of programmes under ECC3

The ECC is the most demanding standard form of contract in the construction industry as
regards programming.

In fact the word ‘programme’ does not signify the scope of the information required. It is
more a comprehensive plan going far beyond what is normally regarded as a programme
under other forms of contract.

Basically, under ECC3, it involves:

• Extensive detail and information, e.g.
o Dates,
o Timing and sequence of work,
o statements of how the Contractor plans to do the work,
o Planned resources,
o Actual progress achieved and effects,
o Effects of implemented compensation events,
• Regular updating/submissions and
• Alterations to the Accepted Programme as regards compensation event
assessments.

Accepted Programme

Introduction

The Accepted Programme (defined in clause 11.2(1)) is most important in the ECC3
provisions.

However, ECC3 does not expressly require the Contractor to comply with the Accepted
Programme (or indeed any programme). Such an obligation could possibly be implied or
arise as a result of interpretation of the contract. However this is an arguable matter, given
the wording of ECC3 and the difficulties of measuring compliance against a regularly
changing document and what in practice may be an out-of-date document. In our view, the
Accepted Programme constitutes an accepted plan and as such non-compliance by the
Contractor with the Accepted Programme does not in itself constitute a breach of the
contract on the part of the Contractor.

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ECC3 does however make the Employer liable to the Contractor on a compensation event
basis if he or Others do not comply with the Accepted Programme within the terms of sub-
clauses (2), (3) and (5) of clause 60.1.
Definition (clause 11.2(1))

The Accepted Programme is:

• the programme identified in the Contract Data, or
• the latest programme accepted by the Project Manager

The latest accepted programme supersedes previous Accepted Programmes. This is not
quite as straightforward as it seems, when it comes to assessing compensation events
(see later in these notes).

Statements in the Contract Data / clause 31.1

The Contract Data should either identify a programme or state the period for submission
of the first programme for acceptance (see clause 31.1).

Given the definition of the term ‘Accepted Programme’ (see clause 11.2(1)), a programme
identified in the Contract Data becomes the first Accepted Programme automatically on
formation of the contract and even if it does not contain the information specified in
clause 31.2.

Affect on payment (clause 50.3)

Late issue of the first programme in the detail required by clause 31.2 (where a programme
is not identified in the Contract Data) allows the Employer to retain one quarter of the Price
for Work Done to Date until such a programme has been issued by the Contractor (see
clause 50.3). It seems that the Project Manager does not have discretion as to whether to
invoke such retention when certifying the amount due because it is written in mandatory
terms (see clauses 50.2 and 50.3).

However, clause 50.3 is at risk of being unenforceable as a penalty particularly if a

permanent deduction is applied where no such programme is submitted by the Contractor.

Purpose of the Accepted Programme

The Accepted Programme is clearly a planning tool and ECC3 contemplates that it will be
used as an agreed basis for management of the works and related activities.

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In particular, ECC3 seems to contemplate that the Accepted Programme will be used as
an agreed basis for assessing the time effects of compensation events (i.e. assessing
extension of time in respect of the Completion Date(s) and Key Dates, if any).

Further, the Accepted Programme forms the basis of three compensation events, namely
• Clause 60.1(2) – Employer not providing access by the later of the ‘access date’
(identified in the Contract Data) and the date shown on the Accepted Programme,
• Clause 60.1(3) – Employer not providing something by the date shown on the
Accepted Programme and
• Clause 60.1(5) – Employer or Others do not work within the times shown on the
Accepted Programme.

ECC3 does not specifically provide that the Accepted Programme will be used as an
agreed basis for assessing monies, in terms of compensation event assessments or
forecasts of the total Defined Cost for the whole of the works (options C to F). Such use
of Accepted Programmes may however be regarded as contemplated by the provisions of
ECC3. Also, in practice it is logical to take it into account for the purpose of establishing
forecasts of Defined Cost, whether under the compensation event procedure or
otherwise.

First programme - submission

The first programme is either identified in the Contract Data part two or submitted under
clause 31.1. A programme identified in the Contract Data is automatically the first
Accepted Programme once the contract is formed (see clause 11.2(1)). If the first
programme is to be submitted under clause 31.1, then the Contractor must do so within
the period stated in the Contract Data. Such period is normally calculated from the
Contract Date (i.e. the date when the contract came into existence) and not from the
starting date identified in the Contract Data.

Revised programmes - submissions

Introduction

Revised programmes are required under two clauses, namely clause 32 (revised
programmes generally) and clause 36 (acceleration). The submission of revised programmes
under clause 32 is mandatory whereas the submission of a revised programme under clause
36 is only required if the Contractor submits a quotation for acceleration in response to an
instruction by the Project Manager under clause 36 to do so.

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Clause 32.2 – Introduction

Clause 32 defines three circumstances for the submission of revised programmes. The
one normally followed in practice is the third circumstance, which requires revised
programmes to be submitted within the interval stated in the Contract Data. Such
interval is normally 4 weeks or one month.

The clause contemplates that a revised programme will be an updated version of the
current Accepted Programme (see clause 32.1, fourth bullet). However, in practice a
revised programme will normally be an updated version of the previous submitted
programme, whether or not that programme is the current Accepted Programme.

‘within the period for reply after the Project Manager has instructed him to’ (re: clause
32.2, 1st bullet)

This period is stated in the Contract Data part one. It is often stated as 2 weeks or 14
days.

This will typically be used where actual progress is significantly different to the order and
timing shown in the Accepted Programme.

The clause does not empower the Project Manager to instruct the content of the
programme (e.g. as to acceleration).

‘when the Contractor chooses to’ (re: clause 32.2, 2nd bullet)

This seems to emphasise that the Contractor is entitled to change his programme, subject
to any constraints in the contract.

This will typically be used where the Contractor makes good progress and wishes to bring
forward activities and perhaps create (or create more) terminal float or makes poor
progress and wishes to change the float durations in the programme that he is revising in
order for him to gain the benefit of such float.

‘at no longer interval than the interval stated in the Contract Data from the starting
date until Completion of the whole of the works’ (re: clause 32.2, 3rd bullet)

The intent must be to keep the programme (and preferably an Accepted Programme)
reasonably up-to-date and reflective of the Contractor’s plans as at the data date used in
the revised programme.

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Alterations to the Accepted Programme – quotations for compensation events

By contrast, clause 62.2 requires the alterations to the Accepted Programme to be included
in the quotation for a compensation event if the programme for remaining work is altered
by the compensation event. As such, it does not require the submission of a full programme
for acceptance.

