NEC3 ECC: Compensation Events and Fees

NEC3 and NEC4 Contracts
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A Subcontractor has submitted a quotation for works for us to forward onto the employer, the works only involve this subcontractor.

They have broken the elements down into cost and have a line for the direct fee percentage.

Do we simply take their quotation and add our direct fee on and that forms our quotation to the employer?

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I am going to give a classic experts answer and that is “It depends”. Useful ? No ! So here goes :

  • if you are under the cost based options C, D, or F, then - assuming the Subcontractor has assessed the compensation event in accordance with their subcontract - then you add your subcontract fee percentage on top of the Subcontractor’s quotation (which will include the Subcontractor’s direct fee percentage). This is because a Defined Cost is what you pay Subcontractor’s in accordance with their subcontracts

  • if you under the priced based options A or B then - for what you present to the Employer - you need to deduct the Subcontractor’s direct fee percentage from their quotation and then add back on your subcontract fee percentage. So if your subcontract fee percentage is larger than the Subcontractor’s direct fee percentage, then you are ‘quids in’ ! And if it is the other way around, ‘quids out’.

Easy !? Not quite, because in addition, the subcontractor’s quotation should be assembled using any data you submitted with your offer at main contract level. So if, for example, you had submitted rate for a labourer at £20 per hour and the subcontractor’s was £15, the again you would be quids in. And ditto, if the other way around. Likewise, if your percentage for People costs was say 20% and the Subcontractor’s is 10%. This is because under options A & B, the main contract does not distinguish between Defined Costs incurred at main contract or subcontract level.