NEC4 Dividing Date: Clause 63.1 Guide for Contractors

This guide explains what the dividing date is, how it is determined for different compensation events, how it interacts with the Accepted Programme, and the common mistakes that lead to incorrect assessments.

What is the dividing date

The dividing date is the point in time that separates actual cost from forecast cost in the assessment of a compensation event. Clause 63.1 states that the change to the Prices is assessed as the effect of the compensation event upon the actual Defined Cost of the work done by the dividing date and the forecast Defined Cost of the work not done by the dividing date, together with the resulting Fee.

NEC4 introduced the term "dividing date" to name a concept that existed in NEC3 without a label. Under NEC3 clause 63.1, the equivalent provision referred to "the date when the Project Manager instructed or should have instructed the Contractor to submit quotations" as the point dividing work already done from work not yet done. NEC4 replaced that wording with the shorter, clearer term.

The dividing date is not a defined term in clause 11.2. It is a functional concept within clause 63.1 that determines how every compensation event is valued.

How the dividing date is determined

Clause 63.1 sets two rules depending on how the compensation event arose.

For PM-initiated events, the dividing date is usually very early in the process. The PM gives an instruction and the dividing date is set immediately.

For Contractor-notified events, the dividing date depends on how quickly the Contractor identifies and notifies the event. A notification on the day the event occurs sets an early dividing date. A notification six weeks later pushes the dividing date six weeks forward, changing the balance between actual and forecast cost.

This reinforces the NEC4 design principle of prospective assessment. The earlier the Contractor notifies, the more of the assessment is forecast-based, which preserves the opportunity to include clause 63.6 risk allowances for the remaining work. Delaying notification beyond the eight-week time bar means the compensation event is lost entirely.

Actual cost versus forecast cost

The distinction between actual and forecast Defined Cost is fundamental to how NEC4 values compensation events. This is not a cost-reimbursable mechanism. It is a prospective assessment system where the Contractor carries risk on the forecast element.

Before the dividing date: actual Defined Cost. This is the cost the Contractor has already incurred, calculated in accordance with the Schedule of Cost Components (Options C, D, and E) or the Shorter Schedule of Cost Components (Options A and B).

Only costs that qualify as Defined Cost under the contract are included. Costs that fail the Defined Cost test or that are classified as Disallowed Cost are excluded.

After the dividing date: forecast Defined Cost. This is what the Contractor and Project Manager judge, at the dividing date, to be a reasonable forecast of the remaining cost effect. The forecast must be based on assumptions that are reasonable at the dividing date. It is not revised later to reflect what actually happened.

Clause 63.6 allows the Contractor to include risk allowances in the forecast for matters that have a significant chance of occurring and are not themselves compensation events. These risk allowances are part of the assessment, not contingency added on top. The NEC Guidance Notes advise that risk allowances should reflect the same approach used when tendering.

The dividing date and the Accepted Programme

Clause 63.5 states that a delay to the Completion Date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme current at the dividing date. NEC4 added the words "at the dividing date" to this clause, which NEC3 did not include. This removes any ambiguity about which version of the Accepted Programme to use.

The assessment of delay follows three steps.

Step 1: Identify the correct programme. Use the Accepted Programme that was current at the dividing date. Not the latest submission. Not a programme that was submitted but not accepted. The Accepted Programme as it stood on that specific date.

Step 2: Progress the programme to the dividing date. Update the Accepted Programme to reflect actual progress at the dividing date. This shows what has been completed, what is in progress, and what has not started. Any delays that have already occurred, whether from other compensation events or from Contractor risk, are captured in this progressed version.

Step 3: Add the compensation event. Model the effect of the compensation event on the progressed programme. The difference between planned Completion before and after adding the event is the delay entitlement.

Skipping step 2 is the most common programme assessment error. If you add the compensation event to the Accepted Programme without first progressing it, you absorb the Contractor's own float and any prior delays into the CE assessment. The result is either an overstated or understated delay entitlement.