Project Manager’s reply to a programme submitted for acceptance

Period for reply (clause 31.3)

The Project Manager has two weeks to reply to a programme submitted for acceptance,
either accepting it or notifying his reasons for not accepting it. Late reply is a
compensation event under clause 60.1(6).

There does not appear to be any mechanism in ECC3 to extend the period of two weeks.
Clause 13.5 allows the period for reply stated in the Contract Data to be extended by
agreement. However, the period for replying to a programme submitted for acceptance
is stated in clause 31.3, i.e. it is not the ‘period for reply’ stated in the Contract Data. The
‘period for reply’ stated in the Contract Data is the general default period that applies
where the contract does not state a particular period for the communication in question
(see clause 13.3).

Taking account of the reasons stated by the Project Manager for not accepting a
programme submitted for acceptance

Clause 13.4 obliges the Contractor to re-submit a communication ‘taking account of these
reasons’ (i.e. the reasons stated by the Project Manager for him not accepting).

It is not clear whether ECC3 contemplates that clause 13.4 applies to a programme
submitted for acceptance and not accepted by the Project Manager. A re-submission
would often have to be made at or about the same time as the next routine revision
under clause 32. This would make the programme submission and reply obligations even
more burdensome. It could however be considered that a re-submission is required or in
any event often desirable in practice in order to seek to provide an agreed basis for
assessing compensation events arising after the data date used as the basis for the non-
accepted programme and the data date used as the basis for the next routine revised
programme.

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If a re-submission is required or in any event made by the Contractor, it is not clear

whether clause 13.4 requires the Contractor to amend his submission strictly in
accordance with the reasons stated by the Project Manager. In any event, if the reason is
not stated in the contract (or one of the two exceptions stated in clause 60.1(9)) the
withholding of the acceptance will be a compensation event.

However, this does not really assist the Contractor if an unreasonable withholding of
acceptance has denied the Contractor the right to a new Accepted Programme.

Programme information – relevant clauses

Specific information to be shown on each programme submitted for acceptance

The content of programme submissions is dictated by two clauses, namely

• clause 31.2 – information to be shown on each programme submitted for
acceptance and
• clause 32.1 – additional information to be shown on each revised programme.

Other information

In addition, the following two clauses also specifically deal with programme information,
namely
• clause 62.2 – alterations to the Accepted Programme if the programme for
remaining work is altered by a compensation event and
• clause 31.4 of options A and C – information showing how the activities on the
Activity Schedule relate to the operations on the programmes submitted for
acceptance.

Programme information required by clause 31.2

The information required by clause 31.2 makes clear that the programme is a
comprehensive plan for the project.

It is dealing with the future plans not past performance or details.

Actual progress is dealt with in clause 32.1.

The information required by clause 31.2 will have to be updated for each revised
programme under clause 32. As such, the information will regularly change, particularly
as a result of compensation events.

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To summarise, clause 31.2 requires the following to be shown (amongst other things)
• dates,
• planned Completion and planned dates to meet each Condition for Key Dates (if
any),
• Contractor’s operations – order, timing and planned resources,
• Employer’s and Others’ work – order and timing,
• float and
• time risk allowances.

Clause 31.2 - Completion Date, planned Completion and sectional Completion

As regards Completion, the following is to be shown on each programme submitted for

acceptance, namely
• the Completion Date (see clause 31.2, 1st bullet),
• planned Completion (see clause 31.2, 2nd bullet) and
• if sectional Completion applies, the Completion Date and planned Completion for
each section of the works (see option X5).

The definition is such that the ‘Completion Date’ means the (original) completion date
identified in the Contract Data or, where it has changed in accordance with the contract,
the changed completion date.

Consequently, the Contractor cannot show a changed Completion Date on the

programme until the change has been implemented (see below).

This will mean that, unless there is sufficient terminal float in the programme, the
planned Completion shown on the programme as a result of compensation events or
other delays will often be later than the currently fixed Completion Date.

If option X5 is included in the contract, then the (original) completion dates are identified
in the Contract Data part one, for each section.

In which case, each section has its own Completion Date in addition to the Completion
Date for the whole of the works (unless the whole of the works is divided into sections, in
which case there is no need for a separate Completion Date for the whole of the works).

planned Completion

Whilst it does not state it, this would seem to mean the date that the Contractor plans to
achieve Completion.

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The definition of ‘Completion’ has two components. One being the execution of all the
work which the Works Information states the Contractor is to do by the Completion Date.
The other being correction of Defects which would have prevented the Employer from
using the works and Others from doing their work.

It seems that the date of planned Completion could be before (subject to any constraints
in the contract), the same as or after the Completion Date.

Clause 31.2 - Contractor’s operations

As regards the Contractor’s operations, the following is to be shown on each programme

submitted for acceptance, namely
• the order and timing of the operations which the Contractor plans to do in order
to Provide the Works (see clause 31.2, 3rd bullet) and
• for each operation, a statement of how the Contractor plans to do the work
identifying the principal Equipment and other resources which he plans to use
(see clause 31.2, 16th bullet).

Order and timing must logically mean sequence, start dates and end dates of the
respective periods for the operations.

ECC3 does not define ‘operation’. This is clearly a matter that warrants an agreed and
pragmatic approach by the Contractor and the Project Manager taking into account the
complexity of the works, its relationship with work by the Employer and Others and the
need to have a useful programme for monitoring performance and assessing
compensation events.

The level of operation will also depend on the extent to which the design has been
completed pre-contract and set out in the Works Information identified in the Contract
Data.

‘operation’ should not necessarily be limited to an operation forming part of the works.
For example, an operation could be design work, an item of temporary works or even
manufacture or fabrication outside the Working Areas. This would then be consistent
with the term ‘to Provide the Works’, which as explained earlier is wide in scope.

The statements will normally be in the form of outline method statements or high level
programme narrative accompanying a programme chart or network of activities. Clearly
therefore ‘programme’ has a wider meaning here than is normally the case. In ECC3 it is a
comprehensive plan.

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ECC3 does not specifically state the purpose of the statements. It would seem logical that
it is contemplating the level of detail required to assess the practicability of the
programme and compensation events, particularly given that assessments of
compensation events are generally to be compiled on the basis of a forecast of the
effects.

Clause 31.2 – float and time risk allowances

Provisions for float and time risk allowances are to be shown on each programme
submitted for acceptance (see clause 31.2, 6th, 7th and 8th bullets).

Float is not a defined term. It is generally understood to mean the spare time shown in
the programme, outside of the time shown for the Contractor’s time risk allowances.

