On a project using Option B, the PM and Contractor have agreed to use BQ rates to assess Compensation Events. The BQ submitted with the tender included a separate calculation to show OH&P included on top of the BQ rates. In his first quotation for a CE, the Contractor has applied the subcontracted fee percentage to the BQ rates rather than the OH&P rate stated in the tender. Is this correct or should this fee percentage only be used if we use a subcontract quote instead?
If you agree to use Bof Q rates then there is no where (other than by agreement) that it says that you apply fee and you are veering away from Defined Cost/schedule of cost components/fee. It is unusual to have a separate calculation to show OH&P as you describe as it would be assumed/argued that the Contractor’s Bof Q rate would include a proportion of fee as this would not be a standalone item elsewhere. However, this is why most compensation events fall back into assessing it from first principles using (shorter) schedule of cost components which will then include the fee as stated in contract data part 1. It will be the fairest way of assessing for both Parties, even if it is (seemingly at the time) more administrative.
The only use of the Direct fee percentage and Subcontract fee percentage are to be applied to the elements of the schedule of cost components when you are using these to assess compensation events. It seems the genuine intent here is that they can apply this “mutually agreed OH&P” fee to the rates in the Bof Q - but if OH&P is already spread across the activities that would not seem correct either.