Mastering NEC4 Compensation Events: Time Assessments Explained

Hello and good afternoon. Evening. Depending on where you are, I'm in Amsterdam today. Welcome to this fourth episode of our nec. Sorry, third episode of I'm Getting Ahead of Myself. Third episode of our NEC webinar series. This time we're going to look at compensation events and we're going to do this in two parts. Such a big topic. We're going to look at how we assess them in two parts. The first part is going to look at time and that sort of complex piece around time and the second part will look at prices which will be next month. And we'll advertise the date and time of that towards the end of the session. So welcome. My name's Ben Walker. I'm a director at gather, an online record keeping system. And I'm joined by Glenn Hite from GMH Planning, an EC trainer, and David Allen as well from Seeker Southern. So I'm going to hand over to David and we'll kick things off. David, do you want to say a few words about Seeker and what it's all about?

Hopefully we've got a slide deck to appear as well, Ben. Hopefully if someone pushes the right button.

No, just thinking that.

Indeed, while you're looking for that. Yeah, thank you very much. I'm David Allen. You probably already recognize me if you've been to the first two webinars. And yes, there have only been two webinars that we've done so far, but so thank you Ben. This is ceca, just one part of a. Or CICA Southern, just one part of a member led trade association and we represent organizations delivering and maintaining civil engineering infrastructure across the mainland uk. I'm really looking forward to this third NEC webinar. Did you get that, Ben? Third webinar in the series where I hope that Glenn and Ben will shed more light on some of the issues that our Seeker members and the wider industry have to address in the operational world. Getting greater clarity and consistency around the assessment process will increase the industry getting greater certainty in the outcomes. And as you will no doubt already have heard, the importance of today's topic has led it to being the Assessing Compensation Events part one, because there will definitely need to be more to follow and if you tune in in December, then you'll hear a bit more. So I'm now going to hand you over to Glenn from GMH Planning and look forward to the rest of the event.

Thanks, David. Thanks, Ben. So, yep, warm welcome back for another session. And yeah, we're looking today at Assessing compensation events. So we've split this into two. So we're focusing on the time element today and then in four weeks time in December we're going to be back. You'll have just opened your third day on your Advent calendar. Can you believe that, by the way? We do an NEC Advent calendar. More about that to come later. So December we talk about the cost element, but here this evening we're going to talk about the time element, as in first of all reminding what is a compensation event. So a quick recap as to what these are and the quotation proposing need to include the proposal to any delay to completion date. So we need to consider the impact of time with each and every compensation Fed. We'll say this a few times this evening. There's no such thing as a separate prolongation claim, so we need to consider time within each compensation Fed quotation. So we'll look at this relationship between the delay and the defined cost, as in how do we price this time element? We'll also talk about this very important thing called the dividing date. So it's a newly named thing in NEC4. The principle was there in NEC3, but it's more definitive in NEC4. So we'll look at the dividing date and look at some examples as to when it would come about and its significance and occasionally it could be grey, but in most cases it would be relatively black and white. We'll look at taking into account of the progress and a delay caused already caused and then also this sort of four step approach and there's lay assessment methodology. So we look at different ways maybe that this could be considered. But obviously we need the correct contractual process and NEC4 has cleaned up this slightly compared to previous editions of the contract and then common problems and solutions as ever. And then hopefully we'll have a good bit of time today for your Q and A and we'll pick up on any questions that you've got and then also share with you some more useful resources you've got available through the likes of GMH Planning Seeker and gathering. So extra source information we've got available. Ben, how are we going to fit that into 40 minutes?

We'll do our best. So the first thing just to recap we. So the three webinars we've done already, we looked at early warnings and a positive approach to those we looked at. A second episode was all about notifying compensation events and instructing quotations and then this episode we're looking at compensation events Part one because as David already said, it's quite a big topic this and deserves A little bit of extra time. So just given what we're still in this compensation world, we look forward to doing all sorts of other webinars in the future, but just remind ourselves what a compensation actually is. And it's an event that if it's one of the ones listed in the contract in a few different places where they are listed, if it isn't, if it's one of those events stated in the contract, then the contractor, if that event's occurred through no fault of their own, is entitled to change the prices, the completion date and any key dates. And it's that last bit, changes to completion date and key dates that in particular we're going to be looking at today. It's worth remembering as well that 636 actually talks about the rights of both the parties. So it's not just a contractor's right. Of course, certain compensation events might change the prices down as well as up, might reduce them as well as increase this. However importantly, time is only ordered in the one direction, so we only see extensions of time. Two major difficulties. Oh, I'm hearing a little bit of feedback. I don't know if that's my. Okay, so two major differences with NEC compared to many standard form contracts. First, one impact on the prices, completion date and key dates is assessed together prospectively, where possible and without revisiting. So once we've implemented the event, we don't go back and undo it. Only an adjudicator has that power to go and undo that commercial finality which NEC calls implementation, which is quite an important point. And an assessment is based on the impact upon defined cost and the resulting fee. And this preserves that tendering position. So we'll certainly look at that second part in the next episode on the 1st of December there. So that's just a quick overview, Glenn, if you just sort of orientate us on the process next, I think so roughly where we are.

Yeah, so in, in the last webinar we looked at the sort of first two boxes. So we looked at the awareness as to what is a compensation in the first place and where do they appear. So the majority place is obviously clause 60.1. So we got 21 reasons in NEC4 ECC contracts as to what is a compensation then. And then there's some littered in the primary options, the main options, so option B and D, there's some extra compensation fence to do with bill of quantity changes. And then also in some of the secondary options, like X2, for example, changes in the law, those would be additional compensation events and even in Data part one, there's space for additional compensation events, which is Then recovered under 60.121. So we look to the awareness and then the notification phase. So the fact that either party should be notifying. And we kind of got to the stage where we were then putting in the quotation and that's kind of where we pick up on this afternoon. So we're now going to focus on the assessment phase and then over the sort of two sessions, we'll get to implementation as well, the conclusion of the process. But this afternoon we're focusing on the assessment phase and in particular from a program perspective today and on the next webinar, we'll pick up on the cost element of the assessment of the compensation vendor.

