How to Substantiate a Compensation Event: A Step-by-Step Guide

By Sheldon Wright MCICES. Last reviewed October 2026. Written for the NEC3 and NEC4 ECC. The same principles apply to the subcontract forms.

Very few compensation events are lost because the contractor was not entitled. They are lost, or slashed to a fraction of their quoted value, because the quotation was not substantiated. The majority of the time this is because the person pricing the compensation event had fourteen other things to do that week.

I have assessed compensation event quotations for Project Managers and priced them for contractors and subcontractors. The view from the assessor's chair is the useful one. An assessor faces a figure, a number of days and a pile of attachments. They are working to their own deadline, and they have to defend whatever they accept to their peers, client, an auditor and possibly an adjudicator. Anything they cannot fully substantiate is either removed or reduced.

This guide sets out how to build a quotation that survives the red pen treatment. It follows the order in which an assessor works, because a quotation built in that order is easier to accept. I paraphrase the contract throughout, so check your own copy and your Z-clauses for the exact position.

How an assessor reads a quotation

It helps to know what happens to your quotation after you press send.

On a busy project, the first read takes about fifteen minutes and answers one question: is this complete enough to assess? The assessor looks for the clause relied on, a build-up they can open, a programme if delay is claimed, and a total that matches its own back-up. If any of those is missing, the correct response under the contract is an instruction to submit a revised quotation, or a decision to assess it themselves. Both cost you time and control.

The second read is the real one, and it works through four questions in a fixed order:

1. Is this a compensation event under this contract, and was it notified in time?
2. What did the event change, compared with what the contractor would otherwise have done?
3. What is the effect of that change on Defined Cost and the Fee?
4. What is the effect on planned Completion and any Key Dates?

Each question depends on the one before. If the assessor is not satisfied about what changed, the cost build-up has nothing to stand on, however well it is put together.

A good quotation answers the four questions in that order, under its own headings, with the evidence for each statement referenced at the point where the statement is made. A weak quotation presents a total, a number of days and an appendix of documents, and leaves the assessor to work out which document supports which statement. When the assessor has to do the contractor's work for them, they do it conservatively.

The shape of a good quotation

Before the detail, here is the contents page I would expect to see for an event of any size. Small events need a page or two under each heading. Large ones need more. The headings do not change.

1. Summary. The event, the clause, the change to the Prices, the delay to the Completion Date and Key Dates, on one page.
2. Entitlement. The event, the dates, the notification, and any contractual argument.
3. The change. What was planned, what happened or is now required, and the difference.
4. Change to the Prices. The Defined Cost build-up by cost component, actual and forecast Defined Cost separated, risk allowances, and the Fee.
5. Delay. The programme demonstration, with the native file.
6. Assumptions and exclusions. What the quotation is based on.
7. Appendices. Numbered documents — invoices, allocation sheets and records — each referred to from the text.

The test of the structure is whether someone who was not on the project could follow it. The assessor may have been, but the person who reviews the assessor's decision will not have been, and nor will an adjudicator.

Step 1: prove the entitlement

Name the compensation event and describe it clearly: what changed, and why. Gather the available records and evidence, and state the clause you rely on by number. Record three dates: when the event happened, when you became aware of it, and when it was notified. If the Project Manager notified the event or instructed the quotation, attach that communication and say so. If the event follows a Project Manager's assumption, state the assumption.

If the contract has been amended, work from the amended clause. I see quotations that cite clause 60.1(12) of the standard form on contracts where a Z-clause has narrowed the physical conditions event or added a condition to it. The assessor will have read the amendment even if the contractor has not.

For most events this section is half a page. Its job is to close the entitlement question so the assessor does not spend their limited time and goodwill on it.

Where there is a real entitlement argument, make it here and keep it away from the money. The usual ones are:

• Change or clarification? For a Scope change, set the original requirement beside the new one and show that the first could not reasonably be read to include the amendment.
• Physical conditions. Show what the Site Information, the documents it refers to and a visual inspection would have told an experienced contractor, and then what was found. The event compensates only the difference between the two, so the quotation has to be built on that difference.
• Client's failure to provide. Show the date on the Accepted Programme by which the item was needed, and the date it arrived.

A quotation that mixes entitlement argument into the cost narrative reads as advocacy from start to finish, and the numbers get treated as advocacy too.

