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NEC ECC: If Direct Fee on an Option C is not stated as being Fixed or Variable in the Contract Data, is there a default position?
Fee is not stated as being Fixed or Variable in the Contract Data
Forecast spend on a £1.4m target is now at £2m therefore contract is £600k in pain. To date, Fee has been paid as though it is Variable (i.e. Direct Fee is applied to Defined Cost). This means contractor continues to get paid Fee.
If the Fee was fixed they would only get Fee on the original target cost plus any additional Fee generated on implemented CEs. The pain / gain mechanism has the Client taking majority of the pain so there is currently no incentive for the Contractor to stop spending as they are getting both Defined Cost and Fee on the overspend.
So my question is - what is the default position on Fee when it has not been stated in the Contract Data? Fixed or Variable? Or is the answer that because it is not stated it is the outcome most favourable to the Contractor (variable)?
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Fee is fixed but maybe not in the way you describe.
Contractor can claim Defined Cost + fee (keeping it simple as it could be combination of direct fee or subcontract fee). Fee is paid on all Defined Cost and this continues even if they are into pain - but it still is not in the Contractors interest to allow this to happen as whilst they are picking up fee, the gainshare they would have made or the pain they would have saved if over target would far exceed the nominal fee they are making on incurring extra Defined Cost.
However, if the Employer has set the pain threshold/percentages such that they take most or all of the pain, then firstly they should ask themselves why did they set that mechanism in the first place. Second question would be is there any of this Defined Cost that could constitute a compensation event? Very risky strategy for the Contractor to pursue travelling down this road I suggest for both commercial and political reasons.
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