Yeah, and it's true to say that I think in this episode we're going to focus on the quotation route through to implementation. So there is another option and it's Project Manager's assessment that can play out under certain scenarios, conditions, but we're really looking at how those rules of assessment under clause 63 apply under clause 62 quotation. Okay. And the first thing perhaps to note is that just to touch on this point as well, before we get into the sort of detail of how to approach Those assessments, Clause 62, which deals with quotations 62.2, specifically requires that if the program for remaining work is altered by the compensation event, so if you'll change, or your or event, wherever that event might be, changes the remaining work, then the contractor includes alterations to the accepted programme in the quotation. So note the word alteration there. It doesn't require you to put an entirely new program for acceptance in with your quotation, it is just the alterations. And actually that kind of makes sense, doesn't it? Because it's not so much what we now think the programme is, it's how it's changed, how it's been impacted. So if we keep thinking along those lines, it starts to become clear that we need to see a sort of before and after impact assessment. And that's, I think, the direction that we would go in and certainly where the rest of this webinar sorts of looks at and explores. I think sometimes it can be quite a big dramatic effect. Then it might be pragmatic to look at an entire program, but nonetheless, you've still got to demonstrate how it's changed. And those alterations need to demonstrate, from a time point of view, the assessed impact of the event upon planned completion, meeting a condition stated for a key date. And then if you've got X5 then obviously plan sectional completions as well. And quite often I think Glenn and I were chatting about this recently. I think we see people putting plans completion on a program so you people remember to do that. So you have this pairing between the completion date, which is the contractual deadline, the completion date and then you have planned with a small P because it's literal planned completion, which is the reality and those two are paired. But quite often we don't see on programmes we see key dates but we don't see that planned date for meeting the condition for a key date. And you do need to put both the contractual deadline and. And when you're planning to meet that reality without that this whole piece becomes sort of impossible to do. So really important to show both those sides of the coin on your programs.

Yeah, I'd add to that on that last slide, Ben, I'll just add the fact that yeah that's in training. That's so common conceptual misconception. Just people don't realize that you need a planned key date milestone for each key date. Often they realize they need a planned sexual milestone but then don't think that they need a planned key day milestone and it's just not. Not recognized. Once we show them and explain why that would be the case, they're like yeah, actually I know why we haven't done it now sort of on reflection. So that is commonly communist. So yeah.

And if you, if you go right back 636 at the start of the session today, you know your rights are to changes to the key dates. And as we'll see in a moment, the only way those dates change is if you can, if there has been an impact on that planned date for meeting the conditions. So really important yeah that we show both.

And also on that last slide just to say that, you know, Ben's talked about the. It's not a revised program issued for acceptance and I always describe this as a filtered program. So when you're plugging in a compensation for the planners amongst you, if you do a mini baseline on the program before you then feed in the compensation, then you can then when you reschedule it after you've assessed the impact of the ce, all you need to do is run a filter of what's changed since that last baseline. And in effect that is your mini program that you're going to give with that quotation. Ben's already said it's not. You're not issuing that programme for acceptance. It's to help the quotation be understood is the purpose of that programme, so we're not issuing it for acceptance. And with that follow straight on, is that the whole key concept in terms of time is there is no separate prolongation claim under NEC contracts. All too often with other forms of contract, you get towards the end of a project and then you might pick up on individual delays and you've claimed for them along the way, but then you get to the end and it's like, right, we're 12 weeks late. And then you might be tempted to put in because there's no other way of doing it. A sort of global prolongation extension of time claim is what you might have called it at that point in time. But there's no such approach that facilitates this within an EC. So if you are running 12 weeks late, you need to know exactly which month along the way those delays occurred in and which compensation event that was down to assuming it was. Because if it wasn't down to a compensation event, then you've got nothing to claim. But if you can pinpoint that 12 week delay to individual compensation events along the way, then that's what you need to track. And if there isn't a full entitlement with compensation events, some of that 12 weeks you might be culpable for. But the bit you're not, you need to track and be able to claim for that along the way progressively. Okay, so there's no global prolongation claim Each time you issue a program for acceptance, if you have a delay in plan completion, you need to know why you are running late that period and hopefully you can attribute it due to Cogbus, say, hopefully from Chaplain's point of view at least you can attribute it to a compensation event. Less happy for the client, obviously. But if you can attribute it to a CE that period, then you will need to include within a conversation quotation the time element and you need to price that as well. So whenever we're assessing a compensation event, the accepted programme is the starting point for the delay assessment. You are allowed to include risk allowances within the forecast that are risks that would be the contractor's risk and have a reasonable significant chance of occurring. No separate or identified rate for prelims in inverted commas there. So you don't have a prelim rate tied to the contract. You don't say every week it's going to be ten grand. Prelims will be different for different parts of the life cycle of the project. If you're running late at the very end by a week and there's Only a couple of people knocking around and one welfare cabin left. Your premiums are very minimal. If you're delayed in the middle of the project, when you've got maximum cabins, maximum people, your prelim right will be significantly more expensive. Be able to demonstrate within an individual compensation and quotation what the prelim type rate is within that quote. The delay may have an impact on the components of cost. So again, when we're building up the compensation quote in terms of scheduler cost components, we needed to see and value the time element of each of those elements in terms of people, equipment, subcontractors and so on. So that's some of the key elements in terms of the relationship between the delay and the defined cost assessment.

They really are integrated, aren't they, Glenn? You know, if any of you out there are still writing these letters along the lines of here are our. So if you basically lay out your quotation to say here are our direct costs that we can tell you about now, we will follow up with indirect costs as we know them. That is definitely a flawed approach and not something that NEC supports. You really have to look at the whole effects and if you wanted to look at also other things like assumptions, we cover them in quite a bit of detail in episode two. So remember as well in the full ECC main contract, you can't make assumptions. As a contractor, you're reliant on your project manager making those where the assessment is too uncertain to forecast reasonably. Okay, good stuff. So, yeah, it leads me to talk a little bit about the dividing date. So the dividing date is now something that's in NEC4, so it wasn't in NEC3. It's a new kind of concept or an old concept, but now explicitly explained in NEC4. It's not a defined term, but it, it does give us this concept that separates actual work done from forecast work not done. So anyone familiar with compensation and assessment, you'll have seen this clause. It's in NEC 4, clause 63.1. It talks about actual work done, forecast work not done. And this is the same in NEC3. It's just that in NEC4 we're a little bit more specific when we introduce by the dividing date and the lower part of this clause explains that the dividing date is this sort of concept that separates out what's been done from what hasn't been done yet. This is really important because it ensures.

