How do you price risk under NEC3?

We have an Option c contract which has no site specific Risk Schedule. In the Works Information the Employer has listed Risks which he wishes the Contractor to accept , but the Risk Schedule has been kept by the Employer and not included in the contract.
If there is no facility for the Contractor to price the Risk should any Risks develop should they be recoverable and if so how?

1 Like

Under all NEC3 forms, the risk allocation is determined by (a) the choice of main payment option and (b) the compensation events. I.e. if not a listed compensation event, then the risk is included within the contractual Prices. Under option C, the target cost contract, this means that the risk are effectively shared in accordance with the pain / gain profile.

You say that the Employer has listed risks in the Works Information which he wishes the Contractor to accept. This is the wrong place to put them - if they wish to alter the risk allocation of the contract, to do it cleanly, they need to alter the definitions of the compensation events by writing something intelligent and clearly in option Z : additional conditions of contract. It is doubtful that writing something in the Works Information will supersede what is the conditions of contract. The only exception to this might be if it relates to physical conditions, when it might inform the interpretation of the physical conditions compensation event (clause 60.1 (12)).

So my advice is (without knowing any more):

  • check to see if the Works Information is highlighting any physical conditions risks. If β€˜Yes’ price for these and include within your tendered target Prices.
  • check the option Z : additional conditions of contract to see what amendments they have made generally which alter the risk allocation and in particular clause 60.1 (the list of compensation events). Price for these and include within your tendered target Prices.