UK: Can NEC3 Compensation Events Be Assessed By Reference To Actual Cost Incurred?

In 2014, the High Court and Appeal Court of Northern Ireland considered one of very few cases where an NEC3 contract was the underlying contract at the heart of the dispute.

The same parties, the Northern Ireland Housing Executive (NIHE) and Healthy Buildings (Ireland) Limited (HBI), were back before the High Court in Northern Ireland again recently, and the case has resulted in another judgment that will be of interest to those using the NEC3 in England and Wales.


Back in 2012, the parties entered into two contracts on a modified NEC3 Professional Services Contract (PSC) whereby HBI was to provide certain services to NIHE regarding the assessment of presence of asbestos in homes owned by NIHE (which is a public sector landlord).

In January 2013, NIHE issued an instruction changing the scope of the Services on both Contracts.

The parties first came before the Court in 2014 in a dispute over the enforceability of an adjudicator's decision. It was concluded that HBI was entitled to a change to the Prices because, although HBI's claim for compensation was made outside of the eight week notification period required by Clause 61.3, on the facts, the instructions issued by NIHE were ones which NIHE should have itself notified as being a compensation event. As such, they fell within the exception to the 'time bar' imposed by Clause 61.3.

The Recent Dispute

The parties returned to the Court recently to settle two preliminary issues arising out of the same agreed facts as to:

  1. whether when considering the compensation due, it should be assessed by reference to a forecast or to the actual cost incurred; and
  2. whether actual cost is relevant to the assessment process.

In addressing these questions, the Court also reached an interesting conclusion as regards the duty to disclose documents / information.


Having been given an instruction that changed the scope of the Services (for each of the contracts) in January 2013, it was not until May 2013 that HBI gave notice of a compensation event. As noted above, the Court had previously decided that the Adjudicator was correct to decide that HBI was not time barred.

In due course NIHB sought a quotation from HBI for the effect of the compensation event upon the Prices, which HBI provided within the time limits required by the PSC (i.e. within 2 weeks of being asked).

As it was entitled to do under Clause 62.3, NIHE rejected the quotations and made its own assessment of the compensation due to HBI, which it valued at Ł0 for each contract.

HBI was not satisfied with that assessment and in the ensuing adjudication, it was successful in obtaining a decision increasing the compensation due (which NIHB duly paid).

However, each of the parties was unhappy with the value of compensation assessed by the adjudicator, and sought to challenge the decision in the 'tribunal' as defined in the PSC - which was the High Court of Northern Ireland under option clause W2.

The Judgment

In his consideration of the issues, Mr Justice Deeny reviewed some of the provisions of the PSC that are of wider use within the NEC suite of contracts. First, the Judge considered whether the correct value of compensation should be based on a forecast (rather than actual cost), as if NIHE had asked for a quotation in January 2013 when it issued its instructions, that quotation would have been based on a forecast.

As we know, Clause 65.2 provides that if a forecast is provided and it turns out to have been inaccurate, it nonetheless stands as the correct value of compensation due.

The Judge concluded that, when reading the contract as a whole, Clause 65 was dealing with a situation where the employer made an assessment based on the consultant's forecast, and served to prevent the employer from revisiting that assessment once accepted.

In this case, this was not the situation as the employer had dismissed the forecast '...out of hand and made an assessment of zero cost...'. As such HBI could not rely on a forecast of the costs.

Second, and of more interest, the Judge considered the effect of (secondary option clause) W2 and, in particular, clause W2.4(3). This allows the tribunal to consider more documents than were available to the Adjudicator; and, whether there was any reason why the Court could not rely on the contemporaneous documents that by that time existed.

In seeking to answer this question, the Judge considered various cases such as Rainy Sky S.A v Kookmin Bank [2011] in which the Supreme Court emphasised the need to consider the contract in light of what a reasonable person would consider the intention of the parties to have been, and to prefer the construction that is consistent with business common sense.

The Judge also considered Bwllfa and Merthyr Dare Steam Colliers (1891) Limited v The Pontypridd Waterworks Company [1903] in which Lord Macnaghten in the House of Lords stated (at para 431):

'Why should [an arbitrator] listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes?'

As the costs incurred by HBI were by this time settled and certain, Mr Justice Deeny concluded that the correct level of compensation due to HBI should be assessed by reference to actual cost and the Court could act in reliance on all the available evidence. It should not be a 'guess' based on either earlier forecast or any other form of assessment.

The Judge decided that HBI was required to disclose all of its contemporaneous documents to NIHE to allow this calculation to be made and if the parties were subsequently unable in light of that direction to reach agreement on the correct value of compensation, the Court would do so by reference to the same documents.


Cases based on the NEC3 are in short supply. The original decision involving these two parties was interesting in itself for settling the uncertainty as to the operation of the 'time bar exemption' created by Clause 61.3 (of the PSC).

This judgment has provided further guidance as to how the adjudication option clause operates, and how the tribunal will function when considering the correct value of a compensation event in the process of reviewing an earlier adjudication decision. While not binding in England and Wales, this guidance from the High Court of Northern Ireland will be influential in future cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
14 Sep 2017, Seminar, Birmingham, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

18 Sep 2017, Seminar, London, UK

Our annual event as part of the London Design Festival is now in its fifth year. We would be delighted if you are able to join us again.

21 Sep 2017, Seminar, London, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.