NEC Compensation Events: The Most Common Mistakes Contractors Make

The NEC contract is built around a collaborative, proactive approach to commercial management. Compensation events are central to that — they are the contractual mechanism by which the contractor recovers additional time and cost when the employer or project manager acts in a way that affects the works. Get them right and your commercial position is protected. Get them wrong and entitlement is lost, often permanently.

The most common mistake is late notification. Under NEC3 and NEC4, a compensation event must be notified within eight weeks of the contractor becoming aware of it. Miss that window and the right to raise the event is extinguished — regardless of how legitimate the underlying entitlement is. Many contractors either do not know the deadline or assume the project manager will raise the event on their behalf. Neither is a safe position.

The second failure is inadequate quotations. A compensation event quotation must include both a time assessment and a cost assessment, based on the contractor's actual forecast of the impact. Vague or unsupported quotations are routinely rejected or reduced. The project manager has the right to make their own assessment if the quotation is not submitted on time or is considered inadequate — and that assessment will rarely favour the contractor.

Early warnings are the third area of consistent failure. The NEC contract requires both parties to give early warnings of matters that could affect the programme, cost or quality of the works. Contractors who fail to issue early warnings risk having their compensation event quotations assessed on the basis that the early warning should have been given — which can significantly reduce the recoverable amount.

The solution to all three problems is the same: a disciplined, proactive commercial management process. Compensation events should be identified and notified as soon as they arise. Quotations should be prepared carefully, with proper programme and cost analysis. Early warnings should be issued as a matter of course, not as an afterthought. These are not complicated steps — but they require consistent attention throughout the project, not just at final account stage.