One example of float is ‘terminal float’, i.e. the difference between planned Completion
and the (later) Completion Date. Similarly for Key Dates.

Time risk allowances are commonly understood to mean the time that the Contractor
includes in an activity duration (or attaches to an activity or series of activities) as an
allowance for the time impact on the activity(s) duration arising from a risk other than a
compensation event. See ECC Guidance Notes.

A typical example would be an allowance for downtime for weather conditions (to the
extent that they are not a compensation event under clause 60.1(13)) or plant
breakdowns.

Clause 32.1 - additional information for revised programmes

The information required by clause 32.1, which applies to each revised programme, is
clearly in addition to the information required by clause 31.2, which applies to each
programme.

The thrust of clause 32.1 is clearly to bring the (current) Accepted Programme up-to-date
to account for actual progress and certain other matters and therefore to re-set the
‘baseline’ for the purpose of monitoring of performance and assessment of future
compensation events. However, in practice a revised programme will normally be an
updated version of the previous submitted programme, whether or not that programme
is the current Accepted Programme.

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11 - Compensation events, procedure and

assessments

What is a compensation event?

A compensation event is an event that is defined as such in the contract (generally by way
of a provision of the conditions of contract such as those in clause 60.1 or in the ECC3
option clauses or in a statement in the Contract Data part one) and which, if it does not
arise from a fault of the Contractor, its effects, in terms of changes to the Prices and any
delay to the Completion Date(s) and Key Dates (if any), are to be assessed and
implemented in accordance with the procedure and basis for assessment in clauses 61 to
65.

Compensation events defined in ECC3

The compensation events are identified in various places in ECC3, as follows:

• the nineteen compensation event sub-clauses set out in the standard list in
clause 60.1
• certain further compensation events in the following option clauses (if
included in the contract):
• clauses 60.4, 60.5 and 60.6 of main options B and D (re: inaccuracies
in quantity and mistakes in the Bill of Quantities)
• the following secondary option clauses:
• Option X2 - changes in the law (as defined in the option
clause) after the Contract Date
• Option X12 – instructions changing the Partnering Information
(see clause X12.3(6)) and changes regarding revised timetable
(see clause X12.3(7))
• Option X14 - delay in making advanced payment (see clause
X14.2)
• Option X15 – correcting a Defect for which the Contractor is
not liable under the contract (see clause X15.1)
• Option Y(UK)2 – re: suspension of performance under the
Housing Grants, Construction and Regeneration Act 1996 (as
amended) (see clause Y2.4)
• additional Employer’s risks defined in the Contract Data, part one, in the
section marked ‘optional statements’ (which by virtue of the last bullet in
clause 80.1 and clause 60.1(14) are also compensation events).
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Basic elements of the compensation event procedure (clauses 61 to 65)

The basic elements of the procedure are as follows:

• Compensation event arises.

• Notification – i.e. notification of the compensation event by the Project Manager

(where required by clause 61.1 or where any other provision of the contract provides
for notification by the Project Manager, e.g. secondary option X2) or by the
Contractor (where required by clause 61.3).

• Instruction to submit quotations – i.e. the Project Manager instructs the Contractor
to submit quotations (unless one of the exceptions stated in clause 61.1 or clause
61.4 applies).

• Contractor assesses the compensation event, including preparing alterations to the

Accepted Programme as referred to in clause 62.2.

• Submission of quotations, including the alterations to the Accepted Programme

referred to in clause 62.2.

• Reply to quotations (i.e. acceptance, instruction to submit a revised quotation or

notification that the Project Manager will be making his own assessment).

• Implementation (as a result of the acceptance of a quotation, deemed acceptance of

a quotation or notification of the Project Manager’s assessment under clause 64) –
the implementation is of the changes to Prices, Completion Date(s) and Key Date(s) if
any.

Other elements of the compensation event procedure (clauses 61 to 65)

Other elements of the procedure, which according to the circumstances may or may not
apply, include the following:

• Notification that the Prices, Completion Date and the Key Dates are not to be
changed – i.e. notification by the Project Manager of his decision under clause 61.4
in respect of an event notified by the Contractor under clause 61.3.

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• Notification that the Project Manager has not notified his decision in reply to the
Contractor’s notification of the event within the time allowed – i.e. notification by
the Contractor under clause 61.4 that the Project Manager has not notified his
decision under clause 61.4 within the time allowed (note the consequences stated in
clause 61.4 if the Project Manager does not reply to the (second) notification within
two weeks)

• Notification that the Contractor failed to give early warning – i.e. notification by the
Project Manager of his decision under clause 61.5 (note the requirement for this to
be at the same time as he instructs quotations).

• Project Manager’s assumptions as basis for assessment – i.e. the Project Manager
decides that the effects of a compensation event are too uncertain to forecast
reasonably and states in his instruction to submit quotations the assumptions to be
used as the basis for assessment (see clauses 61.6 and 60.1(17)).

• Instruction to submit alternative quotations – see clause 62.1.

• Submission of a revised quotation – if so instructed by the Project Manager (see

clauses 62.3 and 62.4).

• Notification of extension of time for submitting or replying to a quotation – i.e. the

Project Manager notifies the extension agreed under clause 62.5 (note that any such
agreement needs to be made within the original period).

• Notification that the Project Manager has failed to reply to quotation within the
time allowed – i.e. notification by the Contractor under clause 62.6 (note the
consequences stated in clause 62.6 if the Project Manager does not reply to the
notification within two weeks).

• Notification that the Project Manager will be making his own assessment – i.e.
notification accordingly by the Project Manager pursuant to clause 64.1.

• Notification of the Project Manager’s assessment - i.e. following notification under

clause 64.1 that the Project Manager will be making his own assessment, notification
of such assessment by him under clause 64.3 together with details of it.

• Notification that the Project Manager has failed to assess a compensation event
within the time allowed – i.e. notification by the Contractor under clause 64.4 (note
the consequences stated in clause 64.4 if the Project Manager does not reply to the
notification within two weeks).

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compensation events which arise from the Project Manager or Supervisor giving an
instruction, issuing a certificate, changing an earlier decision or correcting an assumption
(clause 61.1)

The procedure is (briefly):

• Project Manager to notify the Contractor of the compensation event that
arises from such communication, i.e. from the instruction or other
communication (see clause 61.1)
• Project Manager to also instruct the Contractor to submit quotations (unless
the event arises from a fault of the Contractor or quotations already
submitted) (see clause 61.1)
• where the communication giving rise to the compensation event is an
instruction or changed decision, the Contractor is to comply with the
instruction or changed decision, i.e. put it effect under the contract
notwithstanding the compensation event procedure (see clauses 27.3 and
61.1

When all the requirements of Clause 61.1 are considered together with the requirement
at Clause 13.7 that every notification is communicated separately it can be seen that
strictly the Project Manager needs to issue up to three communications. For example:
1. an instruction to change the Works Information;
2. a notification of the compensation event that has arisen; and
3. an instruction to submit quotations.

