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Is it reasonable to assume that the people overheads fee stated in the SSCC is included in the rates provided by the contractor if he does not sate whether it is included in his rates or not?

+1 vote
Contract is option B, priced BOQ. The Employer wants to issue the Contractor with additional work. As the contract is running for more than 2 years the contractor wants to amend his supervision's rates as provided in the contract to execute the additional works on which is not an issue. The issue is to determine whether the escalation is applied to the correct value of the rate. In the contract the contractor does not state whether the rates provided are inclusive or not of the people overheads fee as provided in the SSCC. Is it reasonable to assume that these rates include for the overheads percentage fee or is it assumed that if the contractor does not state whether it is or not it is then assumed to be excluded? If it is not included can the Project Manager the request proof of defined cost, payroll slip or something similar, to substantiate the proposed new rate?
asked Sep 8, 2014 in NEC3 and NEC4 Contracts by paul.bosua (540 points)  

1 Answer

+1 vote
Best answer
I am going to answer this question from a slightly different perspective : not "is it reasonable", but "is it contractually correct ?"

Assuming the original duration was not much shorter than the current duration (i.e. the parties are still operating within what was reasonably foreseeble at the time of entering the contract), the answer is that, unless option X1 ; Price adjustment for inflation was specified, there is no contractual reason to re-visit what was presumably tendered by the Contractor and incorporated in / referenced from Contract Data Pt2.

Assuming X1 is specified, then the clause to look at is X1.3, 2nd bullet. It says the "The Defined Cost for for compensation events is assessed using the ... ... - Defined Cost at base date levels for amounts calculated from rates stated in the Contract Data for employees and Equipment. " I read this to mean the Contractor does not get inflation on those tendered 'input' rates, which (along with the other bullet in clause X1.3) seems manifestly unfair on the Contractor !

However, looking at X1.4, the PWDD is adjusted by inflation and for compensation events only, the PWDD (in shorthand) = Defined Cost + Fee.

So what you should be doing in practice is taking their tendered rates and applying the Price Adjustment Factor; then adding on the percentage for people overheads that they originally tendered (regardless of what it includes or excludes - contractually you don't need to know) and then adding on the relevant  fee percentage that they originally tendered.

Hope that answers your question. If not, get back and clarify where I have misunderstood / not got all the information.
answered Sep 8, 2014 by Jon Broome Panel Member (64,190 points)