NEC3 Option A Defined Cost of Subcontractor

Question regarding Subcontract fee percentage. We have been quoted for a CE by our Subcontractor. They have used rates within their quote which we agreed they could use. We then intend on applying our Subcontract fee percentage to flow this quote up to the Employer. This is as per SSOCC item 11 amounts paid by the Contractor. Is this understanding correct?

Under NEC3 Main Option A you use the Subcontractor’s rates and prices when assessing a CE quotation and apply the subcontracted fee percentage to these cost components. To other cost components you apply the direct fee percentage.

SSOCC item 11 specifically applies to People, which may be the costs you are referring to, although the general principle above applies to all Subcontractor cost components.

Further to comments, it may be appropriate to clarify the ‘fee on fee’ situation under NEC3, as explained in the link below;

Andrew. If a small value piece of work is done by a subcontractor and a quote of say £1,000 is submitted. Should this then have the subcontract fee percentage added to it? The subcontract quote doesn’t have profit or anything separated out. Or is that fee on fee as both companies are making profit?

Strictly speaking you would take the Subcontractor’s costs (without their Fee) and use them as your cost component, in line with the definition of Defined Cost under Main Option A, then apply your subcontracted fee percentage to it.

In practice, however, for small value items it may be simpler to agree rates and lump sums to assess a compensation event, especially where the subcontractor quotation doesn’t separate out the cost into defined components. Their quote would have ‘fee’ included, but it would not necessarily have other percentage additions, such as people overhead, so it depends on how much time and effort is reasonable to expend on a ‘low value’ compensation event.