On all ECC options, where the Contractor subcontract work to a member of its own group is the Contractor able to claim fee on the subcontractors cost which includes fee?
If the other part of the group is separate limited company, then they would count as a Subcontractor.
However, under NEC3, as opposed to NEC4 where it is different, how the Contractor’s subcontract fee percentage is applied varies :
- on options A & B for compensation events only, the Contractor’s subcontract fee percentage is applied to Defined Costs worked out in accordance with the main contract Shorter Schedule of Cost Components. Or put another way, what the Contractor pays the subcontractor is irrelevant to the calculation.
- on options C to F, a Defined Cost is what the Contractor pays to their subcontractors in accordance with the subcontracts and on top of this is added the subcontract fee percentage. And this applies to all Defined Costs, whether for a compensation event or not.
Thank you for the above. If the contractors subcontract fee is 10% and no cost or % is stated within the contractors schedule of cost components, but, subcontracts are in place with the subcontractor (being member of the group) detailing a schedule of rates for people and a 15% direct fee.
On Options A & B compensation events: would the 10% apply to the subcontractor schedule of rates and 15% fee.
On Options C to F, would the contractors 10% apply to the total cost (schedule of rate + 15% fee).
You have got it right for options C to F.
On options A & B, from the Employer’s perspective, it does not matter what it is in the subcontract : the default is that the change in Defined Costs is worked out using the main contract Shorter Schedule of Cost Components + subcontract fee percentage of 10%.
However, two things :
- if the main Contractor had referenced a schedule of rates for people as part of their tender and this was incorporated into the contract, then that schedule would be used instead of calculating people costs from scratch - see clause 52.1;
- by agreement any schedule or lump sums may be used as a basis to evaluate compensation, but it has to be by agreement - see clause 63.13/14 under options A or B.