Building rates for Compensation Events under the SSCC

NEC3 and NEC4 Contracts Compensation Events
1

On an NEC3 Engineering and Construction Contract, I’m in the process of building up a rate to assess a Compensation Event for a member of staff (working directly for the Contractor) using the shorter schedule of cost components. No rates were included in our Contract so we’re using defined cost. It seems from looking at the contract that we only need to provide proof of salary and pension under the Shorter Schedule. What information do I need to show the Employer? From brief discussions with the Employer he seems to believe that I can’t claim for the items from the Full Schedule of Cost Components because they are not listed in black and white.

I would of thought that the shorter schedule was not a mechanism to pay the Contractor less but more so to agree the rates quicker as less substantiation was required.

Therefore under this SSCC, what do I contractually need to provide to the Employer in order to be confident that I’ve done everything required of me from a Contractor’s point of view?

Furthermore, what is the process if we can not agree on a rate at the end of the discussions?

2

Contractually, the answer is in People 11 of the Shorter Schecule of Cost Components (SCC) i.e. “Amounts paid by the Contractor including those for meeting the requirements of the law”.

However, this is a pretty high level description and, for some costs, they may be arguments or discussions about how closely linked they are with the costs of employing a person or not i.e. whether they are directly linked or ‘related to’, so I understand the problem.

A good starting point would be to look at how people costs are built up in the normal SCC under People 11, 12 and 13.

However, a point I would raise is that as, under options A & B, the Shorter SCC is only used for assessing compensation events, then it has to be the “effect of the compensation event upon” Defined Costs (see clause 63.3), so you cannot factor in fixed costs or possibly time realted costs which are not changing as a result of the compensation event. For instance, if the person is not in the Working Areas for a longer duration, just working overtime, then there is probably no change in any acomodation allowances, car costs etc.

Years ago when I was doing research on the use of the NEC, about 20% of people did not look at the SCC’s at all, 20% applied them rigidly and 60% applied them until the figures they got departed from common sense, when they applied common sense. I recommend the laat approach !

Lastly, if you ultimatelly cannot get agreement, the contractual process is adjudication. However, there are a range of ‘common sense’ things you can do to avoid getting there e.g. escalate, non-binding ‘informal’ third party recommendation, with the ‘informal’ bit avoids the needs for the parties to generate documents etc.