How to Use the Compensation Event Workflow

This article is a guide to using the Compensation Event workflow in FastDraft.

This guide contains the following:

• Training Video: How to Create a Compensation Event:
• What are Project Manager's Compensation Events
• What are Contractor’s Compensation Events
• How to create Compensation Events
• How to accept a Contractor’s Compensation Event
• How to submit a quotation
  • Training Video: How to raise a Compensation Quote:
• How to Accept a Contractor’s Quote 
  • Training Video: How to Accept or Not Accept Compensation Event Quote:
• How to Implement a Compensation Event 
• How to view implemented Compensation Events 

This articles explain each of the key steps in the Compensation Events process from both Parties' perspective. This article is based on the NEC4 ECC Contract.

Related articles:

• How to create a Proposed Instruction
• How to use the Assessments Workflow

Training Video: How to Create a Compensation Event:

What are Project Manager's Compensation Events?

If the Project Manager is aware something is a Compensation Event, then they should notify that fact to the Contractor. Of course, this could be for a “negative” Compensation Event where they may be expecting a saving e.g. an instruction to omit works. It is in the Project Manager's interest to notify this and get it into the system, otherwise it could be raised by the Contractor several weeks or months later (and they are not time barred on ones the Project Manager is obliged to notify – numbers 1/4/7/8/10/15/18 in clause 60.1).

Where the Project Manager can see that an event is a Compensation Event then they should notify accordingly that it is one. The Compensation Event template requires the Project Manager to fill in:

• Subject title
• Compensation Event type - select the appropriate Compensation Event clause from a drop-down list. The list will be configured for each individual contract incorporating in any Z clauses
• Description of the event - a concise yet precise description of the event so that the receiver fully understands why the Project Manager believes this to be a Compensation Event
• Assumptions - the Project Manager can, if necessary, add any assumptions for which the Contractor is to the base their quote on
• The associated early warning or PM Instruction can also be selected from dropdowns. These are optional fields. They can also be removed if the compensation event is still in draft, ie not communicated. Once communicated no further changes can be made. 

What are Contractor’s Compensation Events

When a Contractor is notifying a Compensation Event it is essential that they present it in such a way that gives the Project Manager no choice but to accept. It should be concise yet sufficiently convincing that they can give a definitive answer. If the Project Manager does not agree it is a Compensation Event they should respond with a clear written response as to why they do not believe it to be a Compensation Event. If the Project Manager agrees it is a Compensation Event, they request a quote and have the chance to state any assumptions on which the Contractor should base the quotation upon. This is a good chance to ring-fence any risk or unknowns that otherwise the Contractor could price excessively.

Contractor’s CE Notifications – The Contractor can notify a Compensation Event by completing the following information:

• Subject – the title of the event
• Compensation Event type – selecting the contractual reason that makes this a Compensation Event
• Project Manager Instruction – here if applicable, a relevant PMI can be selected to associate with this event
• Description of the event – a concise yet precise description of the event so that the receiver fully understands why the Contractor believes this to be a Compensation Event
• The associated early warning or PM Instruction can also be selected from dropdowns. These are optional fields. They can also be removed if the compensation event is still in draft, ie not communicated.  Once communicated no further changes can be made. 

Upon creating the form, it is possible to attach any relevant document(s) that will help justify that it is a Compensation Event.

How to create Compensation Events

In this article, we will show you how to create and manage a Compensation Event based on an NEC4 ECC contract and flag any specific differences from other forms of NEC contracts.

If you wish to create a Proposed Instruction, see our support article here. 

To create a Compensation Event, you can either select the Compensation Events notification from the green Create New button in the top bar of the page...

... or use the left-hand navigation panel and select either Project Manager Compensation Events or Contractor Compensation Events, depending on which party you are.

Click Create New.

This will take you to the Compensation Event template. In a Compensation Event template the types of CE's that need to be notified and the register name are slightly different between different versions of the NEC Contract. These template variables can also be edited for different contracts, secondary options or Z clauses.

Fill out all the fields and click the Create Draft button at the footer of the form which will take you the draft Compensation Event page.

How to accept a Contractor’s Compensation Event

After receiving a Compensation Event Notification from the Contractor, the Project Manager can determine as to whether they think it is a Compensation Event. If the Project Manager selects the PM Reply tab from the Contractors CEN they can select that the CE “Is a Compensation Event” which will request the Contractor to submit a quote or  “Not a Compensation Event” which will end the process.

How to submit a quotation

When the Project Manager has requested a quotation from the Contractor either via a Compensation Event, or accepting the Contractors Compensation Event, the Contractor can select the Quotes tab from the applicable notification.

Click Create New.

Once clicked it will pop up with the Quote creation form.

When submitting a quote the Contractor is required to fill out the following information:

• Subject – the title of quote - this will pull through the title of the CE Notification, but can be amended as required
• Quotation summary – summary of the quote, the Contractor can upload a detailed quote as an attachment
• Amount - the value of quotation, referred to on the form as 'Impact on total of the Prices'
• Effect on the Completion Date:
  • If the Contractor selects "There is no effect on the Completion Date" then no further detail is needed
  • If the Contractor selects “There is an effect on the Completion Date but this has been mitigated by measures as detailed” then the Contractor will be required to provide details on what has changed on the Programme
  • If the Contractor selects “There is an effect on the Accepted Programme which we are unable to mitigate” then the Contractor will need to enter in the impact to the completion date
  • Other Date Changes - the Contractor can select if there are any Secondary Dates which are going to be affected as part of this quote - see here for more information.

Training Video: How to raise a Compensation Quote:

How to Accept a Contractor’s Quote 

After the Contractor has submitted a quote, the Project Manager will receive an email notification. The Project Manager can then access the quote by going to the corresponding CE and selecting the CE. The Project Manager can then fill out their response by selecting the Reply tab. The Project Manager will have the option to Accept the quote, ask the Contractor to submit a revised quote or decide to make their own assessment.

It may be the case that multiple quotes have been submitted within one Compensation Event. If this has occurred, all parties must be aware that when the PM communicates a particular decision on a quote, it changes the status of the Compensation Event, and therefore the status of all quotes within the Compensation Event.

For example, if the PM wishes to accept one quote but not the others, they will find that once they accept the quote it automatically updates the status of the other quotes to "Not accepted - other quote approved".  Verbal communication between the two parties is advisable to ensure the PM knows there are multiple quotes, and doesn't respond before all quotes have been submitted.

Training Video: How to Accept or Not Accept Compensation Event Quote:

How to Implement a Compensation Event 

It is very important to get a Compensation Event implemented so both Parties understand their liability in terms of time and cost, and indeed if (from a Contractor’s perspective) they wish to dispute this further in terms of raising this to “senior representative” level or even to adjudication.

Compensation Events are implemented in the platform when:

• The Quotation is accepted by the Project Manager automatically
• The Project Manager notifies his own assessment automatically
• The Compensation Event Quotation is marked as Deemed Accepted (if this is enabled for your contract - see here for more information)

How to view implemented Compensation Events 

Select the Implemented CE Register module from the Navigation menu. The implemented register shows a summary of the implemented CE’s. Each quote can be accessed from the Register to see the detailed history of quote/responses.