Step 2: define the change against a baseline

This is the step most quotations skip, and the rest depends on it. A compensation event is valued as the effect of the event. An effect is a difference between two positions: what you planned to do, and what you did or now plan to do because of the event.

So show both positions.

For the planned position, use documents that existed before the event: the Accepted Programme, the method statement, the resource plan, the temporary works design, and the drawings and Scope at their pre-event revision. Their value lies in their date. They show what you intended before you had any reason to shade it.

For the changed position, show the instruction or the condition encountered, the revised drawings, the revised method and the revised sequence.

Then state the difference in plain terms, as a list of what is added, what is omitted and what is done differently. Every line in the cost build-up and every new activity in the programme should trace back to an item on that list.

Two points of detail matter here. If the event is a Scope change, identify the drawing revisions on each side of the change and what differs between them. An assessor left to work out what changed between revision C and revision F will find less change than you did. And remember the omissions. Where new work replaces old, the effect is the Defined Cost of the new work less the Defined Cost of the work no longer needed. A quotation that prices the additions and ignores the omissions will be corrected by the assessor, and their view of the omission will be less favourable than yours.

Step 3: build the money from Defined Cost

Under clause 63.1, the change to the Prices is the effect of the event on actual Defined Cost for work done before the dividing line, forecast Defined Cost for work after it, and the resulting Fee. NEC4 calls the line the dividing date and ties it to the communication or notification that started the event. NEC3 sets it at the date the quotation was, or should have been, instructed. Tender rates and bill rates can be used only if the Project Manager agrees.

Follow the Schedule of Cost Components

Lay the build-up out under the contract's own headings. Under NEC4, Options A and B use the Short Schedule of Cost Components, and Options C, D and E use the full Schedule. NEC3 arranges the schedules differently and includes percentages, such as the Working Areas overhead, that NEC4 removed. Use the schedule your contract uses. The assessor will check the build-up against it line by line, and cost that fits no heading is cost they cannot accept.

Subcontracted work depends on the Option

This is a common trap, and the answer depends on the edition as well as the Option.

Under the target and cost-reimbursable Options, in both editions, Defined Cost includes the payments properly due to Subcontractors, so the subcontractor's own compensation event assessment under its subcontract is the starting point.

Under NEC3 Options A and B, Defined Cost is the cost of the components in the Shorter Schedule whether the work is subcontracted or not. A subcontractor's lump-sum quotation with a percentage added is not, on its own, a Defined Cost build-up. Either break the subcontractor's price into people, Equipment and materials, or agree with the Project Manager that rates or lump sums will be used in place of Defined Cost. Get that agreement before submitting, not after the rejection.

NEC4 changed this. Its Short Schedule of Cost Components has a Subcontractors component, which is payments to Subcontractors for work that is subcontracted. On an NEC4 Option A or B contract the subcontractor's price can therefore go into the build-up as Defined Cost. The assessor will still expect to see how the subcontractor arrived at it, and the contract still requires cost to be at open market or competitively tendered prices.

Separate actual Defined Cost from forecasted Defined Cost

For work done before the dividing date, the evidence is records. For work after it, the evidence is a reasoned forecast: outputs, durations, gang sizes and supplier quotations. Show the two in separate sections. Presenting forecast cost for work that has already been done and recorded is one of the quickest ways to lose the assessor's confidence. So is presenting actual cost, with no explanation, for work that fell after the dividing line.

Show the arithmetic

Quantities, rates and durations should sit in a spreadsheet that the assessor can open and follow, with formulae intact and totals that re-sum. Many quotations contain a total that does not agree with its own build-up. Once an assessor finds one error, they check everything else twice as hard. A PDF of a spreadsheet is not a build-up.

Apply the Fee correctly

Use the fee percentage from Contract Data part two, on the correct base. NEC3 has separate percentages for subcontracted and direct work. NEC4 has one. The Fee covers head office overheads and profit, so those must not also appear in the build-up as cost.

Check whether you can recover the cost of preparing the quotation. Under NEC3 Options A and B, the cost of preparing compensation event quotations is excluded from Defined Cost, so it has to be covered by the Fee. Under NEC3 Options C, D and E, the people preparing the quotation are recoverable if they fall within the people component of the Schedule. NEC4 removed the exclusion under Options A and B. On a project with hundreds of events this is a real sum, and it should influence the fee percentage a contractor tenders on an NEC3 priced contract.

