The contract is NEC2 Option C. We wish to include the cost of preparing the quotations for compensation events in the quotation. In support of our contention, we have cited section 1.6.4 Cost of Preparing for Quotations in “Managing Reality - Book Four, Managing Change”
The Employer disagrees that preparation costs are an allowable element of the quotation, and further disagrees with our interpretation of 1.6.4 noted above.
Please advise.
Ian - Under Option C, D and E the cost of preparing a quotation is part of Actual Cost, assuming for now that the preparation was undertaken within the Working Area. As Actual Cost it can be included in a CE Quote or Assessment (Actual Cost incurred and forecast of Defined Cost to be incurred) to increase the total of the Prices and is payable as PWDD.
Under Options A and B the Employer would be correct but not under C, D and E.
I agree with Rob’s comments above and add that there has to be a change in Actual Cost. I.e. if the QS works a few hours more that day, but is salaried and therefore does not get paid anymore, then there is no change in Actual Costs.
Thanks Jon, in keeping with the ethos that there must be a change in actual costs, when we use existing staff (staff that are included in our original Price) for the preparation of quotes, we exclude them from the quotation. We have only included additional resource that we have employed to deal with the quotations for compensation events.
Ian - The question of whether Actual Cost needs to be incurred, as Jon refers to, is a difficult one. There is no doubt that it must be incurred and justified in order to be recovered as PWDD. However, for the purposes of pricing a CE I do not believe it is so certain. There is no clear guidance and Jon and I have discussed this off-line and have different views. I consider that you start with the input, what time has it taken what person to carry out the quote, that should give me a notional cost. I assume that notional cost is the Actual Cost unless it can be demonstrated that the resource being used had spare capacity, my starting point being to assume that all resource assigned and costed to a project is fully utilised. If the QS actually gets the work done in his usual working day, or outside it with no additional payment that may (and I would say it is correct to assume) have been in preference to other work which he would otherwise have been doing so the cost is shuffled on through the project until it is forgotten or disappears. The corollary of that point is that the Contractor doesn’t suddenly get extra payment as PWDD but if he manages his QS team to not incur the notional cost then that saving is shared in accordance with the incentive mechanism in the contract.
In my view therefore you are under-recording the cost of CE preparation and putting increased pressure on the original commercial team which is not what either the contract says or intends.
I do however accept the alternate argument put forward by Jon is arguable albeit, and subject to the facts, in my view a less compelling interpretation. Probably best to be part of te project set up discussions or an early discussion before starting to prepare the quote.
Interesting and contrasting views which both have merits. I will throw in another perspective for consideration. The guidance notes infer that with the priced based contracts Main Options A and B that the Contractor takes the risk of Providing the Works these options should be well defined the amount of change should be less than the cost based contracts and therfore it is not unreasonable for the Contractor to be able to realistically price for resourcing up and managing the contract as part of his fixed price - so if he underestimates the level of resources to manage the contract that is his risk - regardless of how many compensation events or quotations for proposed instructions are issued.
In contrast in the cost based contracts main Options C, D and E the Contractor has less risk as he is paid his actual Defined Cost for the PWDD and if you take the converse of main Options A and B where the cost of preparing quotations is exlcluded then the cost of preparing quotations could be inferred to be recoverable under main Options C, D and E. This would effectively removes the risk to the Contractor of the cost of preparing quotations for compensation events. Given that the cost based contracts place less risk on the Contractor and for main Options C and D the target contracts these are JOINT RISK CONTRACTS is it the case that including for the cost of preparing quotations that the Contractor is not going to lose out in the adjustment of compensation events especially as ther there may well be more compensation events on a target contract (adequately defined) compared to a priced contract which is well defined?
As Rob and Jon note above you can read it both ways the sensible thing to do as the contract is not 100% clear is as Rob suggests for the Parties to the Contract to agree how it will operate upfront. It is certainly one of the things I suggest to both Contractors and Employers that they should clarify before the contract starts.
Many thanks all for your comments on my question. I have put your views to the client, including publications such as Managing Change (para1.6.4) , and Keating on NEC 3 (para 6.043). I had rather expected these to be persuasive, although they have all been rejected. The clients view is that we should expect some level of change on a Target contract, and therefore have the capacity within the team and our prelims to operate the change procedures set out in the contract. He is not persuaded by the Fee or SoCC arguments. That said, the reality of contracting requires a compromise, and the client has proposed that when events exceed a certain value, he will allow the preparation costs to be included in the quotations.