Contractor's Share

A question that came up in a seminar…

It’s an NEC4 ECC option C. The Contractor is doing well and is on target to underspend by £100k. The pain/gain share arrangement is such that most of that saving has to be paid back to the Client, so the Contractor has an idea. It shares the £100k between its site staff as a bonus payment for completing the works under budget. As ‘bonus and incentive payments’ is a component of the people cost in the SCC the Contract is reimbursed the £100k in the next payment. This takes the total final Defined Cost plus Fee right up to the final Total of the Prices, but not beyond it. The Client is pretty disappointed in missing out on its share but, apart from being disappointed, what can the Client do about it?

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Total of the Prices is only a defined term under main option D.

An amount is included only if it is incurred in order to Provide the Works. The question that arises is whether this is actually the case, especially where a bonus or incentive is only introduced at a late stage of the project, so could, arguable, be determined not to be.

This is why supplementary guidance notes are frequently included as part of the SCC on many projects to deal with such issues.

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That was my original thought, but it could also be argued that it’s an ad-hoc bonus which, being paid to the people in the Working Area who managed the project on a day to day basis, is difficult to exclude from the definition of Defined Cost. I think there is a real risk here which should be addressed at contract stage.