We are a contractor using ECC option B (priced contract with bill of quantities) for a dredging project. We notified a compensation event due to the ambiguity of the geological information provided in the site information. The material we actually found was quite different to that which the site information suggested, which has been accepted as a compensation event. We have submitted a quotation based on the difference between the two types of material, based upon industry standards.
The project manager has commented that our calculations are incorrect, suggesting that we use the production rates we have specified in the method statement at tender stage. We argued that the production rates in the method statement were estimated only and we were unsure of the outputs of the new dredger we intended to use. Who is correct?
Answer
Subclause 63.1 of the contract clearly says how you are supposed to assess a compensation event. It requires that you assess it based upon its effect on the defined cost to carry out the work. It therefore requires that you assess what it would have cost without the event and what it will now cost with the event and the value is the difference (plus or, in certain circumstances, minus).
Therefore you have carried out your assessment in accordance with the contract, assuming that you have valued it upon the basis of the definition of defined cost in the contract (subclause 11.2(22)).
The project manager has misunderstood the contract. What you allowed for in your tender, or in a method statement you gave at tender stage, is irrelevant in this matter. It could be too high or too low, but that does not affect the assessment of the compensation event. This is based upon what the actual compensation event is forecast to cost you, in real terms.