The instruction to submit quotations would not be required if either;

• the event arises from a fault of the Contractor; or
• a quotation or quotations have already been submitted (which may have been the
case as a result of instruction under clause 61.2 to submit quotations for a
proposed instruction or a proposed changed decision).

Practically, and acting in a spirit of mutual trust and cooperation, it is suggested that the
parties should agree that this administrative burden can be reduced, to the mutual
benefit of all concerned, by agreeing that an instruction to change the Works Information,
for example, can include a statement that the instruction constitutes a compensation
event and an instruction to submit a quotation or confirmation that a quotation has
already been submitted.

The requirement in the last sentence of Clause 61.1 that the Contractor puts an
instruction or changed decision into effect seems to repeat Clause 27.3.

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Timing of the Project Manager’s notification of a compensation event and instruction to

submit quotations (clause 61.1)

The Project Manager is obliged by clause 61.1 to notify a compensation event referred to
in clause 61.1 at the same time as the communication giving rise to the compensation
event.

The Project Manager’s instruction to submit quotations may however for good reason be
issued slightly later, which presumably is why the second sentence of clause 61.1 merely
states that the Project Manager “also instructs the Contractor to submit quotations” and
does not go on to state that such instruction is to be given at the time of the
communication giving rise to the compensation event. There are potentially five reasons
that may justify a time lag before instructing quotations (albeit that the time lag should
normally be fairly short given that clause 61.4 only allows 1 week in response to a
Contractor’s notification – unless extended by agreement). This is because the Project
Manager has to consider the following questions:
o did the compensation event arise from a fault of the Contractor (in which
case quotations are not required)?
o have quotations already been submitted (this may have been the case under
clause 61.2 in respect of a proposed instruction or proposed changed
decision, however in practice the eventual instruction or changed decision will
often be of a different content or given at a different time to that envisaged
with the initial quotation(s) and consequently new quotations will be
required)?
o did the Contractor fail to give an early warning within the meaning of clause
61.5?
o are the effects of the compensation event too uncertain to be forecast
reasonably, in which case assumptions should be stated by the Project
Manager under clause 61.6? and
o are alternative quotations for different ways of dealing with the
compensation event required under clause 62.1?

Compensation events where the Project Manager has not notified the event (clause 61.3)

The procedure is (briefly):

• Contractor to notify the Project Manager in accordance with clause 61.3
(note the time limit of 8 weeks),
• Within one week of such notice (or longer period as agreed – see clause
61.4), Project Manager to instruct the Contractor to submit quotations (other
than in the excepted cases stated in clause 61.4),

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• Contractor to proceed under the contract notwithstanding the compensation

event procedure.

Contractor’s notifications of compensation events and time bar for failure to notify
within 8 weeks (clauses 61.3 and 63.4)

Clause 61.3

This clause makes the notification of compensation events by the Contractor a condition
precedent to his right to changes to the Prices, Completion Dates and Key Dates (if any)
under the compensation event procedure, other than where the compensation event
arises from a communication that the Project Manager should have notified as a
compensation event pursuant to clause 61.1.

The period for notification is 8 weeks from the Contractor becoming aware of the event.

As the compensation events that are not caught by the time bar are those that the
Project Manager is required to notify to the Contractor (see clauses 61.1 and 61.3), an
instruction changing the Works Information is an important exception to the time bar, as
the Project Manager should notify it under clause 61.1.

It seems that the Contractor can notify under clause 61.3 at any time up to and including the
defects date. However if such notification is given after the expiry of 8 weeks from when the
Contractor became aware of the event then he is not entitled to a change in the Prices,
Completion Date(s) and Key Date(s) (see clause 61.3 and 63.4) unless the Project Manager
should have notified the event to the Contractor pursuant to clause 61.1.

The Contractor’s obligation to notify arises within eight weeks since he became aware of
the event. This seems to be a lesser test than if the clause included the words ‘it is less
than eight weeks since he (or an experienced contractor) should have become aware of
the event’.

Effect on clause 63.1

The 8 week period would seem to provide the Contractor with the opportunity to defer the
dividing line between actual Defined Cost and forecast Defined Cost in respect of those
compensation events that only the Contractor can notify, by notifying towards the end of
the 8 week period (see clauses 61.3 and 63.1). However, this is not beyond doubt because
clause 61.3 could be construed as obliging the Contractor to notify once he believes that an
event is a compensation event.

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Rights of the Parties to changes to the Prices, the Completion Date(s) and Key Dates
(clause 63.4)

Clause 63.4 states that such rights are their only rights in respect of compensation events.
This is particularly important given the time bar in clause 61.3 regarding the Contractor’s
notification of compensation events.

Clause 63.4 could be construed as precluding an alternative claim by the Contractor for
damages under the common law (where the compensation event is a breach of contract by
the Employer). The Guidance Notes indicate that this is what the authors intended, however
there are counter-arguments and not all commentators agree with the Guidances Notes on
this matter.

Latest date for notifying compensation events (clause 61.7)

Clause 61.7 sets the latest date for the notification of a compensation event, presumably
by either the Project Manager or the Contractor, as being the defects date. The defects
date is identified in the Contract Data part one, and is calculated from Completion of the
whole of the works.

Contractors in particular should also note the provisions of clause 61.3, by which they are
required to notify compensation events within eight weeks of becoming aware of the
event. This period for notification reduces for any event that occurs in the eight weeks
prior to the defects date. It is thought that this situation should not arise very often, as
the (significant) events the Contractor should have to notify are not common after
Completion.

Project Manager’s decision and notification under (clause 61.4

The Project Manager is required, by clause 61.4, to reply to every notification of a

compensation event issued by the Contractor (subject however to clause 61.7 which
states that a compensation event is not notified after the defects date). The drafting of
this clause is such that it starts assuming the negative as can be seen below.

The drafting suggests that the Project Manager, on receipt of a notification from the
Contractor should first of all look at the notification from the negative point of view to
see whether one of the four reasons stated in clause 61.4 for not instructing quotations
applies. If he finds that one of these four reasons applies, then his decision to be notified

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is that the Prices, the Completion Date(s) and the Key Dates (if any) are not to be
changed. Any other finding results in the Project Manager instructing the Contractor to
submit quotations.

