Are You Making These Costly NEC Assumption Mistakes?
When it comes to NEC contracts and compensation events, assumptions can be a tricky area. While the contract allows for Project Manager assumptions (clause 61.6) to minimise risk for the Contractor, there's a common misconception about Contractor assumptions within quotations.
This post aims to clarify the rules and help contractors avoid potential pitfalls, drawing inspiration from the insights shared by Glenn Hide on his website (https://gmhplanning.co.uk/nec-downloads/nec4-common-misconceptions/). He further explores these nuances and common misunderstandings surrounding NEC contracts.
The Project Manager's Prerogative:
Clause 61.6 allows the Project Manager to state assumptions within the compensation event instruction. This is a valuable tool, as it allows the Project Manager to take ownership of certain risks, enabling the Contractor to provide a more accurate quotation without having to price in every conceivable unknown. If these assumptions later prove incorrect, it can trigger a new compensation event (60.1(17)).
The Contractor's Responsibility:
Here's where the confusion often arises. Contractors sometimes include their own assumptions within compensation event quotations, believing that acceptance of the quotation implies acceptance of these assumptions, and that they can then revisit them later. This is a dangerous misunderstanding.
The Contract is Clear:
The NEC contract does not state that Contractor assumptions can be revisited. Nor does it say that by accepting a quotation with Contractor assumptions, these automatically become Project Manager assumptions. In fact, the responsibility for accurately pricing all elements in the instruction rests squarely with the Contractor. Any omissions or exclusions in pricing are the Contractor's risk.
What Can a Contractor Do?
If a Contractor has concerns or needs clarification before submitting a quotation, they should propose assumptions to the Project Manager and request written confirmation before submitting the quotation. This way, the assumption becomes a shared understanding. Otherwise, the Contractor should price the risk within the compensation event quotation itself.
No Re-Opining:
It's crucial to understand that once a compensation event is implemented, it cannot be revisited. Any reassessment or revisiting of the implemented event would constitute a separate compensation event (60.1(8)). This emphasises the importance of getting it right the first time.
Best Practices for Contractors:
Fixed Prices: In the spirit of mutual trust and cooperation, provide fixed prices for all items. This minimises ambiguity and avoids future disputes.
Price the Risk: For undefined items or areas of uncertainty, price in the associated risk. Clearly quantify and demonstrate the basis of this risk, ensuring it has a significant chance of occurring (63.8). Don't simply add a contingency without justification.
Communicate Clearly: Propose assumptions to the Project Manager before submitting your quotation and seek written confirmation. Open communication is key to avoiding misunderstandings.
Document Everything: Keep thorough records of all communications, assumptions, and the rationale behind your pricing. This will be invaluable in case of disputes.
In summary: While Project Manager assumptions are a valuable part of the NEC process, Contractors need to be very careful about including their own assumptions in quotations. The contract places the pricing responsibility on the Contractor, and there's no mechanism for revisiting Contractor assumptions after a quotation is accepted. Clear communication, careful risk assessment, and thorough documentation are essential for navigating this potentially complex area. For further insights on NEC contract nuances, be sure to check out Glenn Hide's resources online.