We are working on an Option C Target Cost contract. There has been a large amount of change instructed for quotation under Clause 61.1, to which CE’s have been submitted. The client has then been instructing the works without implementing the CE or agreeing prices. I have spoken with the clients QS about this approach, to which he advised we are instructing the works without prices, as we will only be paying you on actual costs, I.e. If we price works at 100k and it costs 75k, they are going pay the actual of 75k. When I asked if works cost more than the quote, example it costs £125k, his response was they would only be paying the original quote of £100k, with a 25k pain. So they are depriving us of the opportunity to make a gain but granting the opportunity to make a pain. Is this allowed under NEC Option C. Any advice would be greatly welcomed.
No this is not allowed under the contract. the bit that is correct is that the works can proceed without first agreeing the quotation. However, the compensation event should be assessed as a reasonable forecast at the point in time at which the instruction was given - including a forecast as to what risk would have been reasonable. The target price should be increased (or decreased) by this amount. Under option C the Contractor will be paid actual cost they have incurred, but the target should have gone up by the amount the quote was agreed (clause 63.1).
In your example they would have to pay the £125k as this extra cost could not be disallowed (unless you have a very bad Z clause) but I suspect they are planning on only moving the target by £100k? This is wrong on two levels.
The contract does not allow the PM to sit on a quote and change the target by the actual cost when it was cheaper than the quote, and use the quotation when the actual cost was more. Many clients ask the question “why should I pay for risk or cost I can see hasn’t occurred?”. The answer is that under the same clause if extra risk occurred the Contractor had not envisaged and the quote is not yet agreed then the same client does not have to take that into account within the assessment.
If you cant convince them otherwise, the only remedy to overturn this would be through adjudication.