It is interesting that clause 61.4 does not list as one of the reasons for not changing the
Prices, etc the reason stated in clause 61.3 (i.e. late notification by the Contractor where
applicable). This is probably academic because even if a quotation is instructed and
accepted in such circumstances the Prices, etc are still not changed (because of the effect
of clause 61.3).

The Project Manager’s decision is to be notified within one week of receipt of the
Contractor’s notification or such longer time as the two may agree.

Failure to notify a decision (clause 61.4)

Under clause 61.4, if the Project Manager fails to notify his decision regarding a
compensation event notice within either one week of the Contractor’s notice or a longer
period to which the Contractor has agreed, the Contractor may notify the Project
Manager of such failure, after which the Project Manager has two weeks to reply, and
failure to do so will cause deemed acceptance of the event as a compensation event and
a deemed instruction to submit quotations.

However, adjudication could possibly change the ‘deemed’ acceptance of the

compensation event.

Circumstances where quotations are not required (clauses 61.1 and 61.4)

Where no effect upon Defined Cost (clause 61.4)

A quotation is not required if a compensation event notified by the Contractor under

clause 61.3 has ‘no effect on Defined Cost’. This seems self-explanatory. Most if not all
compensation events will have some effect on Defined Cost, even if only a minor effect.

Note that this does not apply to clause 61.1.

Where no effect on Completion (clause 61.4)

A quotation is not required if a compensation event notified by the Contractor under

clause 61.3 has ‘no effect on Completion’. Presumably this must mean ‘planned
Completion’ given the timing of the decision under clause 61.4 (i.e. it would normally

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have to be made in advance of knowing the actual effects on Completion) and when put
in context with clause 63.3.

Note that if sectional Completion applies under option X5 then ‘Completion’ is to be

interpreted accordingly (see clause X5.1).

Where no effect on meeting a Key Date (Clause 61.4)

A quotation is not required if a compensation event notified by the Contractor under

Clause 61.3 has ‘has no effect upon meeting a Key Date’. Like in the case of Completion,
this must presumably mean ‘the planned date when the Condition stated for a Key Date
will be met’ given the timing of the decision under clause 61.4 (i.e. it would normally have
to be made in advance of knowing the actual effects on meeting the Key Date) and when
put in context with clause 63.3.

‘event arises from the fault of the Contractor’ (clauses 61.1 and 61.4)

For example, a change to the Works Information in order to overcome a failure by the
Contractor to design or execute work in accordance with the Works Information.

It is not clear whether this applies only to faults arising under the contract or otherwise out
of the performance of the contract or whether it could extend to faults arising otherwise,
e.g. a fault in early contractor involvement pre-contract.

Quotations for compensation events (clause 62)

Introduction

From Clause 62.2 it is can be seen that a quotation is a proposal from the Contractor for
changes to the Prices and delay to the Completion Date and Key Dates, if any.

The rules for establishing the amount of such changes/delay are set out in clause 63.
Consequently, a quotation under clause 62 is not the same thing as a quotation freely
given in the market place, whereby the Contractor can decide not only whether to give a
quotation but also its content and its terms (e.g. qualifications).

By clauses 62 and 63 the Contractor has pre-agreed to submit quotations in accordance

with those clauses (i.e. to compile quotations on the basis stated in clause 63 and without
qualifications save only for any assumptions instructed by the Project Manager under
clause 61.6).

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Content (clause 62.2)

The quotation must cover the full assessed effects of the compensation event, in terms of
the resultant changes to the Prices and any delay to the Completion Date(s) and, Key Date(s)
if any. The only exception to covering the full assessed effects is where assumptions have
been stated by the Project Manager under clause 61.6 in respect of the compensation event.

Qualifications

Given the wording of clause 62.2, particularly when read in conjunction with clauses 61.6
and 65.2, it seems clear that the Contractor is not entitled to state qualifications in his
quotations for compensation events.

Programme effects and information

ECC3 requires the alterations to the Accepted Programme to be included in the quotation
if the programme for remaining work is altered by the compensation event.

In practice many compensation events will give rise to alterations to the Accepted
Programme. Such alterations are not limited to those to the order or timing of
operations. For example, an alteration could merely be one to the planned resources.

It would seem that the alterations are to be submitted as substantiation of the time
element of the assessment of the compensation event. The alterations are not however
being submitted in order to give rise to a new Accepted Programme. It would be
necessary to submit a full revised programme in accordance with clauses 31 and 32 in
order to do so.

Risk allowances (clause 63.6)

The Contractor should include in his quotation appropriate allowances for his risks (see
clause 63.6).

Details

Details of the Contractor’s assessment for the quotation must be provided to the Project
Manager with the quotation.

ECC3 does not specify the level of detail, but it could be argued by the PM that it in terms
of cost it should be in the level of detail of the various cost components (and sub-

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components, e.g. like in items 11, 12 and 13 of the SCC) constituting the definition of
Defined Cost.

No doubt some such information is confidential, e.g. wages and salaries. ECC3 does not
however make an exception for confidential information and in the case of main options
C to F clause 52 obliges the Contractor to keep records and accounts and make them
available for inspection.

It is clearly in the Contractor’s interests to provide an appropriate amount of detail so as

to enable the Project Manager to be confident in reviewing and accepting quotations.

Submission period

The quotations should be submitted within three weeks of the Project Manager's instruction
to do so (or longer period as agreed under clause 62.5).

A longer period may only be agreed within the existing period (see clause 62.5). Once the
existing period has expired without a quotation having been submitted then the Project
Manager must make and notify his own assessment (see clause 64).

content of revised programmes under clause 62.2 in quotations for compensation

events

Generally

ECC3 requires the alterations to the Accepted Programme to be included in the quotation
if the programme for remaining work is altered by the compensation event.

It is not clear why clause 62.2 refers to ‘programme for remaining work’, as this is not a
defined term, whereas clauses 63.3 and 63.7 refer to the Accepted Programme, which is a
defined term. Consequently, it is not clear what programme clause 62.2. is referring to.
In our opinion, it is implicit that the words ‘programme for remaining work’ mean the
planned elements of the Accepted Programme (i.e. the parts of the Accepted Programme
that deal with the period after the date to which actual progress is shown in the Accepted
Programme).

