NEC3 ECC: Calculation of Direct Fee percentage for CEs which are unknown

As an Estimator I am calculating the prices for a tender under Option A - priced contract with activity schedule. The Fee is calculated by applying the direct fee percentage to Direct Cost which is the cost of components in SSoCC the sum of which are used in preparing quotes for CEs. The Guidance notes state “The Fee includes all the costs …together …with any allowance for risk.”. I am unable to calculate the percentage for risk to allow in the direct fee percentage for a CE, which at the tender preparation stage, is not known. It is conceivable some work arising from a CE have a high degree of risk which is not recovered in the stated direct fee percentage originally tendered. Can risk be a separate CE?


In simple terms no - you have to judge and price for risk which is yours as the Contractor at tender stage. That is the nature of competitive tendering. Risks which aren’t yours will obviously be a compensation event which are then assessed under their own merits. You have to assess the risk as it stands as to what would have been reasonable to have allowed.

Risk could be a separate CE but only if it fits a reason within 60.1. If you take ground conditions - you take into account the Site Information as to what would be a reasonable risk in terms of unforeseen ground conditions. If you then experience something that was worse than what reasonably have been allowed for then that would be a new CE under 60.1(12). Note it is worse than would reasonably have been allowed for, rather than worse than you priced for!

At tender stage you could ask the Employer to clarify what risk they expect you to take - knowing that the other tenderers will have their attention drawn to both the question and the answer.

Worth noting that when you assess a compensation event mid-project, you get to assess the defined cost of that event at that point taking into account everything that you now know. That includes pricing for risk which “has a significant chance of occurring”. You then apply your fee which as stated in contract data part 2 will be fixed for the duration of the contract.

The reference in the GNs are to those risks which you as the Contractor carry under the contract. These are essentially everything which is not a CE 60.1(1) to (19), if an un amended contract any secondary options e.g. X2, X12, X14, X15, Y2.4, Z clauses. 60.1(14) relates to the Employer’s risk stated in the contract which points you to 80.1 and this in turn points you to any additional Employer’s risks in Contract Data part one.

In regard to compensation events 63.6 allows you to include for “risk allowances for cost and time matters which have a significant chance of occurring and are at the Contractor’s risk under this contract” You therefore have an opportunity to consider and allow for risk in a compensation event.