This is a question on how / if project risk is accounted for in an activity schedule and so the target cost (total of the Prices).
Under an Option C contract, the Activity Schedule named in the Contract data part Two is more of a bill of quantities. A cover sheet lists the totals for people, equipment, materials, subcontracts and fee. This is backed up with pages of supporting rates and quantities.
The total of the Prices (aka target cost, Clause 54.1) are the sum the Prices, defined as the lump sum prices for each of the activities on the Activity Schedule (Clause 11.2(32)). A fudge would be to add up the totals on the cover page categories above to get the total of the Prices and this is what has been done.
However, there is an additional item on the cover page for risk (plus the Fee on the risk). This adds 10% to the costs of the above items. The Contractor argues that this forms part of the target cost. Assuming the risks are reasonable, can these risks form part of the target cost in this way?
My working knowledge is that these risks just form part of the project budget used to source a prudent amount of funds by the Client (an informal ECI stage was carried out) and should not be included in the target cost.
They aren’t activities required to provide the works so shouldn’t appear on an activity schedule. I would treat these as matters to “be included in the Early Warning Register” in the Contract Data Part Two (which is blank in this case). These would then be raised as Early Warnings and those justified under the contract would be paid as Compensation Events, if/when they occur. The cost of the CEs will then be added/subtracted to adjust the target cost.
Many (most?) of the risks are dubious that are arguably solely within the Contractors ability to manage and is responsible for e.g. Contractor staff sickness, theft of plant and materials, mud on roads, general additional % to cover no specific risk.
An uncharitable person may come to the conclusion that the Contractor wishes to include the risk in the target cost as, should very few of these risks occur in practice, the Price of the work done to date is much more likely to come in below the apparently inflated target cost. This is beneficial to the Contractor in the gain calculation. They would likely get half of the 10% risk pot for marginal/negligible use of good project management or use of efficient or innovative practices.
Any advice or corrections to my understanding would be appreciated.