NEC Clause 52.1 “Defined Cost includes only amounts calculated using rates and percentages
stated in the Contract Data and other amounts at open market or competitively tendered
Competitively tendered prices : prices that have been obtained through a competitive bidding process, usually the lowest bid.
So, on the other hand, I believe that “open market rates” should be rates obtained through methods other than a competitive bidding process. Should it be represented as a range of rates?
For example, if UPVC pipe materials are available from different suppliers at prices ranging from $10 to $20 per meter, and the Contractor chooses to purchase from the supplier offering it at $18 per meter, can the Project Manager reject it as not being the cheapest price or accept it as within the range?
The NEC doesn’t state that it has to be the cheapest rate, only that the Defined Cost is open '…market or competitively tendered prices… '.
For example, you may have gone out to competitive tender to 3 contractors, the cheapest out of those Subcontractors is the one you may select, or the Client expects you to select. But say that Subcontractor did not have resource availability or the skillset to deliver the works, say their insurances did not meet Main Contract requirements or they scored low on Health and Safety, More than likely your tendering process would identify that Subcontractor as not being a feasible option and you would select the more expensive option. It is this i would expect needs to be demonstrated.
Your UPVC pipe is a similar example, you may have chosen the $18 pipe because that arrived on site quicker, or it had better specifications or you were able to secure the quantity required.
In short, i don’t believe it’s simply down to the cheapest price, if it were, then the SSCC / SCC would state that a Defined Cost would not be so if the cheapest price was not selected.
As above. Most “big” projects/companies use a “balance score card” to rate tender returns, long gone are the days of “cheapest quote wins”. Procurement teams often score on other criteria e.g. carbon saving, EDI, previous experience, local employment, sustainability etc. You would not always pick the cheapest builder to work on your own house. You might pick a supplier at a higher quoted price to maintain programme, local supply, better quality product, better workmanship, previous good working relationship etc. So in short, it does not have to be the cheapest price under NEC, but you may be required to demonstrate you tested the market.
An important element of Cl.52.1, requires the Contractor to factor in “discounts and rebates” on Defined Cost. Big civils contractors typically get 20-30% discount on open market plant hire rates, this saving should be passed on to the Employer in the application under Defined Cost. Part of the profit in Compensation Events is normally a component of the Fee Percentage build up (but certainly not the whole Fee Percentage, the Fee covers many other elements to profit).
If this is Option C, then you quote based on open market prices - a reasonable market rate supported by information.
When you purchase the material, you should be buying the cheapest product that meets the specification. If you buy a product that isn’t that, the PM could apply a disallowed cost to the difference in cost between the cheapest compliant material and the one you actually buy. However, he shouldn’t be getting into that detail of cost saving during a CE evaluation.
If its an Option A or B, he shouldn’t be getting into that detail at all, just so long as it looks like a reasonable market price.