Anticipate, Don’t Assume. Why assumptions need more care than you realise.
10/06/24
Newsletter #10:
Welcome to the Instruct newsletter….Number 10! We continue to deliver weekly NEC contract news and happenings from across the industry. We are a bit like mini-golf, got the elements of actual golf, but just more fun.
This week we got asked about assumptions (61.6) when notifying/ responding to compensation event. There’s a couple of issues here that we see during delivery and contract management, let’s explain:
Assumptions are used when the forecast of effects (time/cost/quality) is too uncertain to be forecast reasonably by the Contractor
To correctly use an assumption the Project Manager needs to state it in the instruction to submit quotes
The Contractors view of what can be ‘forecast reasonably’ can be different to the Project Manager
Key clauses for assumptions - 60.1(17) CE to correct an assumption, 61.6 as noted above, 63.4 reducing prices when correcting an assumption.
Let’s Scenario Test Project Manager instructs Contractor to change the spec of a new steel door. "We don’t want it steel coloured, we want it gold plated”. Well a gold plated door is specialist, it takes time to make, could come from around the world. There’s risk is that there gold….
What Happens in Reality The Project Manager instructs the changes (60.1(1)), notifies a compensation event (61.1), and notifies the Contractor to submit a quote (61.2)….but doesn’t realise that the Contractor can’t reasonably forecast the effect of this highly specialist and unique door. The PM and C should have spoken about this before it was instructed….
The Contractor now has 3 weeks to price, 62.3 (unless an extension is agreed, 62.5).
So what ends up happening is the Contractor tells the Project Manager they cant forecast reasonable…but the PM has missed the opportunity to state an assumption (61.6). A retrospective assumption is then agreed, and baked into the Contractor’s quote, which the Project Manager accepts.
Happy days, we have done a hard-reset to retrospectively add an assumption in. But not really how the contract wants it done.
End Result Two things could then happen, the gold plated door is delivered and installed smoothly, within the boundaries of the assumption from the Contractor. OR. It ends up being severely delayed, costs escalate, and the Contractor wants reimbursing.
Severely Delayed If the worst happens and the assumption turn out to be wrong, then a CE is triggered (60.1(17)), but that CE states “The Project Manager notifies the Contractor of a correction to an assumption which the Project Manager stated about a compensation event. This is where problems can occur.
The Project Manager missed the opportunity to state an assumption under 61.6 and it was forced-in during the quotation process. So when you look at the audit trail there is a technicality, 60.1(17) isn’t triggered because there wasn’t an assumption in the original quotation notification. It was baked into the quotation itself.
Let’s Resolve The NEC process needs to be followed, the Project Manager and Contractor need to be speaking regularly to pick up on potential issues which can’t be reasonably forecast. Failure to correctly capture actions during the process (like adding an assumption at the point in time when it needs to be stated) can cause a lack of clarity and an ambiguous situation which then needs to be unpicked through heavy reliance on clause 10.2 (act in a spirit of mutual trust and cooperation).
Team members will change and opinions will differ, do you want to leave this to chance, or ensure a robust and detailed set of steps is followed each and every time?
So Why Anticipate, and Not Assume? Anticipating means negotiation between everyone what the quotation should and can include as a full and final settlement without caveating with assumptions (and therefore possibility for further future CE’s). This could mean the Contractor wants a much bigger payment to take on the risk, but it reduces the risk for the Client. That could be money well spend if the Contractor is willing to be paid to take the risk and the Client has the budget and is risk-averse.
The choices are there to be negotiated.
P.s. Why does mini-golf always have a windmill?😕
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