What happens when there is no current Accepted Programme

If the Contractor has not submitted a programme for acceptance as required by the contract, or if the Project Manager has not accepted the latest submitted programme for a reason stated in the contract, there may be no current Accepted Programme at the dividing date.

In this situation, clause 64.1 applies. The Project Manager makes their own assessment of the compensation event. Under clause 64.2, the PM assesses the programme for the remaining work. In effect, the PM creates a programme that reflects the progress of the works as the PM sees it, and uses that as the basis for the CE assessment.

This is not a favourable position for either party. The Contractor loses control of the programme baseline. The PM takes on the burden of constructing a programme without the Contractor's detailed knowledge of resources, methods, and sequencing. Both parties benefit from maintaining a current Accepted Programme.

Worked example: highway drainage scope change

A contractor is delivering a highway drainage scheme under an NEC4 Option A (priced contract with activity schedule) contract. On 10 June, the PM instructs a change to the outfall design, replacing a precast headwall with a reinforced concrete wingwall structure. This is a compensation event under clause 60.1(1).

Dividing date: 10 June (the date of the PM's instruction).

At 10 June, the Contractor has completed the excavation for the outfall but has not started construction of the headwall. The excavation cost is known.

The entire assessment is based on forecast Defined Cost because the headwall work had not started by the dividing date. Even if the Contractor submits the quotation three weeks later, the valuation remains prospective. It is assessed using forecasts judged to be reasonable at 10 June, not using costs actually incurred after that date.

Programme assessment: the Accepted Programme current at 10 June shows the headwall installation with two days of total float before it affects the connection to the main carrier drain and ultimately planned Completion. The wingwall requires five additional working days compared to the headwall.

After progressing the programme to 10 June (step 2) and adding the CE (step 3), planned Completion moves three days later. The three days accounts for the five additional days minus the two days of total float consumed. The Contractor proposes a three-day extension to the Completion Date.

Had the Contractor not progressed the programme before adding the CE, the float would have appeared differently. Delays from other activities that consumed float before 10 June would not have been reflected. The extension entitlement could have been overstated or understated depending on the direction of actual progress.

Why the dividing date matters commercially

The dividing date serves three commercial purposes that protect both parties.

It prevents retrospective cherry-picking. Without a fixed dividing date, a Project Manager could wait until work is complete and then compare the original quotation to actual costs, selecting whichever is lower. The NEC3 Guidance Notes explicitly stated that the dividing date mechanism was introduced to counter "a disturbing trend of retrospective cherry picking between quotation and final recorded costs." NEC4 reinforced this by naming the concept.

It fixes the programme baseline. The dividing date determines which version of the Accepted Programme is used for delay assessment. This prevents arguments about whether to use the programme at the time of the event, the time of the quotation, or the time of the PM's assessment. The answer is always the same: the Accepted Programme current at the dividing date.

It allocates risk on forecasts to the Contractor. Once the assessment is agreed or implemented based on forecast Defined Cost, the Contractor bears the risk that actual costs may differ from the forecast. If the work costs less than forecast, the Contractor retains the difference. If it costs more, the Contractor absorbs the overrun. This risk allocation is deliberate. NEC4 is not a cost-reimbursable system for compensation events, even under Options C, D, and E.

PM assumptions under clause 61.6

Where the effect of a compensation event is too uncertain to forecast reasonably, the Project Manager may state assumptions under clause 61.6. The Contractor assesses the compensation event based on those assumptions. If an assumption later proves wrong, the PM notifies a correction under clause 60.1(17), creating a new compensation event assessed at a new dividing date.

Only the Project Manager can state assumptions. The Contractor cannot propose them unilaterally, although discussing potential assumptions with the PM before submitting a quotation is sensible practice.

The assumption mechanism exists precisely because the dividing date forces prospective assessment. Some compensation events have effects that cannot be forecast with reasonable confidence at the dividing date. Stated assumptions provide a structured way to proceed without waiting for certainty that may never arrive.

Five common mistakes with the dividing date