NEC Option C - X16 Pain Gain

NEC3 and NEC4 Contracts Payment
1

When finalising the final account, is the pain/gain mechanism applied after or before retention?

Ie Option 1 or 2
Option 1

Target (including CEs) - £1,000,000
PWDD - £900,000
Pain / Gain share = flat 50% - £100,000 x 50% = £50,000 (+)
Application = £950,000
Retention @2.5% = £23,750 (-)
Total Application = £926,250

Option 2

Target (including CEs) - £1,000,000
PWDD - £900,000
Retention @2.5% = £22,500 (-)
Application - £877,500
Pain / Gain share = flat 50% - £100,000 x 50% = £50,000 (+)
Total Application = £927,500

Thanks
Tom

2

I believe it’s Option 3:
(Assuming no “retention free amount” is present in the contract)

Target (including CEs) - £1,000,000
PWDD at Completion - £888,750 (of which £22,500 was held as retention by the Employer. At Completion 50% of the retention amount should have been released to the Contractor, leaving £11,250 retained until the Defects Date). As you state “final account” I’m assuming you mean final assessment, which is 4 weeks after the Supervisor issues the Defects Certificate on the Defects Dates.

  • The determination of the final gain share would now take account of the final released retention amount (the other £11,250 is now released and treated as forming part of the PWDD). So £1,000,000 - £900,000/2 = £50,000 (gain share to the Contractor).
  • Total Application (as assessed by the PM) at Completion of the whole of the Works = £950,000.
    This means the Contractor gets the “true” gain share and is not penalized by having retention in the contract. If they failed to correct a Defect by the final assessment the PM would assess the correction cost (based on a quote provided by Others) and deduct this from the PWDD.

In your examples the Contractor is effectively being penalized by having X16 as they are not able to realize the true difference between PWDD and Total of the Prices.

3

Welcome to the community
the share is based on the difference between the Target and the PWDD. Retention is applied to the PWDD which is the total Defined Cost so Option 2 is correct. PWDD = £900,000 retention is -£22,500 and share is £50,000 so the amount due is £927,500

4

Hi Dave - Thanks for the reply. How does your answer account for the 50% discharge of retention at Completion ? Both methods would give the Contractor the end result - £950,000.

5

sorry yes if the 2.5% is the retention percentage, I had read it that the 2.5% was the halved percentage

6

Sorry… one last question on this - Under Option 2 (final assessment) how do you propose to pay the remaining £11,250 owed to the Contractor? (assuming 2.5% was the contract retention amount). Would this not be due under this final assessment i.e. I would pay the £950,000. How would the PM discharge the final retention amount without including it in the final assessment?

last line of X16.2 “No amount is retained in the assessments made after the Defects Certificate has been issued”

7

Hi, the final assessment would be PWDD of £900,000 + share £50,000, and no retention