That.

The point at which the point in time separates what's been done from what hasn't yet been done doesn't move. So it's not a moving feast and it does a couple of other things as well which are quite important. Important that particular date is set by a specific communication, the nature of which varies depending on the type of conversation event. So I'll say that again, depending on the type of conversation that we have, this will inform us as to what communication we should be looking at, the date of which communication we should be looking at to establish what that dividing date is, what the date is that's separated the work not done from the work already done. And on the next slide we're going to have a little look at some examples of that. So really important, it was kind of intended to be the case in NEC3, but not very explicit. So hopefully this concept, as we explore the significance of it a little bit further, gives the contractor some sort of confidence that this isn't going to be a moving feast. In particular, when we look at the significance of it with regard to quotations, we'll unpack why so more on that in a moment. Glenn, do you want to give us that idea of. This is perhaps a useful chart to understand that bit I talked about. The compensation event type will set the communication that tells you when the dividing date was.

Yeah, I think this slide does it quite nicely. So we've got the dividing date and if you look on the left we've got assessments, potentially retrospective and to the right assessment is prospective, as in it's going to be a forecast. Let's go to the right hand side first of all, and this is something people struggle with. Why are we going to do forecast? And isn't it all about actuals? And if the quote's not been agreed, don't be revert to actuals. As Ben's already highlighted, NEC4 is absolutely clear. NEC3 was generally clear, but now clearer in NEC4 as to what the switch point is between forecast and actual. And it does depend on the type of event and the communication that has been presented with it. So the ones on the right hand side will only ever be based on forecast because if we take the first one, the project manager gives an instruction change in the scope. Well, why would a contractor ever proceed? It's something change in the scope without an instruction. Now I'm tempted to say please don't answer that because if anyone thinks they should, they shouldn't and you shouldn't be doing something without an instruction to do something different. We shouldn't be doing it. And sometimes good chatters are too helpful and guilty of trying to be doing too much by thinking Well, a spirit, mutual trust and cooperation that will help the client. So we should do it. You're working at risk that you don't need to do. And if it's really urgent, then really quickly they should put it in writing is my response to that. So if the project manager is given instruction, change in the scope, the contractor won't do anything without that instruction. So the switch point, this dividing date is the date of the instruction. So this can only ever be based on forecast. And the same for everything else in that list. Number four, these aren't all of them by the way, this is just a sample. So number four, the project manager gave an instruction to stop work you wouldn't have stopped without that instruction. So now it is a forecast. What would have been reasonable to have allowed appoint project manager or supervisor changes the decision. Number eight, Supervisor instructs research for defect. None was found. Or the project manager certifies takeover before completion date. So the date when the project manager or supervisor there's only one instruction the supervisor ever gives and that is an instruction to uncover works if they believe a defect exists. So the instruction is the dividing date and those will only ever be based on forecast. If we now switch to the left hand side, these are ones that potentially will depending on how quick they're notified. Because these will all be notified as compensation events, there may well be some actual elements that are done before it's notified. Now there is a time bar to notify a compensation event within eight weeks becoming aware, otherwise they could be time barred. I cannot think of any reason why it would be in the good chapter's interest to wait seven weeks before they're notified thinking we want to get this agreed at actual cost because it's fraud with problems. And also if you wait seven weeks to notify, how long is it going to take to agree the quote? And in all that time you don't know your liability so shouldn't be in anyone's ploy. And Ben, you can top this off and maybe I've missed something. I can't think of any reason why a contractor would want to delay that notification. But some people think it might be in their interest somehow. So these ones, if you don't get access, the contractor is obliged to notify, otherwise they will be time barred. And if they don't notify for a period of time, then potentially there will be an element of actual contact cost that will have been experienced. Same for the client doesn't provide something by the date shown on the accepted program or number 12, the contractor encounters physical conditions that would have had such a small chance of occurring would have been unreasonable for them to have allowed for it. So again, I always say contractors, as soon as you've hit unforeseen ground, notify as soon as you can. Because if they say no, it's not. You've just wasted seven weeks thinking you're going to get paid for this and they're saying no, that was in the site formation. You're under no illusions. So that's a risk. In theory, you shouldn't have done anything different. But you thought you were going to claim for this. And if you notify, you'll get a response within a week as to whether or not they agree it is a compensation. And probably the one that's most common that will be based on actual is weather. Because for it to exceed a 1 in 10 year weather event, it'll be several weeks after the end of the calendar month before you get your Met Office data or wherever you get the weather data. So this is one of the more common ones that will be more likely to be an element of it will be actuals. You will have actual time and cost elements to consider for weather. Would you agree that, Ben, there's no reason, is there, why a contractor should want to wait seven and a half weeks to notify a CE or if I miss something?

