Compensation events are not paperwork exercises. Under NEC4, they affect your Prices, Completion Date and sometimes your Key Dates. If you notify them late, price them poorly or fail to keep the right records, the loss comes straight out of your margin.
The most serious trap is the eight-week notification time bar in clause 61.3. Miss it and you can lose your entitlement to additional time and money altogether. There is no sliding scale for being two days late.
At BHD Limited, we manage compensation events as part of day-to-day NEC contract administration. We get onto the issue early, establish what happened and keep the commercial record aligned with the programme.
Here are seven mistakes we see repeatedly : and the practical way to fix them.
1. Waiting until the full impact is known before notifying
This is probably the most expensive misunderstanding.
You do not need to complete the quotation before notifying a compensation event. You need to notify the event when you become aware that it has happened.
That distinction matters. A design change, late access issue or unexpected physical condition may take weeks to price properly. If you wait for final labour records, supplier quotations and a completed delay analysis, the eight-week clock may already have expired.
Under NEC4 clause 61.3, the contractor must notify the Project Manager within eight weeks of becoming aware that the event has happened. If you fail to do so, the Prices, Completion Date and Key Dates are not changed because of that event.
Fix: notify first, assess second.
Your initial notice should identify:
- What happened
- When it happened
- When your team became aware of it
- The relevant compensation event provision
- The likely effect on cost, time or both
You can then develop the quotation under clauses 62 and 63. A concise, timely notice is more valuable than a perfect quotation issued too late.
Notify the event before you finish measuring it.
2. Treating the eight-week time bar as a flexible deadline
It is not flexible.
The eight-week period runs from when you become aware of the underlying event : not from the date when your commercial team decides that the matter is definitely a compensation event.
That creates a real management risk for SME contractors. Your site manager may know about a change in access, a defective design or an unexpected obstruction long before the issue reaches the quantity surveyor. The fact that the commercial team has not yet reviewed it does not necessarily stop the clock.
The consequences are severe. The NEC official guidance on time-barred compensation events confirms that a contractor who misses the eight-week period loses the right to additional time and money for that event, subject to the narrow exception where the Project Manager should have notified it.
Do not build your process around that exception. It is not a safety net for poor administration.
Fix: record the awareness date as soon as an issue is identified. Review potential events at least weekly. If the deadline is approaching and the facts are still developing, issue a protective notification rather than waiting.
3. Assuming an early warning or meeting minute is enough
An early warning is important. It is not automatically a compensation event notification.
The two processes serve different purposes:
- An early warning highlights something that may increase cost, delay Completion or affect performance.
- A compensation event notification identifies an event that has happened and may change the Prices, Completion Date or Key Dates.
You may need to issue both.
A meeting minute might record that the works are being affected. An email might state that you are “looking into the costs”. A Teams message might say that the revised drawing is causing disruption. None of those should be relied upon as your only clause 61.3 notice.
Your notice must be clear, written and recordable under the contract’s communication provisions. It should state that you are notifying a compensation event and explain the contractual basis.
Fix: use a separate notice with its own reference number. File it with the supporting instruction, drawing, RFI, site record or correspondence. Keep the early warning in the risk process, but do not let it replace the compensation event notification.
The NEC guidance on delay and disruption makes the wider point: NEC works best when the parties deal with events as they arise, rather than leaving them until the end of the job.
4. Failing to maintain a live compensation event register
If your compensation events live in email chains, personal notebooks and scattered spreadsheets, you do not have control of them.
A live compensation event register should show, at a minimum:
- Event reference and description
- Relevant clause 60.1 basis
- Date the event happened
- Date your team became aware
- Eight-week notification deadline
- Date notified and notification reference
- Project Manager’s response
- Quotation due date
- Quotation submission date
- Current value and forecast effect
- Programme impact
- Implementation status
Review it every week. That is not excessive process. It is proportionate control for a contract where missing one deadline can remove an entire entitlement.
The register should also show who owns the next action. “Under review” is not an action. Someone should be responsible for issuing the notice, gathering records, updating the programme or preparing the quotation.
