NEC ECC: X22 Incentive payment

With regards to X22 ECI - I am a bit confused between the terminology. I get there will be stage 1 and stage 2, where stage 2 has the notice to proceed and the agreement at that point of the Completion Date and the Target Price (assuming stage 2 is under option C).

The incentive payment under X22.7 states if final Project Cost is less than the Budget, the Contractor is paid the budget incentive. This I take it means that if the Target Price at stage 2 is set lower than the original Budget at stage 1 then the Contractor gets a share of the initial savings. This would encourage the lowering of the Target Price in the first instance. They would then also share any savings if the final PWDD is less than the Target.

X22.6 changes to Budget would be if there is an instruction changing the Scope - but is Budget different still from the Prices - which would be the Target if option C has been chosen?

I initially thought they share a difference between Budget and any lower Target agreed at notice to proceed stage 2, and then further saved in gain share if they come under the Target - but not sure now that is what the contract says??

Can anyone make this simpler for me please?

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The Budget is the summation of the amounts stated for the items in the Contract Data. This is generally the forecast cost to be paid to the Contractor together with the forecast of other costs to be incurred by the Employer.

The X22 incentive is a measure of any saving between the final outturn paid to the Contractor plus the final other costs in comparison to the Budget (as may be adjusted). The saving being factored by the % stated in the Contract Data. This is determined initially at Completion and again at “final account” (in the same manner as the Contractor’s share).

At commencement of stage 2 on an Option C contract the difference between the Target Price (total of the Prices) and the Budget will be the other costs. However during stage 2 the Prices can potentially change for more circumstances than will alter the Budget and therefore the difference may not remain constant.

On an Option C, there is potential for an incentive (based on the saving between the Employer’s outturn cost and that forecast) and a Contractor’s share (based on the difference between the Prices and PWDD). Both assessed at Completion and then again at “final account”.

Dave, the Contract isn’t clear on how changes to the budget should be assessed. X22.6 (2) states only that changes are “agreed”. Would it be reasonable to assess changes like compensation events i.e. similar to Clause 63.1?

Is it correct to say that the budget can change only if an event stated in X22.6 (1) occurs?

Also regarding X22.6 (1) what in your experience would be examples of “additional events” stated in the Contract Data?

Assessing as a CE would not be unreasonable however the contract does not prescribe a method to assess the change to the Budget it is therefore by negotiation.

Yes, only X22.6(1) would be reasons for a change to the Budget.

It could be something where the “cost” could not be determined in sufficient detail to include in the Budget or to do so may require a disproportion risk allowance eg unknown statutory undertakers costs