Increase in materials unit cost due to reduced Scope

The Contractor on our NEC4 Option C project has given an early warning that, because the Scope has been reduced via ‘negative’ CE’s, one of its key suppliers is increasing the unit cost of materials because the quantity has reduced.
Is the Contractor correct to include the increased cost of this material for the remaining Scope in its CE quotation?

They are not quite right. The increased cost will be paid to them as “Defined Cost”, in essence they are going to be reimbursed for this cost increase by default. The problem in this scenario is how the “target” is adjusted to account for this. If I were the contractor I would account for the change in price in the descope CE quotation. I would want the descope value (quote) to be on the low side, keeping the target high. Do they have another mechanism to account for this price increase? like X1. Price adjustment for inflation ? This is also a contractors risk when pricing work, they need to use experience to try and account for this when setting the target.

Cl.11.2.(30) is in essence the target, CE’s adjust the target up/down. The sum of the activity schedule is the target, the activity schedule should be amended as each CE arises. Hence the Contractor descope quotation would suit them best as a lower figure.

Thank you for your reply. That is very helpful.
No, there is no X1 clause in our contract.


They are correct to include the price rise in the quote.

If a descope of 3km of ducting to 1km of ducting increases the until cost of the ducts (because the supplier is reducing his discount due to the lower volume) then the contractor should be compensated for that increase in cost for the 1km of ducts.