I’m new to NEC3 ECC Option C and wondered if there is a limit to the pain/gain that the main contractor will pay to us - the sub-contractor. For example, if we have a target cost of £500,000 and we only spend £200,000 - will the £300,000 be split or is there often a for example £50,000 gain cap in these contracts?
For any ‘target’ contract, such as NEC Option C, the amount shared is determined by the share ranges and the share percentage in each range, both of which should be stated in the Contract Data in a tabular format.
A ‘cap’ on the share amount can be applied by using a share percentage of 0% for any amount in excess of a certain level, for example below 80%. This means that the maximum gain share amount will be 20% of the total of the Prices (‘target’) multiplied by whatever share percentage is stated for that range.
For example, in your case if the ‘target’ is £500,000 and your ‘spend’ (Price for Work Done to Date) is £200,000, then if the share range is 80 to 100% and the share percentage is (say) 25%, you would be paid a total share amount of £500,000 x 20% x 25% = £25,000 for this share range.
If the share range below 80% has a share percentage of 0%, then £25,000 is the maximum amount you could be paid as a gain share amount, based on a £500,000 ‘target’. This is how the amount paid (as a ‘gain’ share or ‘pain’ share) is effectively capped.
I have seen instances where the maximum amount of ‘gain’ share is capped to a stated value, although the share mechanism, if sensible consideration is used to determine the share ranges and percentages, achieves the same outcome.