A logical view would therefore be that the alterations to be submitted under clause 62.2
are compiled on the basis of the latest Accepted Programme at the time when the
compensation event arose. This would seem to necessitate inputting compensation
events into an Accepted Programme in the order in which they arise and ignoring actual

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progress after that shown in the Accepted Programme. If this is correct, then the matter
of concurrent culpable delay on the part of the Contractor due to poor actual progress
occurring after that shown in the Accepted Programme would seem to be irrelevant as
regards the assessment of compensation events (in terms of the delay to the Completion
Date(s) and any Key Dates). However the question of whether this is the correct
interpretation and approach to be adopted will probably be an arguable point of law.

Logically, the relevant Accepted Programme must be the latest one at the time when the
compensation event (not its effects) arose. However, it could be considered that the
relevant Accepted Programme is the latest one at the the date which divides actual
Defined Cost from forecast Defined for the monetary assessment of the compensation
event pursuant to clause 63.1. However, it is likely that such Accepted Programme will
not have the same data date for actual progress achieved as the date which divides actual
Defined Cost from forecast Defined Cost pursuant to clause 63.1. In our opinion, the
relevant Accepted Programme is the latest one at the time when the compensation event
(not its effects) arose.

Note that ECC3 does not require a whole revised programme to be submitted (only the
‘alterations to the Accepted Programme’).

‘programme … is altered

Given the extensive amount of information to be shown on programmes (see clause 31.2
and 32.1), it is highly likely that there will be an alteration on such programme. For
example, the alteration may simply be to move an acceptance date or prolong a non-
critical activity by a short period or require a further item of Equipment or other resource.

Status of alterations submitted under clause 62.2

It is clear that the alterations submitted pursuant to clause 62.2 are submitted as part of a
quotation for a compensation event (i.e. as supporting information), and not for
acceptance pursuant to clause 32.2.

The Contractor would of course have the option of submitting a revised programme for
acceptance pursuant to the second bullet of clause 32.2, provided it complied with the
requirements of clause 31.2 and 32.1

Conclusion

It seems logical that the alterations to be submitted under clause 62.2 should be
compiled on the basis of the latest Accepted Programme at the time when the

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compensation event arose, without (further) updating that Accepted Programme for
actual progress etc in accordance with clause 32.1. In our opinion, the updating of the
Accepted Programme for actual progress is part of the procedure in clause 32 and not
part of the procedure in clause 62 or clause 63.

Also, clause 62.2 does not require the whole programme to be submitted (only the
‘alterations’).

Project Manager’s reply to quotation

The Project Manager replies within two weeks (or longer period as agreed under clause
62.5) of the submission, either requesting a revised quotation (with reasons), accepting the
quotation or stating that he will make his own assessment (or, in the case of a quotation for
a proposed instruction or proposed changed decision notifying that it will not be given or
made).

All quotations submitted by the Contractor to the Project Manager as a consequence of

an instruction to do so from the Project Manager must be considered by the Project
Manager and replied to in accordance with the requirements of Clause 62.3 and the
general principles of Clause 13.

ECC3 appears to contain an anomaly in so much that the Contractor can be instructed to
provide more than one quotation for a particular compensation event based on different
ways of dealing with that event. The Project Manager is given four options for his reply to
a quotation (see Clause 62.3), none of which cater for the rejection of an alternative
quotation on the grounds that another quotation for that compensation event has been
accepted. Presumably it must be implied that the other (alternative) quotations are
treated as not accepted.

Quotations submitted in response to an instruction from the Project Manager have no

formal status under ECC3 until accepted by the Project Manager. In the event that such a
quotation is not accepted it is suggested that it will provide the basis for the Contractor’s
submission to a third party decision maker should the Contractor be unsatisfied with a
subsequent assessment for that compensation event by the Project Manager.

ECC3 is silent as to what the Project Manager does when he receives a revised quotation
from the Contractor. Common sense suggests that revised quotations should be treated
in the same way as the original quotation (i.e. by replying in accordance with clause 62),
and that if necessary the process could be repeated over and over again.

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Extending submission or reply period (clause 62.5)

The Project Manager can by agreement extend the time for submission.

The agreement, if any, must however be made before the period in question expires and
is confirmed to the Contractor by the Project Manager. This clause does not refer to
revised quotations but following the logic referred to above it would seem that the rules
should apply equally.

Revised quotations (clause 62.4)

The Project Manager, in accordance with Clause 62.4, can instruct the Contractor to
submit a revised quotation but only after explaining his reasons for doing so. Unlike many
other clauses in ECC3 that list the reasons the Project Manager can give when rejecting a
submission from the Contractor, no such list of reasons is given in connection with the
instruction for a revised quotation. Logically the Project Manager should only use the
reasons stated in the second bullet in clause 64.1, i.e. that ‘the Project Manager decides
that the Contractor has not assessed the compensation event correctly … …’. This does
however still leave enormous scope for dispute.

It should be remembered that the withholding of an acceptance for a reason not stated in
the contract gives rise to a compensation event under clause 60.1(9).

Another matter that is unclear in respect of revised quotations is whether an instruction

for a revised quotation can include assumptions about the compensation event in
accordance with Clause 61.6. There are no clear words in ECC3 that either allow or
prevent the Project Manager from stating such assumptions in an instruction for revised
quotations. The ECC3 Guidance Notes state that the Project Manager may when
instructing a revised quotation alter or add to the assumptions made under clause 61.6.
Indeed, it would seem both sensible and reasonable, especially in view of the overriding
requirement to work in a spirit of mutual trust and cooperation, that the Project Manager
should state assumptions in an instruction for a revised quotation where he considers it
appropriate, preferably after discussion with the Contractor, to do so.

Deemed acceptance of a quotation for a compensation event (clauses 62.6 and 64.4)

These clauses apply where the Project Manager’s fails to reply to a quotation or make his
own assessment of a compensation event within the time allowed.

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These clauses allow (but do not require) the Contractor to notify the failure (and if more
than one quotation was submitted, the notice must state which one should be accepted).

The Project Manager has two weeks to reply to such notice, failing which it is treated as
acceptance of the Contractor’s quotation.

These clauses do not apply to proposed instructions or proposed changed decisions.

Adjudication

Adjudication can however change the ‘deemed’ acceptance.

