NEC 3 - Option E - Contractor currently applies a day rate to each individual when working within the Working Area (Providing the Works). We are conducting a people costs audit to ensure day rates are in line with the Schedule of Cost Components.
This would be by calculating the days spent on the project. 365 days (less weekends 104, less bank holidays 8) which would give a total of 253 days. We calculate the total cost of employment as per the SCC 11, 12, 13 and then divide by the 253 days to get a day rate. (Should we be including an allowance for Annual Leave / Sickness within this calculation?)
(1) The question is how is Sickness and Annual leave calculated and should these days be included within any calculations. Under the NEC (SCC) these are paid for when “Providing the Works” - Surely when off sick you / A/Leave you are not providing the works?
(2) Also if staff are part time how is sickness / annual leave calculated (is this just a % against time spent on the project)
(3) And finally, would we pick up the costs of university students if they are based on project ( (a)The cost of university course and also (b) the hours spent in university)
’ … amounts paid by the Contractor for people paid according to the time worked while they are within the Working Areas.’
The 2 important parts are;
amounts paid,
time worked within the Working Areas.
items 12 and 13 expand upon what ‘amounts paid’ includes, along with ‘wages’ and ‘salaries’ under item 11.
Absence due to sickness and holidays is a cost component under 12 (e) so an allowance should be made for this. Holidays, or leave, should be relatively straightforward, although sickness, as you rightly say, is more difficult to assess. The best way to deal with this is to take an average amount of sickness leave and apply it to everyone. This may not work in certain situations so you may need to review this on a case by case basis, where appropriate, including other absences such as maternity / paternity leave.
Essentially you are calculating how many days a person is ‘available to work’ and then dividing the total cost (as defined by the SCC) by the number of calculated days.
For part time staff you would apply a pro-rata calculation, based on their contracted hours. For a ‘zero hours’ contract you would calculate the ‘cost to employ’ based on the time worked, treated effectively as an agency resource, although also accounting for their entitlement for leave.
As you have mentioned, an amount is included if it is incurred in order to Provide the Works, so for a student the ‘cost to employ’ would include their university fees but the time spent in university would not be paid and would be deemed included in the Fee. In this instance you would calculate the number of days ‘available to work’ and pay for the time spent working in the Working Areas.
This is option E so costs the Contractor incurs is what they should be entitled to pay. They are having to pay their staff if they are sick so one way or another they should be able to recover that cost. It is a bit like when a CE only takes 2 hours of a shift and clients only want to pay for 2 hours work. If the Contractor had to pay their operatives a full shift to do 2 hours work then they should be able to recover the full shift - as long as they can demonstrate there was no other work they could do.
All the above is clear to me and the basis for producing my ‘wage card’ to agree a rate which is audited. But how do you deal with non billable hours?
The OP assumes people work in the working area on that site for 365 days, what happens with specialist contractors, who may be there for only several weeks, and then have down time between different projects, under different forms of contract?
We achieve about 80% utilisation (including holiday, sick, training and non-billable (sat in the yard)) We have these records and we can base our rates on the ‘total cost’ to employ someone divided into the available hours.
This is where i get push back - the PM challenges why they should contribute towards costs for not keeping our workforce 100% billable. they are after all mostly billable hours when on his site!
Without factoring in the non billable hours as part of the rate we obviously under recover on NEC projects.
Including non-utilisation costs in the fee doesn’t seem precise or correct? Don’t we calculate the total amounts paid and then divide by the hours available to work in order recover those total amounts?
I can appreciate the problem with what to do with ‘non-utilisation’ hours (sat in yard), which is not an allowable component under the NEC SCC (unless due to a compensation event). However, sickness and leave entitlements are, so should be built into the rate. That means your rate ‘accrues’ a cost which goes towards paying for any ‘allowable’ non-productive time.
I can appreciate the dilemma but if a cost is not included in Defined Cost (as detailed in the SCC), then it should be included in the Fee.
I admit the calculations are not perfect, especially for a short duration project and there are certain steps you can take to address this, such as taking leave entitlements ‘between projects’ etc. However, this is one of the issues of applying a ‘one size fits all’ approach under a standard form of contract, which doesn’t necessarily address the characteristics of a specific project, which should sensibly be addressed within the contract documentation, but rarely is.