Well, I don't know. I think perhaps there is perhaps one example where my understanding of contractors is the first priority is to not lose any money. And I guess if you were to not notify straightaway, so if you were to hold your notification and maybe use a bit of that eight weeks, then the, the dividing date is the notification of the event. So you would bank more actuals rather than, rather than relying on forecasted risk allowances, I guess. But that itself is, you know, certainly if it's option A or B, the cash flow is also important and if it is potentially a bit risky, then, you know, perhaps we should be paid that risk allowance because that's when we're on the hook for it, whether or not it happens. And that's a debate we have a fair bit and actually probably a point better made in the next slide. But yeah, I think I agree with you Glenn, on 13 on the weather that even if you notified immediately, you're still likely to have experienced some effects. And therefore we can't help but recognize a certain amount of the assessment is going to be retrospective. And that's really the nature of this webinar today is to look at how we approach those different parts because it might be a combination of partly retrospective and partly prospective. So we might be looking backwards from the dividing date into the past to take account of those effects. We've already felt and stood on the dividing date. Looking forwards, even if the admin's not prompt and we are a little bit further down the road, we're still able to bring ourselves back to that dividing date and look that way and therefore protect our risk allowances. And that's really the big significance of clause 63.5 as I understand it is it's just super explicit about the point at which we make the assessment is not a moving feast. So let me give you an example of perhaps some mischief that could occur without the dividing date. Imagine you're a, a contractor in good faith putting your quotation together and it's for something that's going to happen in the next few days perhaps and you are on the dividing date because it's an instruction changing the scope. So the dividing date is the date of that instruction and maybe that's today. And you're being prompt with your quotation and you're saying to yourself, okay, this work is going to take a couple of weeks and it's going to, it's in the winter, it's outside, we've got some fairly weather sensitive activities so we're going to put maybe four days risk allowance onto that. The project manager in theory has three weeks to accept your quotation. So if you're prompt at putting your quotation in, maybe you're on an option A and you need to get that cash flow in and get things processed as quick as possible. There was a scenario in some interpretations of NEC3 where the project manager might just sit on that quotation and if you ended up needing seven extra days then they would accept the quote and if it turned out you didn't need any day's risk allowance then they would instruct a revised quote based on actuals. And one interpretation could have been that you perhaps could do that. NEC4 makes this super clear and to Glenn's point, anything on that right hand side is really saying no, this is always prospective which preserves your entitlement to those risk allowances. And I very much hope that the client teams are listening to this as well. And you know, I've heard in face to face training certain sort of pushback on that. Well Ben, if we've got the actuals, why can't we just apply those? But we have to remember the whole point of NEC in this approach is that we are Trying to get certainty sooner and deal with change as it happens in favor of a big prolongation thing, big global delay and disruption claim at the end of the day job to very different approaches. And one of those requirements to gain those benefits is to do this prospective assessment wherever possible and in a timely manner. And so to keep the kind of fairness and appropriateness of that, we have to have the ability to include risk allowances for cost and time where appropriate, as if we were doing a mini tender. And it still got a bit of pushback. I don't know if you've ever heard this, Glenn, but my favorite sort of response to this is, well, you can't phone your home insurers up after a successful year and ask for your premium back because your house didn't burn down at the time. That's what we're on the hook for as contractors and that's the bit we're entitled to. And the whole point is to give that certainty, move on and then we deal with tomorrow's compensation loans tomorrow rather than having that kind of less than satisfactory global delay and disruption claim where there's so much uncertainty. And I think that's one of the big differences with NEC claim is that. Have I phrased that right?

Yeah, yeah. And obviously time risk allowances is a very NEC phrase. No other contracts have got this like specific concept or this specific label anyway. But it's always interesting, isn't it, those same clients who retrospectively decide that actually those tie risk allowances are too much. We can now see you didn't need that time. So therefore we want to take that out. Those same people are very quick to ignore the fact that another scenario, there wasn't enough risk included and they there was more risk needed than they could track the price for. And of course on that one they say no, the quote's fine on that one and they don't. So two days of risk, there was only one day needed, they want to take one. But if there's four days of risk and they've only priced two, then they're happy to accept the quote. So I think you've used the word already tonight. Consistency is what NEC is trying to achieve. And occasionally in a given scenario the rule will go against you, whichever party you are, but that same rule will then protect you in a very other situation that happens slightly differently. So the rules are consistent. What does vary is the order, the timing, and those are the things that change.

Yeah. And don't forget as well, really good points, Glenn. And just something that jumps into my head that I know you're a massive fan of which is assumptions. So the whole if your time risk allowance is unpalatable and perhaps out of proportion to the whole sort of out of relative proportion to the overall compensation event, then have a discussion about stating an assumption because that is a post contract way of fine tuning that risk allocation. One of the only ones I think which allows you to be a bit sensible around things that are so uncertain and that's not. I think we covered this in the last webinar. It's not kind of something that the project manager is gracious to provide you. This is an obligation upon them where it is not possible to forecast reasonably. I forget the exact words, but something to that effect. The other thing this clause tells us which is very important and new to NEC4 is which accepted program to use because NEC3 and NEC4 are very clear. There's only one accepted program and the most current program accepted supersedes the previous one. But the way in which clause 635 is worded is careful to specifically bring into play the accepted program current at the dividing date. Now this gives us a much more contemporaneous program at the time of the event if in an unfortunate circumstance of the admin not happening promptly, we don't keep resetting the program that's used, which was another problem that we saw in NEC3, so that this has solved that problem as well. And I think that bit of mischief is far better now. And so you've got a static date with which the assessment of past events and future events and a static program with which to do that, which is I think much more satisfactory. I think we've covered the other the other bits and I think we're ready perhaps then for the next slide. But the one important point to just say, I guess on this 3.5 there's no kind of defined term for contractors float or terminal float. Everything about the preservation of that float between when I plan to finish and when I have got to finish or plan to complete and got to complete that bit of float. Everything said about that is quite elegantly said in this simple sentence and it's really important to read this and understand it and it's that a delay to the completion date is assessed as the length of time that planned completion is later than planned completion on the accepted program current at the dividing date. So this is the one that tells us that we can only extend a completion date, we can't bring it back in time. And it also tells us that that Bit of float that as programmers, schedulers you might call terminal float. That bit of float is preserved and it is the contractors, if you like, to maintain. Glenn, anything further to add on that one?

No other. Yeah, you described it very well. So just that gap between plan completion and completion date, that's what the contract calls it, the gap between the two. The guidance notes actually refer to it as terminal float, but slightly. Strangely the contract doesn't call it that, so. So we all use that term, terminal float. I even use it in training. But technically it is the gap between plan completion and completion date and yeah, it's maintained and the gap is what's commonly known as terminal float.

Yeah, absolutely. I'm glad you've got to talk about this one since I think you've got to take some credit for it changing.