Grounds for the Project Manager to assess compensation events - clause 64.1

There is potentially wide scope for the Project Manager to assess compensation events
under clause 64.

not submitted required quotation and details (re: clause 64.1, 1st bullet)

Once the due period expires the Project Manager must go on to make his own
assessment if he has not received the quotation and details. See clause 62.5 regarding
extending the time period.

not assessed the compensation event correctly (re: clause 64.1, 2nd bullet)

This causes enormous dispute in practice and is not easy to interpret. In our opinion, this
does not empower the Project Manager to decide that the Contractor has not assessed
the compensation event correctly and impose his own assessment merely because he
disagrees with the Contractor’s view of forecast effects, such as risk, resource levels and
outputs, etc. It will often be more appropriate for the Project Manager to seek to agree
with the Contractor the basis for a revised quotation instead of making his own
assessment of such matters.

not submitted a programme or alterations to a programme which this contract requires

(re: clause 64.1, 3rd bullet)

There is enormous potential for this if the Contractor is not dealing with programmes in
accordance with clauses 31, 32 and 62.

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not accepted the Contractor’s latest programme for one of the reasons stated in this
contract (re: clause 64.1, 4th bullet)

The onus will be on the Project Manager to show that the reason is stated in the contract.

Implementation

The word ‘implemented’ is misleading, as it implies that compensation events are not
acted upon until they are implemented. However implementation is dealing with the
point in time when the Prices (or in the case of main options E and F, the forecast amount
of the Prices), the Completion Date(s) and the Key Dates (if any) are changed (see clause
65).

The timing of the implementation of a compensation event is when:

• the Project Manager accepts a quotation;
• the Project Manager notifies his own assessment; or
• when a quotation is treated as accepted (clauses 62.6 and 64.4)

Forecasts (clause 65.2)

Clause 65.2 emphasises that an assessment is not to be revised simply because a forecast
on which it is based is shown by later recorded information to have been wrong.

This emphasises the finality of an accepted quotation or Project Manager’s assessment,

except in the latter case if the Project Manager’s assessment is challenged in accordance
with the dispute resolution provisions. It is not clear whether the Employer (or indeed
the Contractor) can challenge the Project Manager’s acceptance of a quotation. Even so,
neither the Project Manager nor the Contractor can use records as the sole basis for
revising a forecast (see clause 65.2).

Correction of Project Manager’s assumptions (clauses 60.1(17) and 61.6)

If the Project Manager stated under clause 61.6 assumptions to be used as the basis for
assessment of a compensation event and it is later found that one or more of such
assumptions is wrong, then the correction of the assumption(s) in question is treated as a
new compensation event. This does not however provide grounds for wholesale revision
of the assessment of the original compensation event.

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Changes to the Completion Date(s) and Key Date(s) (clauses 62.2 and 63.3)

Assessment of the delay to the Completion Date

The Contractor has to assess the delay to the Completion Date(s) and the Key Dates (if
any) and include this in quotations. The rules for assessing this are in clause 63.

Under ECC3, the delay to the Completion Date (i.e. the entitlement to extension of time)
is measured as the delay to planned Completion (as shown on the Accepted Programme)
due to the compensation event. Under traditional forms of contract delay is often
measured in practice (and sometimes contractually so) by the effect on the Contractor’s
ability to achieve completion by the completion date, which can have the effect of
depriving the Contractor of the benefit of terminal float.

Under the provisions of ECC3 there is no doubt that the wording means that the
Contractor owns any terminal float (i.e. the float between planned Completion as shown
on the Accepted Programme and the Completion Date).

The use of planned Completion as the yardstick by which delay is assessed makes it
appropriate in many cases, from the Contractor’s point of view, to plan to complete the
works early and to show such early Completion on the Accepted Programme, as the
Employer will not be able to take advantage of such float.

Any activity float that is available in the Accepted Programme will still be available to
absorb the impact of delaying events, subject to the rules for assessing compensation
events. In order to assess the impact of a particular compensation event the assessed
effect of that event needs to be put into the Accepted Programme, either as a change to
the timing or duration of an existing activity or as a new activity or activities with
appropriate links into the existing bars. If this change results in planned Completion being
delayed, then subject to the rules in clause 63 (and in particular clauses 63.6 and 63.7) the
Completion Date is delayed by the same period.

There is no provision in ECC3 that provides for the reduction of the time for carrying out
the works (i.e. advancing the Completion Date, except by agreed acceleration under
clause 36 or agreed changes to allow a Defect to remain uncorrected under clause 44).
This restriction is a cause for concern for Project Managers when considering whether to
make assumptions with regard to the effect of a compensation event pursuant to Clause
61.6. As any correction of such assumptions is in itself a compensation event (Clause
60.1(17)), this second compensation event cannot reduce the time for completion should
the assumptions made prove to have given rise to a longer than necessary delay to
planned Completion.

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As stated at Clause 63.3 the assessment of delay is the effect of the compensation event
on planned Completion as shown on the Accepted Programme. The feedback from users
of the ECC shows that where the Accepted Programme has not been established and then
maintained throughout with often numerous revisions, the management of time,
especially in relation to compensation events is difficult and often breaks down.

This definition makes it clear that the Accepted Programme is a dynamic document that
will change from time to time. In the event that the revisions are not maintained as
prescribed at clause 32 then it is apparent that the Contractor will find it difficult to
comply with his obligations and prepare quotations. Contractors must recognise that if
they do not comply with the requirements of the contract in respect of programme they
may find it difficult to obtain the revisions to the Completion Date that they would
otherwise be entitled to. This will have the effect of making the time they have to
complete the works uncertain and possibly shorter. Experience shows that resolving the
inevitable dispute will be difficult, costly and time consuming.

The Employer, Contractor and Project Manager must all be aware that the Accepted
Programme acts as a baseline against which performance is measured and that a failure
on the part of the Employer or Project Manager to do something or provide something by
a date shown or within a period shown on the Accepted Programme will in itself give rise
to a compensation event. Remember that three of the first five compensation events
listed at Clause 60.1 refer to the Accepted Programme as the basis for the event.

Assessment of the delay to a Key Date

The Contractor has to assess the delay to Key Dates (if any) and include this information
in quotations. As in the case of Completion Dates, the rules for assessing this are in
clause 63 and similarly the delay to a Key Date (i.e. the entitlement to extension of time)
is measured as the delay to the planned date for meeting the Key Date as shown on the
Accepted Programme.

Also, as in the case of Completion Dates, there is no provision in the compensation event
procedure in ECC3 for the reduction of the time for meeting a Key Date. However, the
Project Manager may instruct a change to a Key Date (see clause 14.3). Such an
instruction is a compensation event (see clause 60.1(4)).

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Changes to the Prices (clause 63.1)

The basis for the assessment of changes to the Prices is set out at clause 63.1.

The broad intent seems to be that the compensation event is assessed by comparing
what it would have cost the Contractor to do the original work with what it should cost to
do the revised work (‘cost’ however being in terms of ‘Defined Cost’) and that a
reasonable assessment of this is required. The value of the original work included in the
tender price plays no part in the assessment of the compensation event. However, the
treatment of work omitted by instructions is not clearly within the scope of clause 63 in
terms of changes to the Prices.

