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NEC3 ECC: Opportunities to benefit the Project with bespoke change to target mechanism

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The Contract was let as an Option C target based contract with incentivised fee. It was changed (for complex reasons), by agreement, removing the incentivisation and target cost and introducing a fixed fee for a fixed scope. The fee would only be adjusted if scope increased or the WI changed via a PM instruction.

If, under collaboration/integration with the Contractor, the Employer and Contractor agreed to maintain a schedule of opportunities and opportunities arose that were agreed and prioritised but ultimately allowed the Contractor to mitigate his risk, would that work be classed as instruct-able and suitable for fee increase? This opportunity work does not change the WI, introduce additional scope or have any effect on planned works. I see the associated costs with introducing and implementing opportunity work as defined and payable cost and within the Contractor’s gift to undertake as the associated work is done to meet the WI and deliver the Works. The question is instruction, compensation event and increased fee and whether these are mandatory. As you will appreciate the theory is to spend a little to gain a bigger opportunity that benefits both parties, clearly something that should be prevalent under a true Option C target contract. The only difference is here there are no Prices to change as such.
asked Mar 29 in NEC3 General by APW (520 points)  
   

1 Answer

+1 vote
Without knowing the complexity of the contract it is difficult to give a clear answer however if these opportunities are reducing cost and/or Defined Cost (by mitigating his risk) then the Contractor would be sharing the saving through the gainshare arrangements. Therefore whist his Fee remained fixed he would get the benefit of the increased gainshare presuming that mechanism has not be amended.
answered Mar 29 by dave bates (4,790 points)  
The gain/pain share arrangements were also removed so there is no direct benefit to the Contractor in this particular instance. In fact it's quite the opposite (such was the Employer's risk in changing these arrangements!) as we have effectively moved to a hybrid Option C but in reality it is like an Option E. There are a couple of milestones with fixed dates, the meeting of which guarantees the fee however should the Contractor run late there is a reducing scale. Opportunity therefore does benefit to some degree as he should beat those milestone dates if opportunity is realised.

So does the question of having to instruct him, compensate him and increase his fee apply? I believe not as we are not changing the WI or scope. I think at the end of the day it's his choice to either implement opportunity or not.
Based on the information provide, I would agree with your final comment, unless the matters are CEs then it would be for the Contractor to decide. It would seem sensible for him to mitigate the risk and he may want reassurance that any mitigation costs would not be treated as disallowed cost.

I'm not clear why you would have to instruct him should you not be changing the WI.
Many thanks for the response. I fully concur with your statements and there is no reason to instruct if we are not changing the WI. Very helpful comments.