Understanding Compensation Events

Key Takeaways

• Compensation Events can entitle the Contractor to an increase in the Contract Price or an extension of the Intended Completion Date under the “Conditions of Contract.”
• Triggers for these events span multiple categories, including site and personnel issues, Project Manager (PM) instructions or delays, and external or environmental factors.
• When an event occurs, it is the Project Manager’s responsibility to determine the specific extent of the price increase and the time extension.
• To secure these entitlements, the Contractor is strictly required to provide written notice of an intention to claim within thirty days of the event arising.

Site and Personnel Issues

Issues surrounding site access and personnel can significantly disrupt a project and are primary triggers for a Compensation Event. If the Employer fails to grant access to any part of the Site by the agreed-upon Site Possession Date specified in the contract, this qualifies as a valid event.

Furthermore, if the Employer modifies the roster of other contractors or utilities in a manner that negatively impacts the Contractor’s work, a claim may be initiated. Lastly, if the Project Manager (PM) unreasonably withholds approval for a proposed subcontract, the Contractor is entitled to claim for compensation due to the resulting disruption.

Project Manager Instructions and Delays

The actions, instructions, or delays caused directly by the Project Manager heavily influence project timelines and costs. A Compensation Event occurs if the PM fails to issue essential drawings, specifications, or instructions on time. Additionally, if the PM explicitly instructs the Contractor to delay the progress of the Works, compensation is warranted.

Contractors are also protected if the PM instructs them to uncover or test work that is ultimately found to have no defects. Unforeseen conditions stemming from Employer actions, or instructions for additional work required for safety or other reasons, also fall under this category. Finally, any unreasonable delay by the PM in issuing a Certificate of Completion constitutes a valid Compensation Event.

External and Environmental Factors

Contractors are protected against specific external variables outside their direct control. If ground conditions are discovered to be substantially more adverse than what could have reasonably been assumed from the tender documents, site investigation reports, public information, or a visual inspection, the situation is classified as a Compensation Event.

Additionally, if delays or extra costs are incurred because the Employer, public authorities, utilities, or other contractors fail to work within the constraints and dates stated in the Contract, compensation is justified. Any effects resulting from risks specifically designated as the Employer’s risks are also covered under this section.

Other Scenarios

Beyond the standard categories, the Conditions of Contract account for other unique scenarios. If the PM determines that the urgency of a variation prevents a quotation from being provided and considered beforehand, that variation is automatically treated as a Compensation Event. Finally, any other events that are specifically described within the Contract, or otherwise determined by the Project Manager, fall under general provisions for compensation.