<div class="ge-article-wrapper"><article class="ge-article-body"><p>A compensation event is an event that entitles the Contractor to a change in the Prices and/or the Completion Date under NEC4. In <a href="/en/earned-value">earned value management</a> terms, every implemented CE adjusts <a href="/en/earned-value/definitions/budget-at-completion">BAC</a>. Miss a CE notification and you've got scope in the works but no budget to measure it against.</p><p>This term is part of the <a href="/en/earned-value/definitions">earned value definitions glossary</a>.</p><h2>The CE Process and EVM Impact</h2><pre class="ge-ascii-diagram ge-anim">NEC4 COMPENSATION EVENT TIMELINE
Event occurs
│
▼
Contractor notifies (clause 61.3)
Must be within 8 weeks or TIME-BARRED
│
▼
PM responds within 1 week
Accepts or rejects notification
│
▼
Quotation submitted (clause 62)
Within 3 weeks of instruction
│
▼
PM responds to quotation
Within 2 weeks
│
▼
CE IMPLEMENTED (clause 65)
│
│───▶ BAC adjusts (Prices change)
│───▶ PV baseline updates
│───▶ Completion Date may extend
▼
EVM BASELINE CHANGE</pre><h2>Why CEs Matter for EVM</h2><p>Every implemented CE changes at least one of: BAC (budget), PV (timeline), or both. If you implement a CE worth £400K but don't update BAC, your CPI is artificially low. You're measuring £400K of work against zero budget.</p><h2>Worked Example</h2><span class="ge-worked-label">Worked Example</span><div class="ge-callout ge-anim"><p><strong>Scenario:</strong> A £30M NEC4 Option C project. Two CEs are implemented at month 6:</p><ul><li>CE-003: Ground conditions (£450K, 4 weeks delay)</li><li>CE-007: Design change (£280K, no delay)</li></ul><p>Before CEs: BAC = £30M, EV = £12.5M, AC = £13.2M, CPI = 0.947</p><p>After CEs: BAC = £30.73M, EV = £12.8M (including CE work done), AC = £13.2M, CPI = 0.970</p><p>The CPI improvement reflects reality: some of the "overrun" was actually CE scope.</p></div><h2>The Time Bar Trap</h2><p>Clause 61.3: if the Contractor doesn't notify a CE within 8 weeks of becoming aware, it's time-barred. The event still happened. The cost is still incurred. But there's no CE to adjust BAC. Your EVM system shows an overrun that can never be recovered commercially.</p><h2>Common Mistakes</h2><ol><li><strong>Not updating BAC after implementation.</strong></li><li><strong>Missing the 8-week time bar.</strong></li><li><strong>Including unimplemented CEs in BAC.</strong> Only implemented CEs adjust the baseline.</li></ol><div class="ge-product-note ge-anim"><p><strong>How Gather helps.</strong> Gather's AI detects potential compensation events from your site diaries, flagging them before the 8-week time bar. <a href="https://gatherinsights.com/contact">Book a demo</a>.</p></div><h2>Frequently Asked Questions</h2><h3>When should BAC change for a CE?</h3><p>When the CE is formally implemented under clause 65. Not when it's notified, not when it's quoted. Only when implemented.</p><h3>How do CEs affect CPI?</h3><p>Implemented CEs increase BAC and may increase EV (for work already done). This typically improves CPI if the work was being measured but not budgeted.</p></article></div>
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