Disruption and loss of productivity

NEC has no separate head of claim for disruption. Lost productivity is simply part of the effect of the event on Defined Cost, and that makes it harder to substantiate, because there is no rate or percentage to reach for.

For forecast work, show the planned output, the output you now expect, and the reason the event causes the difference: restricted working space, out-of-sequence working, shorter shifts, winter working in place of summer. Tie the planned output to something that predates the event, such as the tender build-up or the outputs that support the Accepted Programme durations.

For work already done, the most persuasive method is a comparison between the output achieved on unaffected work and the output achieved on the affected work, taken from your own records on the same project. It needs allocation sheets good enough to separate the two. If your records cannot do that, a global percentage will not rescue the position, and I would expect most assessors to remove this allowance if not properly substantiated.

Risk allowances

The contract allows the assessment to include cost and time risk allowances for matters that have a significant chance of occurring and are not themselves compensation events. Because the assessment is a fixed forecast that will not be revisited, the Contractor is pricing risk and is entitled to be paid for carrying it.

State each allowance separately. Say what the risk is, why it has a significant chance of occurring, and how you sized it. A short risk table, with three or four lines of probability and cost, is enough for most events. A visible, reasoned allowance is usually accepted in whole or in part. Remember to review each risk and to allow for any mitigation costs within the quotation where they apply. An allowance hidden inside inflated outputs or rounded-up durations is usually found, and when it is found it damages the credibility of the whole risk calculation. Also, a blanket risk percentage provision within the CE quotation is easily challenged and removed.

Where the uncertainty is too large to price sensibly, ask the Project Manager to state an assumption under clause 61.6. If the assumption later proves wrong, the correction is a new compensation event. That is a better outcome for both parties than a very large risk allowance.

Step 4: prove the time through the programme

Under clause 63.5 of NEC4 (clause 63.3 in NEC3), delay is the length of time that planned Completion moves, because of the event, from where it is shown on the Accepted Programme current at the dividing date. A narrative about delay does not meet that test. It takes a programme demonstration, and the demonstration needs five things.

The right baseline. Use the Accepted Programme current at the dividing date. If your last Accepted Programme is six months old, deal with that first, because the Project Manager is otherwise entitled to make their own assessment of the time effect.

Progress to the dividing date. Update that programme for actual progress up to the dividing date before adding the event, so that the event is measured against where the job really stood. Keep that updated version as a separate file. The assessor will want to see the step from accepted, to updated, to impacted.

The event as activities. Insert the event as new or extended activities, with durations you can justify from the same outputs used in the cost build-up. If the programme shows ten days for an activity and the cost build-up shows a gang for fifteen, the assessor will find the inconsistency and use the lower figure for both.

Visible logic. Link the event activities to the activities they affect with ordinary logic. Constraints, unexplained lags and links that appear only in the impacted programme are the first things a planner on the other side looks for.

The result, stated plainly. Give the movement in planned Completion and in each Key Date, with the critical path before and after. If the event consumed float and planned Completion did not move, say so, and price any time-related cost on its own merits. Total float on activities is available to absorb a compensation event. Terminal float, between planned Completion and the Completion Date, is the Contractor's, and so are the time risk allowances inside activity durations. Claiming delay that float absorbed is a fast route to a nil assessment on time, and it damages the cost side too.

Send the programme in its native format as well as a PDF. A bar chart image proves nothing about what drives what.

Step 5: people and preliminaries (Indirect Costs), where the nil assessments happen

This is the most underclaimed and misunderstood part of a compensation event. Take the time to master it and you will be ahead of the majority.

Staff, supervision and time-related site costs are where I see the most value lost, particularly by subcontractors. The pattern is familiar. The direct cost of the changed work is accepted, an extension of time may even be granted, and the people and preliminaries are either assessed at nil as unsubstantiated or not included within the quotation.

The cause is nearly always the same. The quotation presents these costs as a weekly rate usually taken from the BOQ or Activity Schedule and multiplied by the period of delay, with nothing to link the people to the event. To an assessor that is a formula, and the contract asks for the effect of the event on Defined Cost.

