We are a Contractor on an NEC3 option C contract. The Project Manager wants us to spread our prelim costs across multiple Compensation Events which run concurrent with a Compensation Event that forms the critical path. We have put all of our prelim costs on the critical path event. Is this the correct approach or can the Project Manager insist we do it his way?
Your approach is correct, preliminary costs are a function of time and you only recover additional preliminary costs when there is an extension of time i.e. the CE is on or affects the critical path.
Having said this, in an Option C ECC it makes absolutely no difference provided that in total amount of preliminary costs you recover for the CE that was on the critical path is the same. In Option C payment is based on Defined Cost plus Fee not the Activity Schedule. The only function of the Activity Schedule is to establish the initial target and the final target when all of the compensation events are added to it.
So what I’m saying is if you are entitled to £10k in preliminary costs for the CE on the critical path, does it matter if you recover the £10k on that CE or across four CEs at £2.5k each? From a commercial perspective the result is the same.