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NEC ECC: Option C - Effect of Penalty / Incentive on Target Cost
We are using an Option C Target Cost contract with a penalty / incentive regime associated with the Contractor achieving / not achieving certain standards. Exceeding the standard results in a monthly bonus payment (incentive) whereas falling below the standard results in a monthly penalty payment. Am I right in saying that this does not affect the Defined Cost and hence PWDD as it comes under the second and third bullets of the 'amount due' under 50.2? i.e. Payments can be made / deductions made to the Contractor that don't affect the Contractor's share.
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You don't state what mechanism is being used to assess and apply the 'penalty / incentive' regime, which I assume is based upon an amended Secondary Option X20 (Key Performance Indicators).
Assuming that the 'incentive' and 'penalty' payments are considered in a similar way to X6 (Bonus for early Completion) and X7 (Delay damages) assessments, these are not treated as PWDD so would not be included in a share calculation.
Consequently, you are correct in that the PWDD comes under the 1st bullet point and the other amounts are treated under either the 2nd or 3rd bullet points.
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