What triggers a compensation event?
Asked by: Don Schaden PhD | Last update: March 6, 2026Score: 4.7/5 (34 votes)
They can be based around employer faults, though they don't have to be. Compensation events can also be triggered by events unrelated to either party, like unexpected weather or site conditions. The compensation events specified will vary from project to project, but these are some examples.
What constitutes a compensation event?
A compensation event is a term used in NEC contracts to mean an event which can affect the cost to the Client of the work being carried out, the time when the works will be completed, or both. A compensation event is the only way in which these can be changed.
Does a compensation event require an early warning?
A compensation event is something that is already known to be an issue or will be an issue and is not the Contractor's risk under the contract. For a matter that has already been notified as a compensation event an early warning is not required.
What is an example of a compensation event in nec4?
Typical compensation events
They are wide ranging and cover many scenarios which could result in a change to the contract price or completion date. Examples include: Project manager instructs changes to the scope (with some exceptions) Client does not give contractor access to the site by a specified date.
What is the latest date a compensation event may be notified by the contractor?
Clause 61.3 provides that, if the contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is simply not entitled to compensation under the contract.
NEC Contract - Early Warning Notices & Compensation Events
How many days does the government have to notify the contractor of an improper invoice?
A proper invoice must include the items listed in paragraphs (a)(2)(i) through (a)(2)(xi) of this clause. If the invoice does not comply with these requirements, the designated billing office must return it within 7 days after receipt, with the reasons why it is not a proper invoice.
What is the clause 60.1 compensation events?
Clause 60.1 gives a list as to all of the items, that if occur, would give rise to a Contractor being able to claim a compensation event which will consider the time and cost implications of the event. For an event to be a valid compensation event it has to fit one of the reasons listed within this clause.
What are the 4 types of construction delays?
While the specific terms of a construction contract can vary, there are generally four major types of delay that can impact the timely completion of a project: inexcusable delay, excusable delay, compensable delay, and concurrent delay.
How are compensation events assessed when using option A?
In Options A and B (Lump Sum) payment is by way of the contract price as set out in the Activity Schedule or the Bill of Quantities respectively. Defined Cost applies to the additional payments for Compensation Events2. relates to costs incurred.
What are the 4 conditions of a contract?
A contract is a legally binding promise (written or oral) by one party to fulfil an obligation to another party in return for consideration. A basic binding contract must comprise four key elements: offer, acceptance, consideration and intent to create legal relations.
What are the 4 pillars of the early warning system?
Pillar 1: Disaster risk knowledge. Pillar 2: Detection, observation, monitoring, analysis, and forecasting. Pillar 3: Warning dissemination and communication. Pillar 4: Preparedness and response capabilities.
When to issue an early warning notice?
Either party must raise an early warning as soon as they become aware of an issue that could affect the cost, time or performance of a project. This means projects need to be closely monitored to identify those risks early.
What is the clause 31.2 in the NEC contract?
New to clause 31.2 in NEC4 is the provision that “A programme issued for acceptance is in the form stated in the Scope.” Previously, in NEC3, the Contractor was left to decide on the form in which the programme information was provided.
What is the difference between early warning and compensation event?
An early warning notice only gives the parties the opportunity to mitigate a potential compensation event. It does not stand as a compensation event notice or give any entitlement to additional time or money.
What is an example of compensation?
It includes salary or wages in addition to commission and any incentives or perks that come with the given employee's position. Paid employees as well as outside or temporary consultants are entitled to compensation, meaning the individual will be paid for the product or service they provide.
What is a compensable event?
California Case Law Defines a Compensable Consequence
The court defined a compensable consequence as “a secondary incident which, although perhaps a new and distinct injury, is not a new and independent injury but rather the direct and natural consequence of the primary incident.”
What is an example of a compensation event?
Examples of compensation events
actions by the employer (i.e. an employer's failure to allow a contractor access to and use of the site by the agreed date); actions by the project manager (i.e. when the project manager gives an instruction to stop or not start any work);
What are the 4 types of construction contracts?
There are several types of construction contracts, but the most common include four primary types: Stipulated Sum Contract, Cost Plus Contract, Design-Build Contract, and Integrated Project Delivery Contract. Each serves distinct purposes within the industry.
What is a cost escalation clause?
A cost escalation clause allows the contractor to pass through to the owner the increase in the cost of materials despite agreeing to a lump-sum price or GMP.
What is an unreasonable delay in construction?
Inexcusable delays are those where the contractor was entirely responsible for extending the project's duration. If this is the case, then the contractor will be liable for any costs or damages caused by the delay.
What types of delays are typically considered compensable?
The second type of delay in construction is known as excusable, compensable delay. In this case, the contractor is entitled not only to a time extension but possibly also monetary compensation because of the extended duration of the job if such delays affected the then-critical path when the delay occurred.
Can you charge a contractor for taking too long?
If the delay is deemed excusable, the contractor may only receive an extension of time, not financial compensation. However, if the delay is caused by the property owners, it may entitle the contractor to both an extension and compensation for additional costs.
What is an example of a compensation clause?
As compensation for your services to the Company, you will receive $10,000 in cash per year compensation as set forth on Schedule B attached hereto (hereinafter, the "Compensation") for serving on the Board starting from the date of this Agreement, which shall be paid to you quarterly in arrears during your term as ...
What are contract compensation events?
Compensation events are specific events listed in the contract that could affect the timescale and cost of the project. They're not usually based on contractor fault. They can be based around employer faults, though they don't have to be.
What is the core clause 6?
Core clause 6 of the NEC4 Engineering and Construction Contract (ECC) provides a process for assessing the change to the prices and completion date due to a compensation event.