We are a SC operating on an ECS3 Option C contract.
In SCD Part 2, we mapped our payroll burden costs against the SoCC as an appendix, for clarity. This identified a staff bonus allowance for People providing the works (both inside & outside the WO) against Item 12(a) of the SoCC as a component of our payroll burden (wages, salaries & amounts paid). The defined cost is audited annually by the Contractor and any adjustment for actual incurred payroll bonus is retrospectively reconciled as a CE (+ve or -ve as the case may be) against the amount claimed in that previous year.
The Contractor has challenged this at audit and considers the bonus should only be project specific for people providing the works. Our people only book time for the time they are deployed on the project (i.e. providing the works), but the Contractor believes the bonus payment is company-wide (not project specific) and should therefore be included in the SC Fee (even though our payroll mapping v SoCC shows it is not).
Q – As we cannot change the Fee% (the contract was won in competition), does the Contractor have grounds for disallowing the bonus payment following audit after we have proven it has been incurred as a staff cost payroll burden ?
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@WilliamBrown would you be able to advise?
Hi Badger, firstly, a CE reconciling the payroll burden?? Not sure how that works, a CE can only be a CE if it is one of the events listed in the contract, so unless there is a mechanism in the Z clauses, there is no other contractual mechanism for doing it.
As far as the Contractor’s point about the bonus and incentives relating to the project are concerned, the SCC does indeed require the cost to be incurred only for Providing the Works, any bonus paid for a previous jobs should be disallowed but for an annual general bonus paid to staff based on how well the company performs I think it would be added to the persons cost i.e wages (11) and other things such as bonuses under 12(a), etc, but paid proportionately to the time spent working within the Working Areas i.e. time only spent Providing the Works.
Happy to discuss.
Steve
Thanks for your response.
The CE reconciliation is a Z clause amendment. The PWDD claimed in Interim Applications for Payment includes an hourly base rate (including allowance for bonus). This rate is reconciled at the end of the year with the actual cost to employ (demonstrated at audit) and when the previous year’s bonus has been determined and paid.
Our staff work across multiple projects. In an attempt to be equitable to our customers, the staff bonus is included in a rate per hour (and charged at the same rate to other projects) for the actual hours worked providing the works in the same way Salary, Employer Pension, Employer NI, Car Allowance etc are charged & recovered. We do not recover bonus in the Fee nor do we differentiate staff bonus entitlement from projects which perform well (or do not).
Hi Badger, what you describe sounds reasonable for an overall, non-project specific related bonus and that is how I think I would present it. Unfortunately the application of the SCC ultimately comes down to the Contractor, if they feel comfortable allocating the cost the way in which you describe there is nothing an Auditor could say is wrong, but if they decide otherwise they have the right to disallow it. The latter of course is likely to cause a dispute and your only remedy then is to refer a dispute to adjudication. The SCC is clear that bonuses can be included and provided that the bonus is not allocated on a project specific basis, I can’t see a justification to disallow it. Hope that helps.
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