Part of the difficulty, however, is that Defined Cost (as defined in ECC3) can be a long way
from the true actual cost incurred by the Contractor.

The first of the three bullet points in Clause 63.1 covers the Defined Cost of work already
done due to the compensation event (typically in practice before the quotation is
submitted) and would often be based on records kept.

It is not difficult to envisage situations where the changed work required by instructions is
commenced and even completed before the quotation must be submitted. Similarly,
many events that are the Employer’s risk may require emergency or immediate action to,
for example, safeguard the works or the public. Accordingly, a retrospective valuation will
often be made for any such work notwithstanding the rule in clause 63.1 as to the division
between actual Defined Cost and forecast Defined Cost.

The second bullet point refers to the effect upon the forecast Defined Cost of work not
yet done. It is unclear however what ‘forecast’ is referred to in clause 63.1. It is also
unclear whether, in terms of the second bullet, the ‘effect’ is wholly a matter of
forecasting or whether it is allowable to take into account information available at the
time of assessment (or consideration of a quotation) as to actual effects and effects which
did not arise. Consequently, this is an area ripe for differences of interpretation and
opinion between the Contractor and the Project Manager. Logically, the Accepted
Programme should be taken into account under the second bullet, unless the Accepted
Programme has not been revised in accordance with clause 32 to such an extent that it
would not provide a reasonable basis for assessing the effect upon forecast Defined Cost.
However, clause 63.1 does not state that the Accepted Programme is to be used for
assessing the changes to the Prices. Consequently, the extent to which the Accepted
Programme should be used for such purposes is arguable, particularly if the Accepted
Programme is significantly out-of-date relative to when the compensation event arose,
quotations were instructed and/or the assessment made.

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The final bullet point relates to the Fee that results from the assessment under the first
two bullet points. The respective fee percentages are applied to the respective elements
of Defined Cost (see definition of the Fee in clause 11.2(8)), it would seem regardless of
whether the Defined Cost is a positive or a negative.

Alternative basis for assessment – rates and lump sums (main options B and D, clause
63.13, and main options A, C, E and F, clause 63.14)

Rates and lump sums may be used to assess a compensation event if the Project Manager
and the Contractor so agree (see referred to above).

Applying rates and lump sums will normally be easier, in administration terms, than
assessing Defined Cost. This alternative, by agreement, is therefore particularly useful for
small items or where additional works are ordered in time for them to be arranged
efficiently with the rest of the works.

The clauses do not however state where these rates and sums are to be found. In the
case of main option B and D, it presumably means the rates and lump sums in the Bill of
Quantities.

In the case of main options A and C there is no document containing rates (other than the
rates in the Contract Data, which are elements of Defined Cost)!

Reduction in the Prices (clause 63.2)

The general rule is that a compensation event can only lead to an increase in the Prices.
The exceptions to that rule, i.e. the compensation events that can lead to an increase or
decrease in the Prices, are the compensation events listed below and any other
compensation events for which the contract states the Prices are reduced if the effect of
the compensation event is to reduce the total defined cost (see clause 63.2).

Compensation events that may lead to a reduction in the Prices

Compensation event Comments

Clause Brief description
reference

60.1(1) Instruction changing the See clause 63.10 (main options A and B) and clause
Works Information 63.11 (main options C and D – not however the

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Compensation event Comments

Clause Brief description
reference

exception in clause 63.11 for a change to the Works

Information provided by the Employer which the
Contractor proposed and the Project Manager has
accepted).

60.1(17) Notification of a See clause 63.10 (main options A and B) and clause
correction to an 63.11 (main options C and D).
assumption stated by
the Project Manager

60.4 (main Differences between See clause 60.4 (main options B and D).
options B and D) actual and billed
quantities causing
Defined Cost per unit of
quantity to change

60.6 (main Correction of mistakes in See clause 60.6 (main options B and D).
options B and D) the Bill of Quantities

X2.1 (secondary A change in the law of See clause X2.1.

option X2) the country in which the
Site is located occurring
after the Contract Date.

Rights of the Parties to changes to the Prices, the Completion Date(s) and Key Dates
(clause 63.4)

Clause 63.4 states that such rights are their only rights in respect of compensation events.
This is particularly important given the time bar in clause 61.3 regarding the Contractor’s
notification of compensation events.

As stated previously, clause 63.4 could be construed as precluding an alternative claim by

the Contractor for damages under the common law. The ECC3 Guidance Notes indicate that
this is what the authors intended.

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Risk allowances (clause 63.6)

This seems to recognise allowances for such things as materials wastage and downtime
due to adverse weather (other than weather constituting the compensation event in
clause 60.1(13)) and equipment breakdowns.

It is debatable whether it allows all matters that are at the Contractor’s risk and have a
significant chance of occurring, for example delay and/or disruption caused by the
Contractor or by one Subcontractor to another Subcontractor.

The ECC3 Guidance Notes state that the value of the allowance is greater when the work
is uncertain and there is a high chance of a Contractor’s risk happening.

Assumptions as the basis for assessments (clause 63.7)

‘reacts competently and promptly’ and ‘time due to the event are reasonably incurred’

This clause provides the Employer with some protection against unreasonable inefficiency
by the Contractor, in terms of what should be included in the assessments of
compensation events.

‘that the Accepted Programme can be changed’

ECC3 does not state the criteria for determining whether the Accepted Programme ‘can
be changed’. For example, the Contractor may want to change it but the Employer may
be unwilling to allow the change, particularly in the rail industry as a result of possessions,
etc.

The ECC Guidance Notes interpret this requirement as being that the Contractor is
obliged to change his arrangements if he can and presumably whenever and however
required to accommodate the effects of a particular compensation event. There ought to
be a test of reasonableness in any give case.

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Form of proposed changes to the Prices (main options A to D)

Main options A and C (clause 63.12)

The changes in an assessment of a compensation event under main option A or C are to be

in the form of changes to the Activity schedule.

Main options B and D (clause 63.13)

The changes in an assessment of a compensation event under main option B or D are to be

in the form of changes to the Bill of Quantities and in accordance with the specific rules in
clause 63.13, which are set according to whether or not the work has been done and
whether or not there is an item in the Bill of Quantities, in which case the rate, quantity or
lump sum is to be changed (albeit that the change in the Prices are assessed by using
Defined Cost and Fee unless by agreement rates and prices are used).

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