Its being argued by a Contractor under an NEC ECC Option C Contract that their design consultant should be paid using the hourly rates for Defined Cost of design outside the Working Area. My understanding is that the the design consultant is a Subcontractor and therefore the Employer pays the actual costs that the Contractor has incurred. Is this correct?
I would agree with your understanding.
If the design consultant is a direct employee of the Contractor then the Contractor would be reimbursed using the hourly rates stated in the Schedule of Cost Components for Defined Cost of design outside the Working Area. The rates in this cost component having been built up (in theory) from first principles in a similar way to establishing the direct costs of directly employing people under cost component (1) People.
If however the design consultant is not a direct employee of the Contractor but rather engaged under a subcontract, then the basis for reimbursing the Contractor would be the same as for any other work that it has subcontracted under the contract.
Mark’s comment has covered this very well.
I add this just so that this question does not appear in the “unanswered” category
Good answer by Mark and raises an important all too often problem that many people still do not understand how the Schedule of Cost Components should be used.