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Scope reduction NEC2

+2 votes
The contract is on NEC2 ECC option A, the contract is expiring Employer wants to extend time but with less scope. How do we compensate the Contractor?
asked Nov 3, 2014 in Compensation Events by NP   1 2 3

1 Answer

+2 votes
Best answer
Very briefly,   :
1. the Project Manager needs to issue an instruction for a change to the Works Information which (i) takes out the desired scope and (ii) adds in the extra constraints which extend the time.
2. The Contractor would give a quotation would would have two main components. The first would reduce the Prices as the scope is being reduced. The second part  would put the planned Completion and hence contractual Completion Date and thereby add back in Defined Cost + Fee = the change to Prices due to time realted costs.

Things to note :
A. This could be for proposed instruction in which case the Contractor would not proceed until the PM has accepted it and instructed the Contractor to proceed. B. Building on A., this could also be two instructions, one to take out scope which would NOT reduce the contract duration and one to add in constraints. The danger of doing it as two is that they are considered in  isolation
answered Nov 4, 2014 by Jon Broome Panel Member (60,890 points)  
Thank you Jon,

We have requested a quotation from the contractor he responded  claiming for :
Profit Loss
Recovery of overheads
Preparation of tenders
Inflation of CPA adjustment

and we are of the opinion that he is only entitled to fee percentage on the amount being reduced
Profit  loss in fee (as not listed in Actual Cost).

Which overheads ? On Working Area overheads are within Actual Cost (reduced management = reduced people; reduced accomodation etc. in Charges in NEC2 ECC), so would be some deductions due to reduction in scope = less site based resources per unit of time overheads, but may well be an overall increase due to more time on Site.
Off-Working Area overheads in Fee (as not listed in Actual Cost).

Preparation of tenders ? Do you mean quotations ? Cost of preparing quotation is explicitly disallowed under options A&B. However, taken literally, this is assembling the quotation. So cost of doing planning, financial forecasting etc. is a cost providing the Contractor is incurring additional costs as opposed just management time.

Can you amplify on what CPA means ?

Lastly, he is entitled to fee percentage on change in Actual Cost as per clause 63.1. So if net change in Actual Cost is negative, then a deduction. If net change in Actual Cost is positive, it goes up.