Well, yeah, I mean it was interesting. So 2013, when it was mid NEC 3, that era, I didn't feel it was clear enough in any C3 exactly what program you. Well, it was clear what program you used to assess compensation events. What was less clear is if you take into account progress and other compensation events that have happened since the last accepted program, especially when the last accepted program might have been two, three, four months ago, it could have been, could have been that long. So in that article, bottom right, assessing compensation events, which program do you use? Even that article, which was an NEC user, good newsletter article. You can download it if you want to. Even at that article I did prove with existing NEC3 wording that you did have to take into account progress and other compensation events since the last accepted program, but it was very convoluted and you had to read a lot of clause in conjunction with each other to get there. And at the end of the article I said, but look, I've just written 300 words on that and it's not straightforward. Come on NEC4 solve the problem. Unfortunately, 2017, NEC4 didn't solve the problem. NEC4 was great, it's. It did lots of good stuff but this particular issue it didn't solve. I had to write a new article saying you've not solved the problem and you've caused a bigger issue. And they weren't very happy with this being published the day after the contracts were launched. But we're still friends and it did prompt them to say, you've got a point. So within four months, which was great from nec, they wrote first of all a mini guidance note. It was called ECC Practice note number one, saying that when you're assessing compensation events, you do Take into account progress and other compensation events since the last accepted programme prior to the dividing date. And now in the 2019 version of NEC4 they've added these words in because as we've already said, guidance notes isn't part of the contract, so they need to be in the contract. So the 2019 version of NEC 4 does include these two important lines. The first one says any delay caused with a compensation event already in the accepted programme. So basically that will be if last month you were showing you're running a week late, you didn't know why. If you can now attribute that to weather, because you've now got the weather data and now you know that's why you're running late, you can still claim for that delay as a compensation event. And then the second one, which is the one we're going to go and look on the rest of this session is events. Events which have happened between lately accepted program at the dividing date. So that will be progress and other compensation events which have happened since the last accepted program and the dividing date. As we've highlighted, there may be a need for some a mix of retrospective and prospective assessments depending on when it was identified, the dividing date. And there is something I need to talk about. The SCL protocol. You might have heard of this. There's several methodologies where the SCL Society construction and law came up with a number of different ways that delays could be assessed. We need to be very careful with this document because when it was written it didn't specifically deal with nec. It's talking about general methodologies across various forms of contract. But NEC has very specific rules. Okay, so the SCO protocol doesn't take into account these new words in NEC4, for example. So I don't think you have a choice in how you assess things. I think NEC4 now makes this very clear and we're going to look at this in the rest of this afternoon session.

Yeah, I think so. Glenn, I think you're spot on there. And I put it in the slide deck because, well, it must have been 15 plus years ago. I did read all 86 pages of the delay and disruption protocol. I found it extremely useful and I remember working with a contractor at the time to consolidate it into two or three sides of principles that we would follow. So if we think we have a genuine concurrency of delay, what should we do and what's it like? If we've got something that happened in the past, how do we approach it and the reason I put it in and stress just to reiterate what you said, Glenn. I couldn't see anything in that protocol that talks about nec and I can't see anything in NEC that talks about the protocol. But these two things do exist and certainly I've had personal experience of success bringing the two worlds together. Nonetheless, following the contract and yeah, it's something we'll just put a couple of slides in in a moment so we can have a look at some of those techniques and there are other techniques out there and I'm sure the schedulers among you have got various approaches, but just a couple of solutions offered, Glenn.

Okay, so just very briefly, let's imagine top program. If you look at the black lines, that's the baseline and we're going to have a delay to refurb building, which is a recognized compensation event. Okay, so summarising the last slide, what we're going to do is we're going to take the last accepted programme, which in this one was a week six. We're now at week eight, two weeks further on, the first thing we need to do is progress the programme so we update it with progress since the last accepted program up until the dividing date. So you're not taking into account this new CE yet, you're just seeing last accepted. We were on schedule last accepted plus two weeks progress. We see where we are and in this particular example we're going to see that the refurb building is running a week late. For whatever reason, it's running a week late and we've now started the week late. We're achieving the up we were expected, so we're now planning to finish it. Black line under the refurb building. There was two weeks float on the last accepted program. But before the CES come along, we've already used as the contractor one week of that. So we need to record that first and then re baseline the program and we can save a copy. We've not done that on this slide, but basically the second picture, the black dotted the solid black line would now be the rebase line of refurb building as the interim step. And now there's only one week float left on the end of refurb building. So if we now add in a valid two week compensation event, it moves the planned completion, the red diamond, out beyond the completion date, which is the black diamond, by a week. That then means that we can claim a week's worth of premium costs within that CE quotation and the completion date should move by week once it's implemented. So you're doing that three step process you progress since the last accepted program and then reschedule the program, save a copy, then you feed in the compensation, reschedule for a second time and then see any impact on plan completion. And it's this that you would need to convey within your compensation and quotation. Now that's quite a lot to go through in a brief webinar. But that's the principle showing that if we ignore progress, so if we ignored the progress on that refurb building and just put a two week CE in, then it wouldn't have had an impact on plan completion and the contractor would have lost out on true entitlement. So NEC had to set the rules. Whichever the rules were, I didn't mind, I just wanted them to set the rules so we know where we are. So this is the sequence. We're going to progress the last accepted program up until the dividing date, reschedule it and see what the true picture is, then we can add in the compensation then and see the further impact that has. And that will be the entitlement. In just one slide.

No, really clear, I think, but remember, this is recorded so well worth watching this a couple of times and yeah, you know, let that sink in. And as Glenn said, I think the only thing I'd add, Glenn, is if we hadn't have progressed the program in step one, then it would appear that at the end of that baseline refurb building, you see where the black underscore finishes, there would be sufficient time to do all of the compensation event work. So if we hadn't have done that first step, the client would have just burnt up the internal program float or the slack if you like, and therefore there wouldn't have been any extra, any extra time awarded. So that step of progressing a program for known delays or progress, and in this case it looks like for whatever reason, maybe the equipment broke down, maybe the contractor people were late turning up, whatever, in this case it was burning up internal slack. And I think that's what this demonstrates here, the importance of progressing the program.

