Assessing the Effect of a Compensation

Assessing the Effect of a Compensation Event under the NEC3 Professional Services Contract
  • In Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2017] NIQB 43, the issues that the court was required to determine;-
  • was on a true construction of the contract and in particular clause is 60 to 65, is the assessment of the effect of the compensation event calculated by reference to the forecast Time charge or with the actual costs incurred by the consultant. 
  • Are the actual costs relevant to the assessment process in clause 60 to 65 of the contract?
  • The issue arose because the employer had in terms of the rules of discovery sought the disclosure by the consultant of the documentation relevant to the actual costs incurred in respect of the additional work
  • The employer had awarded to the consultant to asbestos surveying service contracts and in December 2012 for its Belfast and north-east areas. An instruction changing the scope of works was communicated by the employer to the consultant however the employer failed to notify the consultant that this constituted compensation event. Nonetheless, consultant submitted a quotation for the additional surveying services, which quotation the employer subsequently rejected. The employer assess the effect of the compensation event has been zero. This resulted in a dispute which ultimately ended up in the Queen’s Bench Court, as a tribunal under the NEC3. 
  • In terms of the NEC 3 the parties agreed “the Time charge is the sum of the products of each of the staff rates multiplied by the total staff time appropriate to that rate properly spent on work on this contract.”
  • Clause 63 provides a rubric assessing compensation events, and the consultant relied on this clause to argue that the quotation done for work after the submission of the quotation is in the form of a forecast, there being no actual time charge before instruction that changed the scope of work dated 10 January 2013. The consultant also relied on clause 65.2 which provides that the assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong”
  • The court concluded that if the parties are unable to resolve the dispute. The court to assess the fair and reasonable compensation due under the contract to the consultant for the effect on it of the employer’s change of instruction dated 10 January 2013.
  • The court held that evidence from timesheets another material of what the consultant actually did in that period, particularly with reference to the change and instructions, is not any relevant evidence but clearly the best evidence to assist the court in calculating the compensation to which the consultant is entitled. The court therefore concluded that the actual costs are relevant to the assessment process and clauses 60 to 65 of the contract.
  • Therefore it is important to keep records of all documentation pertaining to the actual cost of work pertaining to a change to a task order or scope of work in order to ensure that in the event of a dispute, the adjudicator is placed in a position to assess the fair and reasonable compensation due under the contract.