NEC 3 Option A – Payment of a Sub-contractors Invoice

NEC 3 Option A – Payment of a Sub-contractors Invoice

Contract Data - Sub-Contractors Fee 10%, Main Contractors Fee 10%, Main Contractors residual Fee 0%

A CE has been received from the Main Contractor, supported by a Sub-contractors Invoice of £115.
Sub-contractor Materials at £100 + 15% OH & P = £115.00
Main Contractors Compensation Event £115 + 10% Fee = £126.50.
Is this correct?

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No it is not correct. With Option A, the sub contractors fee is considered to be in the subcontractors invoice already. Only the residual can be charged.

This is a really interesting question from a contractual perspective.

Defined cost in Option A is assessed against the Shorter Schedule of Cost Components whether it is subcontracted or not. I take that to mean that you just don’t distinguish what legal entity is carrying out the work, you apply the test for people or equipment the same whether that is Contractor’s People or Subcontractor’s People.

Next you need to look at each of the individual Cost Components and see what they say. People, for example, says you include “Amounts paid by the Contractor”. It is therefore a cost based test and, assuming the contractor must pay a fee to the subcontractor for his People, that would be added to the Defined Cost. On the other hand, Equipment is based on a rate in the contract or an open market rate so the fee of the subcontractor is not relevant (unless already captured in the rate).

Looking at Plant and Materials, this is different again and refers to “Payments for purchasing Plant and Materials”. “Payments for…” requires you to look at who is doing the purchasing.

As a lawyer I don’t find the NEC easy to follow through this mechanism and in the above there is a fair amount of inference so it is all really open for debate. To that end, it is one of those areas to make explicit during tender.

Very happy to hear from a QS who can step through the contract and come to the same or different conclusion. I ca find no reference at all to only the residual being charged