This query is in relation to pricing of a compensation event under ECC option A by a Contractor.
The work has been done by a subcontractor who is also on ECS option A. Subcontract quotation is priced using defined cost plus his direct fee for overhead and profit from his subcontract data part two. Let’s say it’s a £1,000 plus 10% equals £1,100.
The Contractor used subcontract quotation as a substantiation of the build up. Defined cost is the amounts payable to the subcontractors plus fee for the subcontracted works. So in this case, defined cost is £1,100 (amount paid by the Contractor) plus fee of 15% on subcontracted works. The resulting cost is £1,265.
The client does not want to pay the 10% contained within the subcontractor’s quotation stating that this is a duplication of fee. and that the fee for subcontracted works already includes for subcontractors overhead and profit. The client is happy to pay £1,000 plus 15% fee, or £1,150. So the Contractor is worse off because the difference does not cover the direct fee percentages for the costs of his overhead and profit.
There seems to be conflicting information about this. Whilst the intent of separating direct fee from fee for subcontracted works in NEC3 was to make it easier, it is not clear how the conditions prevent the contractor from recovering the cost of subcontractors fee in addition to his Fee for the subcontract works.
In simple terms fee on fee is not paid in main Options A and B.
The Contractor takes the RISK that his tendered fee percentages % and rates in Contract Data part two cover those of his Subcontractor’s as inserted in the Subcontract Data part two!!
You do not just take the Subcontractors quotation and add the Main Contractors subcontract fee percentage.
You take the core cost components from the subcontract and apply the main contractors percentages as given in the Main Contract Data.
So if the subcontractor has a 20% people percentage, 20% direct fee percentage and 20% subcontract fee percentage THESE are not used as part of the assessment. Only the Main Contractors fee percentages are used. So if the main contractor has say 10% people percentage, 10% direct fee percentage and 10 subcontract fee percentage then these are what are used.
The PM should therefore not be paying fee on fee for main options A and B.
I do have any article written by myself and Richard Patterson which covers this particular point.
Also in an article i read yesterday you talk about instances where profit is not payable on compensation events in Options A and B. If you have anything on that I would be very interested.