When pricing a compensation event, Contractors often have to estimate the impact of work before all the information is available. A common question is: Can the Contractor state their own assumptions within the quotation?

The answer is not usually.

Under the NEC contract, it is the Project Manager who has the contractual ability to instruct that a quotation should be based on stated assumptions where the effects of a compensation event are too uncertain to be forecast reasonably.  Those assumptions then become part of the contractual assessment and can be revisited later if they are found to have been wrong.

If a Contractor includes their own assumptions without the Project Manager's agreement, there is no contractual obligation for the Project Manager to accept them. This can lead to:

• Delays in agreeing the quotation.
• Requests for the quotation to be resubmitted.
• Disputes over entitlement if the actual circumstances differ from those assumed.
• Increased commercial uncertainty for both parties.

The contractual mechanism exists to give both parties confidence that the quotation has been prepared on an agreed basis, rather than each relying on different assumptions.  

What should contractors do?

If there is insufficient information to prepare an accurate quotation:

• Clearly identify the areas of uncertainty that require assumptions.
• Ask the Project Manager to instruct that the quotation is to be prepared using stated assumptions.
• Keep records of how those assumptions affect the forecast cost and programme.
• Keep the assumptions under review, if they are later found to be incorrect, request the Project Manager notifies a correction.

Taking this approach keeps the assessment aligned with the NEC contract and significantly reduces the risk of disagreements later.

Practical takeaway

One of the strengths of NEC is that it provides a contractual mechanism for dealing with uncertainty. Rather than making unilateral assumptions, Contractors should seek agreed assumptions from the Project Manager. It creates greater certainty, speeds up agreement of compensation events and helps avoid unnecessary disputes.