NEC ECC: Under NEC3 Option A, what must be covered by the sub-contractor fee?

As Principle contractor we applied the subcontractor fee to a quote from a subcontractor for a compensation event. The sub-contractor had broken down their quote which included travel and accommodation. We have been instructed by the PM that the sub-contractors costs for accommodation and travel will not be paid by the client and must be met by the principle contractor from the sub-contractor fee percentage.

Can someone confirm this is correct.

What would have happened if we had submitted a lump sum plus fee percentage. would we be asked to breakdown and extract travel and accommodation from rates?

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I don’t think that is right. The subcontracted fee percentage is intended to capture the subcontractors fee element and your fee element, it should simply be added to the subcontractor quote.

If the subcontractor is entitled to those amounts under the subcontract then the fee gets added on top if they are not then they must come out of the subcontractor quote entirely (and the contractor should do that).

It really isn’t for the PM to meddle in the domestic arrangements beyond ensuring that a proper price is given in accordance with the subcontract, the main contractor should not be using its fee to cover anything other than the subcontractors fee plus its own OHP etc that makes up its own fee element.

Under NEC3 Option A, the definition of Defined Cost under clause 11.2 (22) is, Defined Cost is the cost of the components in the Shorter Schedule of Cost Components whether work is subsubcontracted or not excluding the cost of preparing quotations for compensation events.

The Shorter Schedule does not contain a component for subcontractor cost. Consequently the subcontractor’s quotation (unless agreed otherwise between the PM and Contractor) does not form part of the quotation.

The quotation is based on the Contractor doing the work and the “cost” being based on the SSCC, eg component 11 for People, with the Subcontract fee being applied to the Defined Cost. The Subcontract fee therefore needs to cover the subcontractor’s fee and your fee requirements including any cost that you will not recover as Defined Cost.

Regarding submitting a lump sum plus fee as a quotation, I would see the PM entitled to request back up to the amount.

While Dave is right regarding 11.2(22) and the SSCC I do not agree that the quote is irrelevant. 11 in the SSCC provides that the amount included in Defined Cost is the “Amounts paid by the Contractor…”.

In any event, accommodation and travel costs are going to be recoverable people costs.

The SSCC contains only a few rates that apply to the main contractor. They don’t apply to our sub-contractor on this compensation event for a very specialised service. The hourly rates in the defined cost are uplifted with the percentage for people overheads which does cover travel and accommodation. So am I expected to make up a price for this specialised work using the rates for my guys adding people percentage and subcontractor fee? Using durations I come up with?

You are not supposed to be making up a rate but identifying the cost. You need to build up a Price for the work in the CE utilising the SSCC and the cost to you of carrying out that work. The purpose of the CE process is to cover cost and allow fee it is not there to penalise under-pricing in the original work (or indeed reward over-pricing)