There are two different situations, and they need different evidence.

Prolongation. The event keeps people and facilities on the project for longer. Name the people and their roles. Show, from the organisation chart and the pre-event resource plan, when each was due to leave or to reduce their time on the project. Show from timesheets or allocation records that they stayed, and what they did. Then connect the two: this engineer was due to demobilise in week 30, remained until week 36 because the affected section could not be completed, and spent that period on these activities. People who would have been on site anyway, doing other work that was not delayed, are not a cost of the event.

Thickening. The event adds workload without extending anyone's stay: extra supervision for a night shift, an additional engineer for a new work front, a planner's time re-sequencing the job. Show the additional hours against the specific tasks the event created, using timesheets that record what people did and not only that they attended.

The same reasoning applies to time-related Equipment, accommodation, welfare and site services. Show what was planned to come off hire and when, show what stayed, and explain why the event is the reason.

The period that matters is the period in which the event had its effect, which is not always the end of the job. If an event in month four delayed a section and the supervision for that section stayed an extra six weeks, the cost is the cost of those six weeks at that time.

Step 6: know which evidence carries weight

Assessors weigh evidence in a consistent order, and it is worth sorting your own file the same way before you submit.

1. Contemporaneous records made by people with no eye on a claim. Site diaries, allocation sheets, plant returns, dated photographs, delivery tickets, inspection and test records.
2. Project communications the other party saw at the time. Notifications, early warnings, instructions, meeting minutes, accepted programmes, progress reports.
3. Third-party documents. Invoices, supplier and subcontractor quotations, survey and test results.
4. Retrospective material. Statements written for the quotation, reconstructed records and after-the-event analysis.

Material in the fourth category helps to explain the rest. On its own it rarely moves an assessor. If your strongest evidence for a major cost heading sits in that category, find that out before you submit, and either strengthen it or lower your expectations.

The practical lesson is about records kept from the first day. Allocation sheets should record the activity or location worked on as well as attendance. Diaries should record what stopped work and for how long. Photographs should carry a date and a location. Plant returns should show standing time separately from working time. These take minutes a day to keep, and they decide most of the events I see.

What assessors take out, and why

It is worth knowing the standard deductions, because each has a standard cure. These are the ones I make most often from the assessor's chair, and see made most often when I am on the other side.

Cost with no record behind it. Hours, plant or materials claimed as actual cost that cannot be matched to an allocation sheet, a return, ticket or invoice. The cure is to claim what the records show and to say openly where they stop.

Rates that are not Defined Cost. Tender rates, internal charge-out rates, or day-work rates used without agreement. The cure is to build the rate from the schedule, or to get the Project Manager's agreement to the rate first.

Overhead and profit inside the cost. Head office staff, off-site overheads or a margin added to a subcontractor's price, all of which the Fee already covers. Assessors remove them and then look harder at everything else.

Duplication. The same supervisor in the direct works build-up and again in preliminaries. The same excavator in two events that overlap in time. Where several events are live at once, a simple resource matrix across the events, showing who and what is claimed in which, prevents this and impresses assessors more than almost anything else in a file.

Cost the Contractor would have incurred anyway. Resources that were already planned to be there, or inefficiency that has causes other than the event. The baseline in Step 2 is the answer to this.

Delay the programme does not support. Days claimed from a narrative, or from a programme whose new logic cannot be explained.

Unexplained contingency. A percentage added at the end "for risk". State the risks and size them, as described above.

If you are a subcontractor, remember that your quotation is often the raw material for the contractor's own quotation to the Project Manager. A file the contractor can pass upstream with little rework is more likely to be accepted, and more likely to be accepted quickly, because the contractor's recovery depends on it. The standard NEC subcontract is built around this. It gives the subcontractor seven weeks to notify where the main contract gives eight, and NEC4's subcontract gives two weeks to quote where the main contract gives three, while allowing the contractor four weeks to reply to the quotation. Bespoke subcontracts are often tighter still.

An illustration: preliminaries rebuilt

This example is invented for illustration and is not drawn from any project.

A piling subcontractor is delayed for four weeks on one section because the contractor fails to hand over the piling platform by the date on the accepted subcontract programme. The subcontractor's quotation claims four weeks of site management at a composite weekly rate, plus four weeks of welfare and small plant. The contractor accepts the rig standing time, which is recorded on daily plant returns, and assesses the management and welfare at nil with the comment "unsubstantiated".

