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NEC ECC: Can the Client change your fee percentage?

0 votes
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We recently tendered a project under NEC4 ECC Option B, as part of the tender submission we had to identify the value of our OH&P separately and state if this was a lump sum or a percentage.

We took the view to state the OH&P as a lump sum, thinking it'd make little difference to anything as CEs would largely be valued using the SSCC. And if we agreed to value any CEs using the bill rates, we were satisfied that the profit loss from not being able to recover the OH&P on any additional work valued this way would be minimal but that it would be beneficial for our relationship with a new client who we haven't worked with before. We also offered a big saving (the form of tender had a line for "directors adjustment"), also as a lump sum, so it made sense to have our OH&P as a lump sum.

We filled in the contract data as normal, and advised what our direct fee would be and filled in the SSCC.

We have recently submitted a quotation for a CE resulting from additional scope, which was priced using the SSCC + direct fee. The PQS has come back to us and said we aren't entitled to the fee, only the cost, as we said our OH&P was submitted as a lump sum. Nowhere in the pricing or tender information or contract or the contract data does it mention this, our signed contract refers to a direct fee percentage (and it isn't zero!) and there is nothing that says our profit is limited to the amount in our tender submission. There isn't even a Z Clause about it.

Our view, is that we took the commercial decision to not claim profit on CE's valued using the bill rates but that any other CE is valued using the SSCC + direct fee. Their argument seems to be that it isn't fair because omissions won't save them as much as additions would cost them and if we were satisfied with making £xxx profit for the job, why should that change just because they increase the Scope. Furthermore is not what they intended, as seemingly the benefit of us including a lump sum OH&P was supposed to be theirs and not something that might benefit us in the unlikely event they generate any savings via omissions. They also informed the client as part of the recommendation process that we won't be claiming/getting additional profit.

We have argued that their intention, which is vague at best and was certainly not clear at tender stage, is not provided for within the contract at all. Is this something we should pursue or have we misunderstood something obvious? I've never come across it before and we've had clients and PQS' try all kinds of underhanded moves in the pricing documents and Z Clauses to bamboozle the Contractor. I feel as though they'll force us into accepting this regardless, by using the relationship with the Client as a stick, or purely just because they hold the chequebook.
asked Jan 22 in Compensation Events by Mrs Davies (120 points)  

1 Answer

+1 vote
It sounds a mess!

If the standard form has not been amended by Z clause(s) then the default assessment of compensation events remains as Defined Cost (the change in Defined Cost due to the CE) + Fee.

You should however be mindful that the use of bill rates for assessing CEs is only by agreement and therefore the PM may not agree to the use of rates for omissions (which I assume are CEs reducing the Scope).
answered Jan 22 by dave bates (11,570 points)  
Hi

The simple answer is no.

Fee cannot be changed unilaterally by the Client or by the Project Manager.  A supplemental agreement signed by both parties is required.

Assessment of a compensation event is governed by clause 63.1 (if not amended) which requires the Fee to be added. Referencing an appropriate clause number and ensuring that there are no amendments elsewhere (Z clause or otherwise) will help to change a fair and reasonable PQS’ mind. It has a duty to be impartial under law in this type of instances.