Fix: make the register part of your weekly commercial meeting. Escalate any event approaching week six. Do not wait until week eight to discover that nobody knew who was dealing with it.
5. Ignoring the dividing date principle
The dividing date is one of the most commonly misunderstood parts of NEC4 compensation event assessment.
Under clause 63.1, the dividing date separates:
- Actual Defined Cost for work done by the dividing date
- Forecast Defined Cost for work not done by the dividing date
- The associated Fee
For a compensation event arising from a Project Manager or Supervisor communication, the dividing date is generally the date of that communication. For other events, it is generally the date the compensation event is notified.
The dividing date also links the assessment to the Accepted Programme current at that date. That programme snapshot matters when assessing the event’s effect on Completion.
If you do not identify the dividing date clearly, your quotation can mix historic actual costs with future forecasts. It can also include delay that existed before the event or costs you would have incurred anyway. That makes the assessment easier to challenge.
Fix: put the dividing date on the face of the quotation. Separate actual cost records from forecast impacts. Identify the Accepted Programme being used and explain how the event changes the planned sequence.
Do not describe the delay without showing the point at which the event changed the job.
6. Assuming the Project Manager will notify every compensation event
Some compensation events arise from Project Manager or Supervisor instructions, notifications, certificates or changed decisions. In those cases, the Project Manager may be responsible for notifying the event.
That does not mean you can ignore your own obligation to monitor and notify.
Other events may require contractor notification. These can include matters such as certain physical conditions, weather events, access problems or third-party actions, depending on the contract and the facts.
The dividing line is not always obvious during a busy project. If you assume the Project Manager will deal with everything, an event may sit unnoticed until the time bar becomes an argument.
Fix: identify who must notify as soon as the issue arises. If there is any doubt, raise it formally. The NEC’s own commentary on delay and disruption notes the practical value of notifying where the position is uncertain.
A timely notice protects your position. An assumption does not.
7. Submitting a quotation without matching cost, programme and records
A compensation event quotation must be more than a cost total.
The Project Manager needs to understand:
- What changed
- What work the change affects
- How the event affects the programme
- Which costs are actual
- Which costs are forecast
- What mitigation has been considered
- How the total has been calculated
Your time and cost assessments must tell the same story. If the programme shows four additional weeks but the quotation includes only one week of preliminaries, the submission looks incomplete. If the cost build-up includes extra labour but the programme does not show where that labour is used, the assessment becomes harder to defend.
Weak records create the same problem. Daily allocation sheets, plant records, labour returns, delivery tickets, instructions and updated programmes all help demonstrate what the event actually changed.
Fix: build the quotation around a clear cause-and-effect narrative. Link each major cost to an activity, record or programme effect. State assumptions plainly. Do not disguise uncertainty with inflated allowances.
The aim is a quotation the Project Manager can assess : not a descriptive report that leaves them to reconstruct your case.
A practical NEC4 compensation event checklist
For every potential event, ask:
- What is the underlying event?
- When did someone in our team become aware of it?
- Who must notify it under the contract?
- Has a formal clause 61.3 notification been issued?
- What is the eight-week deadline?
- What is the dividing date?
- Which Accepted Programme applies?
- Are actual and forecast costs separated?
- Do the quotation and programme tell the same story?
- What action is required next, and who owns it?
If you cannot answer those questions, the event is not under control.
Protect your entitlement before the issue becomes urgent
Compensation event management is not about producing more paperwork. It is about making the right decision at the right time.
Notify early rather than late. Keep a live register rather than relying on memory. Establish the dividing date rather than blending costs together. Produce a usable plan rather than a descriptive report.
Smaller commercial teams do not need systems designed for billion-pound programmes. They do need disciplined NEC contract administration scaled to the job they are delivering.
BHD Limited manages compensation events daily for contractors and SMEs across the West Midlands, Staffordshire and Shropshire. We can review your live register, assess time-bar exposure, prepare or challenge quotations, and align your cost and programme records.
If compensation events are accumulating or the eight-week deadline is approaching, contact BHD Limited for a straight view of your position and the next action to take.
This article provides general guidance on NEC4 compensation event management. The contract wording, amendments and project facts must be reviewed before relying on any specific position.