We are a Subcontractor operating under the terms of an NEC3 ECC3 Option A (not ECS3).
We have a query relating to a quotation under discussion and the addition of a one line contingency (6%) to address the constraints we own under Cl 65.2 and 81.1 and which we are required to adhere with.
The agreement requires we use the SSOCC (unamended) to assess the defined cost contained in the quotation. We consider we have adhered to this, and it is not seen an issue.
The majority of our quote is based on a forecast of defined cost, which we are taking the estimating accuracy risk of.
However, the Contractor advises that there is no component for pricing risk for errors and inaccuracy in estimating the time & cost in the SOCC unless it proven that it will be a significant risk (Cl 63.6). As the risk may only be realised in the future, demonstrating this to the Contractor is somewhat of an impossible task.
If it is deemed by the Contractor (which we understand is the case) that estimating risk is not significant, how do we price risk/contingency to adhere with the express risks identified under Cl 65.2 & 81.1 if there is no cost component to allocate it against.
We feel it is not uncommon in other standard forms to include a reasonable provision for contingency on fixed price quotations, but ECC3 (according to the Contractor) seems to exclude this entitlement.
This is going to sound harsh, but I think the Contractor is right in his view about the risk factor you introduced separately.
My view is that this 6% (not sure how you calculated it) should have been absorbed in your forecast - at the end of the day it is a forecast and it cannot be accurate. Contractors always (they should at least) price their risk (save for risk allowances referred to in clause 63.6) when submitting quotations on a forecast basis, because there is no way of going back if the quotation is accepted - the clients know that very well.
I therefore believe that you should re-submit your quotation (since it is to be rejected) in line with the above, although it’s not going to be easy now.
Thanks Peter for your response. We have already undergone a round of discussions before we submitted the 1st Quote where the Contractor believes our forecast defined cost was too high (in his opinion). I suppose, naively, we accepted his comments on the basis that the contingency would stand and we could therefore live with his comments. We can reinstate the forecast defined costs as suggested in our revised quotation and hope it is accepted.
PS - the 6% contingency was included in accordance with the allowance included in our TToTPs
No worries, understood. The risk allowance shown in your tender is a different story and, in my view, for justifying/breaking down your price to the client. However, under Option A, you then sign-up to a fixed price (“the total of the Prices”) and even if you have this amount stated separately in your Activity Schedule, you will still get paid for it (albeit possibly at the end) regardless if that risk materialises.
All the best,
I note that the contractors opinion is that you quote is too high.
Has he based that on anything in particular?
The most sensible thing would be for the contractor to give you assumptions to price in order to bring the quote down to a figure he would seem acceptable.
Once he does that, you can agree the CE and you can raise another CE if his assumptions turn out to be wrong.
By demanding you lower your price, he is asking you to undercut the cost and take the risk of losing money on the CE - what would you do that?
In pricing risk, it came be hard to justify a general % which has no real basis.
However, you should be able to price the likes of weather, labour shortages, plan breakdowns etc and demonstrate what you have allowed for in the quote.
For example - if i think that the work will take 5 men 5 days to execute the work in good weather - I price that
Then I calculate the risks I am obliged to take
100% likelyhood of 1 man missing 1 day
20% likelyhood of a 2nd man missing 1 day
20% chance of being rained off (based on the weather forecast) for at least one day
I would then measure the effect of both of the above and this creates a measurable allowance for risk.
If that is visible to he contractor, he can either accept or give you an assumption that will reduce the risk (i.e. assume you won’t be rained off)
He will then get a quote he likes and you will have your risk limited for the work involved in th CE.