And even worse, if the, if the client believes no, that two week gap has just been burnt up and the cliche should move, they're now liable for weeks worth of delay damages for starting something a week late when actually they were allowed to.

Yeah, yeah, they haven't got much further to go. Yeah, they're in delay damages as well.

So.

Yeah, and again, it's the importance of keeping records and also having regular program submission and acceptances so that this detail doesn't get lost and don't forget it's progressing the accepted programme current at the dividing date. So the older that program is relative to your dividing date, the more hypothetical it's going to be and the more work you've got to do to bring it up to progress it with known progress. So much better. If you can have a higher frequency of program submission and acceptance you're going to be there's going to be less work to do for each compensation. So lean into getting the program accepted regularly. If you're timid about it, you're just creating more work for conversation events. Okay, couple of slides then toying with the idea of not putting these in but I think it's helpful. So again these methodologies are taken from that or should reference here the Society of Construction Law Delay and Disruption protocol available from their website there. I I think it's a brilliant document. Like I said, I've looked at it for many years so go and check it out and the progressing the program for events already known about those two bullets if you like and for acknowledging that part compensation event perhaps in the case of a weather event that's already happened. How do we do that? Well it's perhaps really nice to start with a statement of fact to sort of anchor us into that reality. And I really like this methodology. I think they call it a collapsed as built or kind of but for assessment. So but for the compensation meant what would our program have looked like? And again NEC don't mention that you should do this. So again there's that little, little bit of caution there but it seems to me to fit and follow those rules fairly well. But you'd have to make your own opinion. So essentially all we do is we take that program and this is why it's not the submission of a whole new program because that wouldn't give us the change we really want to see the alterations to the program. So what's happened as a result of the compensation event? Well to do that we kind of have to show it with the event and without the event. So here we've got the example of the first little program subnet a little extract from the program showing those aspects of the program with the compensation event effect in them and then the same extract underneath but with collapsed with that as built position collapsed as far as it would go acknowledging any constraints or other things that would stop it fully collapsing and thereby demonstrating that impact on plan completion. Which links us back to 63.5. So again you have to make your own determinations whether or not this is fitting the bill Personally, I think it's very close and I think it's a pragmatic way of looking at how to model things that have already happened. And then similarly, I think much more widely sort of understood and adopted is when the dividing date there, the vertical dashed line on the left when the dividing date is behind us. So the effects of the Compensation act is being assessed prospectively. You can see that on the second, third and fourth activity we've got these planned impacts and we are modeling that on the accepted program, which is the top one and we've got the bottom window is the accepted programme including these elements to demonstrate that impact on plan completion. And so this for me would kind of be the alterations demonstrating the alterations to the accepted program in the quotations. So this is the kind of backup you need to put in to demonstrate it doesn't have to be a Gantt chart. Glenn I think you used to use PowerPoint slides, didn't you, with sort of animated buildups. You might be able to explain it just in pure narrative, but I think a picture paints a thousand words, doesn't it, and says something like this. What's your experience been, Glenn?

Well, I'd always do mine in the program as an ex planner, but yeah, it might be sometimes where just an abstract, just to get across a picture or whatever, bit of sequencing or time charts or whatever. But there's a few ways, maybe graphically, but at the end of the day we've got to relate it back to the accepted program because that's what the clients had and that's what you need to demonstrate to get sort of true, true entitlement. It's just struck me actually, I don't know if we've said it yet, so let's say it now. The most important thing about the compensation process is where plan completion has moved due to those ces. Initially you can only move plan completion, you can't move completion date. So it's only when the CE becomes implemented that you can then move completion date by the agreed amount. So planned completion will be instant moving whilst the CE is being agreed and gone through. So at the moment you'd have planned completion on the bottom chart, but the completion date on the top chart. And there's a very close gap and it's only when the CE becomes implemented that then completion date can move by the agreed amount and the gap that existed before should be the same gap that exists afterwards. But the longer get that CE agreed then the gap seems to have closed up and neither party is quite fully aware of Their true entitlement.

Absolutely. And this is why these are alterations to the program. So again, 62.2, what do I have to put in a quote? It says quotations for compensation events comprise proposed changes to prices and any delay to the completion date and key dates assessed by the contractor. So we're proposing those changes at the moment. And the reason for those little dashes there is. It's saying I'm proposing to change the completion date by this amount. And the little dashes on the amount corresponds to the little dashes on the amount that plan completion has moved by. What we're not doing is submitting a revised program with our quotation with a completion date already moved. Because that only happens following implementation or at implementation. Implementation. And that can only happen once your quote's accepted or a project manager does their own assessment. Okay, good stuff. We're pretty much. We probably need to move on a little bit. Glenn. We've got some time for questions as well. So if we just run through these common problems and how to avoid them briefly. I wish you had more time, really. Accepted program. If you've got an old accepted program, I think we covered this one, then you've got a poor starting point and you've got more, more work to do in the compensation event analysis. Much better to have that frequency of program submission acceptance as rapid as possible. Time risk allowance not shown on the accepted program. Many people leave this off. So the float's in there, but they're not showing their allowance for time risk allowance. And it's really important you show that because that cannot be used to mitigate the effects of compensation events. I think, Glenn, that you showed me the best way to do this. It's just an extra column in the price program showing you what element of time, of the duration is risk allowance. So if you've got a six day duration task, one day time risk allowance identified in a column next to it, then that's probably the most sensible way to show on a program and very important to show as well. Third one for me, principal items of resources not included. This is a really challenging problem. If you're not showing how many piling ricks or long arm excavators you've got on a certain task. It can be really problematic, particularly with price as well as time when it comes to, you know, maybe asking for a second rig or an extra resource. Showing those principal items of equipment and your assumptions to their work histogram. Super important, I think, Glenn. Yep.

