7 Common Pitfalls When Managing Compensation Events in NEC4 as a Contractor

A Practical Guide for Planners, QSs, and Commercial Managers in UK Construction

In the NEC4 Engineering and Construction Contract (ECC), Compensation Events (CEs) are intended to provide a fair and transparent mechanism for assessing changes in time and cost. In practice, however, many contractors-particularly small to mid-tier firms-struggle with managing CEs effectively. This can lead to delayed payments, rejected assessments, and commercial exposure.

Whether you're a contractor delivering works under NEC Option A, C, or E, the way you identify, programme, and justify CEs is often the difference between protecting your margin or losing it.

This article outlines 7 common pitfalls contractors face when managing Compensation Events under NEC4, using real-world examples, planning insights, and academic evidence. We also provide Primavera P6 tips, legal references, and planning actions to help avoid costly mistakes.

⚠️ 1. Failing to Notify CEs Within the Contractual Deadline

Under NEC4 ECC Clause 61.3, the Contractor must notify a CE within 8 weeks of becoming aware of it, or risk losing the right to a change in the Prices or Completion Date.

Common Mistake: Teams treat CE notification as a commercial afterthought, raising it late or after the issue has been resolved informally on site.

Why It Matters: Project Managers can reject CEs as out-of-time-even if the issue was valid-leading to unrecoverable cost or time losses.

📌 Tip: Integrate CE triggers into the lookahead planning process and daily diaries. Use Primavera P6 to simulate impacts and link Early Warnings to pending CEs.

🧠 Academic Insight: Turner and Simister (2001) emphasise that successful NEC delivery requires “a culture of timely and formalised communication,” which hinges on proactive CE notification.

🧩 2. Disconnect Between the Programme and CE Submissions

Clause 63.5 of NEC4 requires CEs to be assessed based on the Accepted Programme. Submitting a CE without referencing the latest programme-or worse, using an unapproved baseline-undermines the submission.

Why It Fails: The Project Manager cannot validate time impacts without a credible, logic-driven programme.

🎯 Best Practice:

• Maintain an up-to-date Accepted Programme

• Reference affected activities, float loss, and time risk clearly

• Include a fragnet in P6 to show time consequences

📚 Love et al. (2016) found that projects with poor programme-CE alignment had the highest dispute resolution costs in UK public works projects.

💸 3. Using CE Submissions as a Catch-All for Unrecovered Cost

Some contractors misuse CEs to chase costs that are actually contractual risks or price errors. NEC does not allow CEs for inefficiencies that aren’t caused by the Client or an event listed in Clause 60.1.

Real-World Example: A contractor submitted a CE for plant downtime due to poor internal coordination-not valid. The PM rightly rejected it, wasting commercial effort.

🚫 Don’t: Inflate CE scopes with unrelated issues✅ Do: Clearly map the CE to a qualifying event under Clause 60.1, and separate any inefficiencies or self-inflicted delays.

🧠 Aibinu & Jagboro (2002) concluded that clarity in scope attribution is key to CE success and reducing client-side dispute escalation.

🔁 4. Failing to Update Programmes Post-CE

Under Clause 62.2, when submitting a quote for a CE that includes a delay, the Contractor must include a revised programme.

Pitfall: Contractors submit cost estimates with no updated programme, or use a high-level timeline in Excel.

Consequence: PMs reject the time impact or request resubmissions, delaying the CE agreement and cash flow.

📌 Action: Use Primavera P6 to produce a CE-specific programme revision. Include this as a separate baseline or fragnet to show before and after.

🎯 Best Practice: Assign each CE its own unique P6 code. This enables tracking multiple events over time without losing logic integrity.

🕳️ 5. Overlooking Early Warning Notices (EWNs)

EWNs (Clause 15 and 16) are not just formalities-they are a precondition for certain CE submissions. If a CE arises from an issue the Contractor should have warned about earlier, it can affect payment or risk-sharing.

Typical Scenario: A subcontractor fails to issue an EWN about a utility clash they knew about in design. The CE is later disallowed due to lack of prior warning.

📌 Action:

• Issue EWNs promptly and link them to CE references

• Include EWNs in weekly reports and site coordination meetings

• Use P6 to model likely impacts when issuing the EWN

🧠 Turner & Simister (2001) also note that the value of NEC's Early Warning process lies in “facilitating shared risk awareness”-not just box-ticking.

🧮 6. Inaccurate CE Cost Forecasting or Omission of Risk

Many CE assessments fail because they don't reflect full cost exposure-particularly risk, time prolongation, and indirects. NEC allows the Contractor to include forecasts (Clause 63.1) and risk allowances.

Common Mistake:

• Only using actual costs

• Forgetting disruption, delay costs, prelims, or escalation

🎯 What to Include in CE Costing:

• Direct labour and materials

• Plant and equipment

• Subcontractor costs

• Overheads and fee

• Time-related prelims (if delay is proven)

• Risk allowances (justified via P6 or Monte Carlo analysis)

📌 Tip: Build a CE costing matrix template that links to P6 delay codes and accepted rates.

📚 CITB (2021) flags planning-cost disconnect as a key weakness in SME construction firms’ commercial performance under NEC contracts.

🧷 7. Lack of Audit Trail or Evidential Records

NEC expects contemporaneous records to support CEs-photos, diaries, schedules, correspondence, and quantities. Yet many contractors cannot produce evidence when challenged.

Result: Time impact rejected. Costs negotiated down. Delays in payment.

✅ Fix:

• Document events with time-stamped records

• Store all CE-related data in a digital folder (with P6 versions, emails, site records)

• Reference this pack directly in your CE submission

🛠️ Pro Tip: Use a naming convention that ties CE numbers to Primavera P6 revisions and EWN IDs.

Final Thoughts: CE Management is Planning + Commercial Intelligence

Compensation Events are not just a commercial exercise-they are deeply intertwined with your planning discipline, programme quality, and site awareness. NEC4 gives contractors a fair and structured process, but only if they follow it to the letter.

At NEC Planning Solutions, we help UK contractors manage CEs from start to finish-whether it’s programme modelling in Primavera P6, delay impact analysis, or quote preparation support.

📩 Need help recovering time or money under NEC4?Contact info@necplanningsolutions.co.uk for support with CE management, Accepted Programme recovery, or live project planning audits.

References

• Aibinu, A.A., & Jagboro, G.O. (2002). The effects of construction delays on project delivery in Nigerian construction industry. International Journal of Project Management, 20(8), 593–599.

• Love, P.E.D., Simpson, I., & Hill, A. (2016). A retrospective analysis of planning processes in complex projects. Construction Management and Economics, 34(3), 157–171.

• Turner, J.R., & Simister, S.J. (2001). Project contract management and a theory of organisation. International Journal of Project Management, 19(8), 457–464.

CITB (2021). Construction Skills Network: Labour Market Intelligence Report 2021–2025. Construction Industry Training Board.