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NEC3 ECC: Would the allocation of a sum of money to cover a potential annual bonus paid to site management staff be a disallowable cost or an allowable cost under an Option D contract?

+1 vote
257 views
The Contractor apportions an annual sum of money from all the contracts in any one year to a bonus pool to be shared out at the end of the year amongst the site management staff. On an Option D contract the Contractor wishes to allocate a proportion of these costs to the People element of the defined cost. Would these costs be disallowable as they were not incurred during the period of the contract?
asked May 26, 2016 in NEC3 Payment by anonymous  
   

3 Answers

+1 vote
The Contractor is allowed to pay bonuses and incentives to their People under People 12(a) of the Schedule of Cost Components.

However, go up to the intro to the SCC and it says "only if it is incurred in order to Provide the Works". So I would say for a general company wide bonus, the answer is 'No'.

On the other hand, for a bonus paid for their performance only on this contract, the answer is 'Yes'.

It can then get more complicated if you have 'bonus pool' for the whole companies performance, from which the manager in questions bonus is drawn and paid based on their performance on this contract ! I will leave that one for another day ...
answered May 26, 2016 by Jon Broome (17,290 points)  
+1 vote
Not at all, this should be allowed under Cost Component 12 'Bonuses and Incentives'.
answered May 26, 2016 by richardelston (160 points)  
0 votes
As, stated in Clause 50.1 “The project Manager assesses the amount due...” And, clause 50.2 states that “The Amount Due is the Price Work Done to Date.....” And clause 11.2(29) states that “ The Price Work Done to Date is the total Defined Cost which the PM forecasts will have been Paid by the Contractor before the next assessment date plus the Fee. The key word is “PAID”.
In your case the bonus will not be paid until the end of the year, so in the monthly Interim Payment Application of the Contractor, the bonus provision cannot be justified by the contractor's accounts and records ( "Proof of Payment" clause 52.2),
 Thus, Bonus Provision is disallowed as per Clause 11.25 bullet No.1.
answered Sep 5, 2016 by acc (480 points)