Compensation Event

How the process works

Step 1 — Notification. Either the project manager or the contractor notifies the other party that a compensation event has occurred. Under NEC4, this must be within 8 weeks of becoming aware.

Step 2 — Instruction. The project manager instructs the contractor to submit a quotation.

Step 3 — Quotation. The contractor submits a quotation showing the impact on cost (Defined Cost), time, and any change to the programme. Typically within 3 weeks of instruction.

Step 4 — Assessment. The project manager assesses the quotation and either accepts, asks for revision, or makes their own assessment.

Step 5 — Implementation. Once agreed (or determined), the compensation event is implemented and the contract sum / programme adjusted.

What counts as a compensation event

NEC4 defines around 19 specific events that count as compensation events — including instructions to change the works, weather affecting the programme, encountering ground conditions different to those expected, and others. The list is contractually defined; only listed events qualify.

Common pitfalls

• Missing the 8-week notification window. Under NEC4, if the contractor knew of an event but didn't notify within 8 weeks, they may lose the right to claim. Project managers can also forfeit assessment rights.
• Treating it like a JCT variation. The compensation event process is more formal. Skipping the early warning step or the structured quotation can result in non-compliant claims that get rejected.
• Not maintaining the accepted programme. Compensation event assessments depend on the latest accepted programme. If no current programme is accepted, defaults kick in that often disadvantage the client.

Related

• What is an NEC contract? →
• What is a variation? →
• Variation management module →