NEC3 ECC: Option C - Compensation Event Subcontractor Fee

NEC3 and NEC4 Contracts General
1

The main contractor submits a CE Quotation for work which is completely subcontracted out. The quote contains;

Breakdown of Costs (from the s/c)
20% OH&P (which was added by the s/c)

The main Contractor has then added 6% Subcontracted Fee and 6% Direct Fee.

Is this correct?

1 Like
2

No.

If the main contract is Option C or D you will need to refer to the subcontract order to see what Fee the subcontractor is entitled to (Subcontract Data Part 2).

If Option A or B then the Fee is not added.

This will enable you to calculate the Defined Cost ie the amount due to the subcontractor, cost + his Fee (where applicable). Only the Subcontracted Fee should be applied to this Defined Cost.

3

Hi

Your comment doesn’t clear it up.

It is Option C.

The subcontractor has submitted a quote to the Main Contractor and has added 20% Fee.

Is the Defined Cost to the Main Contractor the total of the Quote plus the 20% Fee? Or should this 20% Fee be replaced with the ‘Subcontracted Fee’ which is 6%? And then add the 6% Direct Fee.

4

The answer depends on the terms of the subcontract between the Contractor and the Subcontractor. You’ll need to understand these to know if the Contractor has paid the Subcontractor in accordance with them. If you find that the subcontract makes no provision for 20% OH&P to be added to cost for variations / compensation events then this would be a Disallowed Cost under the second bullet point in clause 11.2(25) and should be deducted from payments of Defined Cost to the Contractor.

If the subcontract is the NEC3 Engineering & Construction Subcontract main Option A, and the compensation event to the Subcontractor has been assessed under the Shorter Schedule of Cost Components, the Subcontractor would be entitled to a % for people overheads on the people component and a % Fee (combination of direct fee percentage and subsubcontracted fee percentage) on the total Defined Cost.

5

In simple terms. the Contractor’s Defined Cost is the amount due to subcontractors.

The amount due to the subcontractor will include his Fee stated under Subcontract Data Part 2. If this is 20% then yes that should be added by the subcontractor.

That is the amount due to the subcontractor.

The addition to this amount due by the contractor should be the Subcontracted Fee stated in Contract Data Part 2 of the main contract. If this is 60% then yes it should be added by the contractor.

The 6% direct fee should not be applied.

Hope that helps,