So they're, they're three important ones on the right hand side we've got another three important ones. So float not shown on the accepted program. So it is an obligation to show floats. And if you, if you don't show an item's critical or near to critical then if you have shown that it should be no surprise next month there's a CE that impacts what had very little float. It won't be a surprise to them that why now it's gone critical and you're, you're claiming time. So making flow clear is then just making the answer easier. When you're assessing the compensation it's the obligation to show it. If you're not showing it. That's the reason for not accepting the program plan dates for meeting conditions missing. So again if you haven't got these dates then it's difficult to show. Well if you haven't got your plans key date, how are you going to demonstrate what the key date should move by?

Really important.

We have planned dates for every key date, every sexual completion and the overall completion date to maintain that gap. Otherwise known as terminal floats more commonly and no alignment on methodology. So they are really important that you're making it clear on what the program is showing and the high level elements and why you plan to do something a certain way. And then again when things change it's more easier to substantiate and justify why you are claiming what you're claiming as a, as a contractor or as a subcontractor. So some really important points there that can lead to problems if we're not addressing them.

Absolutely. And I think just to underpin all of those, whether it's getting the program submitted and accepted regularly and being able to justify the quotation that we're putting together, keeping regular records of what's happened is really important and that can also be used prospectively as well when you moment we are putting together productivity assumptions for forecasting and building in that time risk allowance as well. So I think you know, having those conversations, oh well, we've got one long arm excavator to dredge a canal or whatever it might be. We've instructed some additional works. How do we deal with the time element of that? Very useful to be able to bring some contemporary records in. If we can have them then it makes a lot of sense to capture them and use them. Okay, we've got a couple of questions and a statement. So Will, if you wanted to line up the first question for us and just whilst that's loading up, I just want to make the point actually Will, before can we just jump back to the media just to make the point. We covered a few useful resources through the course of today so, so I just wanted to point you in the direction of those. So we've got the obviously the NEC4 ECC contract and it's important to get the latest one with those amendments in. We've then got the user guide volume for managing an ECC gives you a commentary of how to interpret that clause. There's also The Practice Note 1.1 Assessing delays due to compensation loans. So these are all NEC contracts which materials and then that Society construction law delayed disruption protocol as well. So hopefully those references are useful. Pick your way through them and sort of make your own, make your own approach. Glenn, are there useful resources? I think your website is what, hopefully.

There'S a couple on there. So yeah, I mean the seeker bulletins are on the SECA website, they're on the GMH planning website and any articles that have gone into the NEC user group newsletter for example, we just had one published last week on Z clauses as well. So there's a whole array on our GMH planning website. There's guidance notes, there's articles, there's frequently asked questions. So yeah, we're trying to help people to help themselves as well as obviously training but we do a lot of free advice and yeah, the LinkedIn group as well, you can ask your own questions in our LinkedIn group, the NEC people LinkedIn group as well. So a whole wealth of other things out there for users and do follow.

Us both on LinkedIn. There's lots of musings and ideas on there as well and just to maximize time for questions I'll just deal with this second part where we're going to look at how to assess price impact on prices. Glenn, I don't know about you but I find that a really fairly large percentage of, of delegates that I train, regardless of how many years of NEC experience they have, fundamentally miss the concept of how to assess price correctly and I'll put my hand up and say I got it wrong for 5 years in my early, early NEC career this, this idea that, you know, sometimes we can conflate the prices in the activity schedule for example or as being part of the calculation and really this, this episode's crucial to get that clarity. So I hope you'll join us on the 1st of December on Monday at 4:30 where we look at the second part of assessing conversation lengths and we'll delve into the concept of how to approach them and yeah, it should be quite a Good session.

Definitely.

Okay, I think that leads us to questions then. So first question. Thanks for the first question there. What happens if there is no accepted program? What would you use as a starting point? Go to a Gladys.

Okay, well the first thing we do is we give up and we go down the pub and we drown our sorrow because hopefully that's a hypothetical situation rather than a real situation. But unfortunately, you know, this isn't the first time we might have heard this. I mean there has to be, has to be an accepted program to start with. And if you haven't got one, well, you've got to find a way of showing what the accepted program would have been on day one and then trying to demonstrate the impact. And we're in a whole lot of mess and we might as well use the JCT or affidiate contract to get it done.

Can we be bold enough to say make sure you put one in because it's not always required, is it? So contract data. If the invitation to tender doesn't require you to submit a program with your contract data, then you don't have to put one in. But I mean, I can't think of a better way to assess the tender, a quality point of view as that rich document as to how we're going to do it. If you haven't got an accepted program or if you haven't got a first program showing information contract requires the project manager is obliged to retain 25% of the amount due. Is that clause 50.3, something like that. So that's a really big cash flow implication. And if there is no program, the project managed to make their own assessment, which is not an easy thing to do. So in all counts make sure you've got a program in that. Yeah, I think we both agree that wheels fall off. It is such a crucial tool. You call it the beating heart, don't you, Glenn? Yeah.

And our seeker bulletin started this year. Number 49 was why it's so important you do submit a program. Even if they don't ask for one, it's optional. And if you do include one in data part two, it becomes the first accepted program. So the first thing is don't let that happen. But if you are in that position, well, you've got to try and walk through that treacle to try and mutually agree what would have been the original baseline and then try and then assess beyond that what these Cs would be. But you're in a mess.

The other top thing with this is in the scope you should be including A format that you want to see the program in. So if you've already done that pre contract you can inform that that document and explore it pre contract which has even got more advantages there because it takes that uncertainty out of is it going to be acceptable just in terms of its format and layout and presentation. So really important. Thanks for the question. Got the second question. Is it correct for the project manager to require the contractor to submit the progressed program for acceptance before using it for a CE evaluation?

So I'd say nope. And so you don't need to submit it for acceptance because even if you did they've got then two weeks to respond in the meantime is it accepted? Not what do we do? So we said already in that slide I showed you earlier it probably will be beneficial as part of the CE quotation to show that two step so you can show a mini program showing last accepted plus progress and then a second program showing progress now with the compensation to show you how you got to your overall answer. But it's not, it's actually mandatory requirements to submit the program to that interim step. And anyway if you had three or four C's within the period, you'd be in a right mess because hang on, we got four programs to issue now so no, but you need to convey the picture within the CE quo because look, you've got to be convincing as a contractor. A client isn't going to want to pay you extra money if they don't have to. So you've got to go the extra yard to demonstrate why it's true bonafide entitlement and that will probably be too many programs to illustrate that point within that quote.