The subcontractor provides a revised quotation. It names the three people in the composite rate and drops one of them, a visiting contracts manager whose time did not change. It produces the pre-event resource plan, which shows the site manager and engineer leaving at the end of week 22. It produces timesheets and the site diary, which show both still on site in weeks 23 to 26, and shows that in that period they were supervising the delayed section and nothing else. It replaces the composite weekly rate with each person's cost under the schedule the subcontract uses.

The resulting figure is lower than the original claim. It is also supported line by line, and that gives the contractor's assessor something they can accept and defend, which the formula never did.

If the quotation comes back

If the Project Manager instructs a revised quotation, the contract requires them to explain why. Answer the reasons given, point by point, in a short covering schedule: accepted, accepted in part, or not accepted, with the reason. Do not resubmit the same document with a longer narrative. The revised quotation is due within three weeks unless an extension is agreed before that date.

If the Project Manager makes their own assessment and you disagree, the assessment stands unless it is changed through the dispute procedure. The file you built for the quotation is the file you would rely on in an adjudication, which is one more reason to build it properly the first time.

A pre-submission checklist

Before a quotation leaves the building, I check the following.

• The event is named by clause, with event, awareness and notification dates, and the notification is attached.
• Any Z-clause that alters the event, the periods or the cost rules has been read and applied.
• The pre-event baseline and the changed position are both shown, with document revisions identified.
• Additions, omissions and changes in method are listed, and every cost line traces to one of them.
• The build-up follows the Schedule of Cost Components that applies under this Option and edition.
• Subcontracted work is priced on the basis the Option requires, or an agreed lump sum is recorded.
• Actual and forecast cost are separated at the correct date.
• Every quantity, rate and duration has a stated source, and every total re-sums in a live spreadsheet.
• The Fee uses the contract percentage on the correct base, with no overhead or profit in the cost.
• Risk allowances are stated, explained and sized.
• Delay is demonstrated on the correct Accepted Programme, updated for progress, with logic visible, float addressed and native files included.
• Durations in the programme match durations in the cost build-up.
• People and time-related costs are tied to named resources, planned and actual dates, and records.
• Every statement in the narrative carries a reference to a numbered appendix.
• The quotation is inside the three-week period, or an extension was agreed before it expired.

Frequently asked questions

How much substantiation is enough? Enough for someone who was not on the project to follow each figure back to a record or a reasoned forecast. Scale the volume to the value, and keep the structure the same.

Can I use my tender rates? Only by agreement. Otherwise, the basis is Defined Cost plus Fee.

Do I need a programme for every event? Where the event alters the programme for the remaining work, the quotation must include the impacted programme. If there is no time effect, say so explicitly.

Can I claim the delay if the event used up float? Not as delay to the Completion Date, if planned Completion did not move. Time-related cost that the event did cause can still be claimed on its own evidence.

What if my records are poor? Say what you have, use the method that best fits it, and price cautiously. An honest, modest figure built on thin records does better than an ambitious one.

Is my compensation event template suitable? The quotation template should mirror the applicable Schedule of Cost Components under your contract, this can be amended from time to time so please double-check your contract. If you would like a robust CE template, download our free NEC compensation event templates.

Test your CE before they do

The most useful check on a finished quotation is to have someone read it the way the assessor will, and usually nobody has the time. That is the gap I built Clause 60 for. It reads the quotation and cost build-up, the contract including Z-clauses, and the native programme — Primavera P6 or Microsoft Project — and returns a structured first-pass review in about ten minutes. Each section is RAG-rated, every finding is cited to its source and labelled Fact or Inference, and missing information is flagged. It is side-neutral, so a contractor can run the same analysis the other side would and close the gaps first. It is assistive, not advisory, and a qualified person still checks it and makes the call.

You can watch it review a sample NEC4 event and download the full report, with no sign-up, at clause60.com/demo.

This guide is general guidance on the standard NEC3 and NEC4 ECC forms, written from professional experience. It is not legal advice, and it does not account for the amendments in your contract. NEC is a registered trade mark of its owner; Clause 60 Limited is not affiliated with or endorsed by NEC.