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NEC ECC: For an Option A contract, when measuring a CE should you use the agreed Contract Data Part 2 labour rates?
For some background, we have an Option A Contract down the line to our subcontractor and an Option E with the client. We have agreed labour rates in our Contract Data Part Two (down the line) explicating stating the rates for week and weekend working for operatives, supervisors etc which we have used to value Compensation Events.
When we are to value a CE down the line our client is trying to propose that we do the following: The rates that have been included within the Contract Data Part 2 are not relevant to the assessment of Compensation Events as these relate to people outside the working areas (i.e not within the site). Unless there is an agreed labour matrix included within the subcontract the default position is to value People in accordance with the Shorter Schedule of Cost Components. Thus, the Subcontractor would have to demonstrate actual costs and add the WAO% then Fee.
We are in a predicament as our client is trying to force a labour rate that they have came up with, which they see as 'competitive market rates' and in this situation we do not know whether to hold our ground and use the rates within the Contract Data Part 2. Please can you advise.
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In your Option E ECC compensation events are assessed using Defined Cost plus Fee with Defined Cost being a defined term at clause 11.2(23). So for Subcontractors, Defined Cost is "the amount of payments due to Subcontractors for work which is subcontracted without taking account of ...". The Schedule of Cost Components (SCC) is irrelevant as Subcontractors do not appear in it. If the PM disagrees with a cost they have to be able to class this as Disallowed Cost a defined term under clause 11.2(25) with the relevant part being "should not have been paid to a Subcontractor or supplier in accordance with his contract".
If your subcontract incorporates rates then provided the Shorter Schedule of Cost Components (SSCC) was modified accordingly (or they were incorporated some other way) it should be fine to use them. However if the rates were incorporated without amending the SSCC (or some other way) then you are correct that the method of assessment is based o the actual amount paid to people by the Subcontractor plus WAO% and Fee. You should get the Subcontractor to give you a build-up in accordance with the SSCC and if they refuse make an assessment yourself. If you've already paid the Subcontractor incorrectly (i.e. using the agreed labour rates without an amended SSCC, then you should correct this in your next assessment of the amount due to them.
Under your Option E ECC there should be very little risk for a Contractor, you shouldn't end up in a situation where you're paying a Subcontractor £X and the Employer only paying you £Y.
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