What I would say is absolutely agree with a small A, there's no such process in the contract. But work together on progressing the programme, work together on acknowledging events effects to date, work together on putting that impact in there so that when you submit the quote it's a formality to get it accepted because if you do these things in isolation, you know, you're very unlikely to get it right first time and then we just burn resource. So work together on them, beat the timescales if you can. What do we define as events as per part 2? Could it be other unimplemented? Cesar so we're talking specifically about compensation events but you're right in terms of progressing the program in that first step that Glenn was talking about there we are acknowledging all progress or delay. So it could be that we had some equipment failure, it could be that the weather was bad but not bad enough to trigger a 1 in 10. It might be we had an act, might be we were just late getting to site for one reason or another. So it's really to bring the program up to a point where it reflects the reality. And Glenn, I think that's probably what the question's dealing with there. And absolutely it could be anything but however, probably not other compensation events because we've got to do them in some form of sequence. And I think, Glenn, your approach should be to model one re baseline and then go back around the loop to do the next one. So as long as you do them in sequence and if you can within a batch, do the big one first because then you'll probably have less time assessment to do. You need to be careful though that we're not jumping accepted programs. Remember we're modeling on the accepted programme current at the dividing date. That's quite an important point.

Yeah, so I think that's put quite nicely. So it would be progress and any other compensations that came along before the dividing date. So bearing in mind should have already assessed those ones first. Then you take into account progress and other compensation events that did come along before this new dividing date for this new ce. I'm going to add another controversial one which is probably the wrong thing to do at 5:33 on a webinar. But the other controversial one is incorrect logic. Yeah, I actually think NEC went further than the woods and I think it's right probably. So incorrect logic could be also classified as the event. However, contractors don't now think. Our brilliant Glenn and Ben said we can change our logic, make it critical and then plug in the C. It shows entitlement. You will have to demonstrate that to the nth degree why you've changed that logic. That is not a free reign or a new wiggle out how you can get extra entitlement. So I would summarize events to say progress and other compensation events that came along before the dividing date and in brackets in small letters, major incorrect logic that's been identified within that period. But don't get too carried away with that is my advice.

Don't forget clause 63.9 as well. Just to build on exactly what Glenn's just said. The assessment of a compensation event is based upon assumptions. The contractor reacts constantly and promptly to the event and that any defined cost and time due to the event are reasonably incurred. So you've still got to be reasonable in your planning and be mitigating where you can be crikey for two people who are bestowing the benefits of program we've not done well Glenn, we are four minutes over so we better draw it to a halt there.

But let Mark go. We can't let Mark go. So taking the time so often the sticking point is bringing the accepted program up to the dividing date. We call this the compensation baseline which is a new program that the PM has not seen before and the non agreement by the PM of this program in most cases agreement CE process arguably attached the PM users to gain more hindsight. Well actually the. Well they the hindsight we already said Mark doesn't count. So it contractually it doesn't make any difference and they can't use more hindsight because they can't use hindsight at all. But in the real world obviously I know that they try to and unless you end up in dispute formal dispute process, you won't necessarily get the true contractual answer. And sometimes you need to be brave and say well we are going to go to this view process because we think you are entitled. So there might be a reality Mark, but yet you've got to try and convince them that that progress up until the dividing day is true, real and at the end of the day if you're adamant it is and may assess it differently or then dispute process is your next your next road to go down.

Mark, though, I think you've hit on something in that it's the first time the PM's seen that kind of progressed baseline program. And I think it's similar to the question before around should we get that accepted before modeling the ce. We shouldn't get it accepted because of course that becomes an accepted program and then it's irrelevant because it's actually the one before it which the dividing date speaks to. But there is nothing start I think I said before there's nothing preventing us from having a conversation informally and having an agreement with a small A that working together on progressing the quotation and the assessment that sits with it and so it shouldn't I these kind of shocks and surprises. First time we've seen something, anything that we can do practically that is still in keeping with the contract that doesn't go against what the contract say. But that brings us closer to cooperating on getting to the right answer. First time round I think has got to be be a good idea. So hopefully it's not the first time that we can see it. Hopefully we can bring it out in a conversational workshop perhaps and hold them on a regular basis. Make it part of your cadence, your rhythm of business to be having these conversational workshops. Personally, I'd plan backwards from getting submission and acceptance as a formalization on the same day. If you think backwards from that point, what do we need to do to get that to happen? I think that's very healthy. Okay, thank you all. Sorry we overrun it is recorded. So if you've had to go and watch this bit later on, then hopefully it's been of use and interesting. David, did you want to say a few closing words?

Yes, I do.

Really?

Because when we started we said it was going to be quite an interesting session. I was looking forward to it as being an interesting session and it's proved to be that. And what it does highlight though is it is quite a complex process because you have so many events that can happen, cascade as it were. So there's always going to be complication. And I think the points you're trying to allude to is that we need to have the right behaviors about the process to actually make it work. You talked about an agreement with a small A. It's getting on board at an early stage to actually agree something's changed. There will be circumstances arising out of that change. And how do we actually use the contact in the right way to move it forward? Because the last thing anybody wants is some huge blockage along the path somewhere that actually then causes a whole series of other issues and behaviors around the site and that doesn't actually help anyone. So with quite a few additional questions in the chat and I think that they all have merit and at some point it'd be good to get some.

Answers back on those.

But yeah, thank you. That was worthwhile doing.

Thank you, David. Glenn, anything further?

No, I think yes, good. Time flies, doesn't it? So a lot of content we've covered there. The next one's just sorting out the cost. So I'm guessing the next one will just be a five minute web one. It's the easy bit or maybe that one too adverse.

But we'll if everyone agrees with us, Glenn.

Good stuff.

But yeah, look forward to the next one. So I hope you can join us and yeah, we'll see you in the next one. Thank you very much everyone.

Thanks Ben. Thanks David.

Thanks Clint. Thanks Dean.