Compensation events in NEC3 contracts: case studies from South Africa

Abstract

Compensation events can have significant consequences on project objectives. However, not much systematic research has been done on the occurrence of NEC compensation event in projects for the purpose of controlling and minimising their impact. The specific objectives of this study are to conduct a systematic review of literature on NEC compensation events and to conduct a systematic analysis of compensation events in four NEC-procured projects in South Africa to examine their extent, effects and sources. Publications mentioning ‘compensation events’ were reviewed based on papers by academic researchers, articles by practitioners in the NEC Users’ Group Newsletter and papers by construction lawyers published by the UK Society of Construction Law. The 84 publications demonstrate 15 operational aspects of compensation events. Thereafter the data on compensation events in four NEC-procured building projects in South Africa (the largest being £9 million) are analysed based on final accounts. The findings demonstrate a significant number of compensation events (165 altogether) with most arising from incomplete or late work information. Employers wishing to control and minimise compensation events on projects should be more decisive about their requirements and implement professional service agreements that incentivise members of the professional team to perform their role timelier and efficiently.