Compensation Events Flashcards
When should an early warning be raised
Contractor and project manager are to notify each other as soon as either become aware of any matter which could be of significant impact:
* Increase the total of the prices
* Delay completion
* Delay meeting a key date
* Impair the performance of the works in use
* Effect safety
When an early warning is raised what should happen
- Contractor to notify PM of any other matter which could increase total cost
- PM or contractor to instruct a risk reduction meet to discuss early warning matter, and should include all relevant stakeholders
- PM to enter early warning matter in risk register (live document) and revise to reflect outcome of meeting
What is a Compensation Event
An event which is the clients risk
If it occurs and affects the contractor, the contractor is entitled to be compensated
For any effect on price, key dates and completion date
What are the principal compensation events (x21)
- PM instructs for a change in scope
- Client fails to grant access to site
- Client fails to provide something- such as information, facilities etc.
- PM gives instruction to stop work, or change to key date
- The client or others fail to do work as per accepted programme
- PM doesn’t reply to communication within the period required by the contract
- PM gives an instruction for dealing with an item of interest found on site- such as historical
- PM changes a decision which was previously communicated with contractor
- PM withholds an acceptance
- Supervisor instructs contractor to search for defect wrongly
- A test or inspection done by the supervisor causes unnecessary delays
- Contractor encounters unforeseeable physical conditions
- One in 10-year weather event
- An event which is a clients liability stated in the conditions of contract
- PM certifies takeover of works before completion
- Client fails to provide materials, facilities, samples for tests as specified in scope
- PM notifies the correction of an earlier assumption about a CE
- Clients breach not a CE- a catch all to cover any breaches not covered by the other compensation events
- An unforeseeable event prevents progress
- PM doesn’t accept contractor quotation
- Other CEs stated in contract data part 1
How should a CE be assessed if the contractor fails to give an early warning
-PM to assess CE as if the contractor had issued early warning
-However contractor can’t recover costs which would have been prevented had they issued an early warning. Because both parties have a duty to mitigate impact of likely loss
Who can issue a CE
PM or Contractor
When can the contractor notify a CE
It must be within 8 weeks of becoming aware of the event, otherwise it is not entitled to a change in price/completion date
-Unless the event arises from the PM giving instruction, issuing a certificate or changing an earlier decision
Assessment of a CE is based on the effect on
-Cost
-Prolongation on site
-Effect of disrupted working
-Time to be extended
-Risk Allowance
-Direct fee percentage/subcontractor fee
What is time risk allowance
Buffer to absorb changes to planning, offer protection for contractor
Can either be applied as an allowance for each task or lumped at the end
Which events won’t have a prolongation cost
Those not on the critical path
When does completion of a contract occur
- Carried out all the work in the scope and
- Corrected notified defects which have prevented the client using the works or others doing their work
What should a PM do when they are first notified of a delay
- Project manager should notify the contractor as soon as it becomes aware of any matter which could delay completion-early warning notice
- Joint risk management- they should try and work together to try and resolve any issues
- Organise a risk reduction meeting to discuss this early warning- should invite all relevant stakeholders. Need to understand risk, and impact on time and cost, quality and then how to resolve this issue
- PM should enter early warning matter in risk register and revise to reflect meeting
- When the delay was notified the delay had not yet occurred and therefore early warning noticed
How should a CE be assessed
- The PM should notify the contractor of the compensation event and instruct the contractor to submit quotations (quotation to cover extension of time and additional payments- for prolongation and disruption)
- In assessing any delay to the completion date, the delay is the length of time later than the completion date shown on the accepted programme – any terminal float attached to the whole programme is retained by the contractor
