NEC3: Option B - Compensation event

NEC3 and NEC4 Contracts Compensation Events
1

NEC3: ESC Option B: Applying People % overheads to Compensation Events.
The Subcontractor has subcontracted a large section of work down to another company, for a section of road construction (The PM prior approved this and instructed it under cl.14.3). In the CE quotation the Subcontractor has applied the people % overhead to his staff time planning the works and the Sub-Subcontractors work on the road. Are they allowed to do this as the people rates used are agreed rates from a schedule of rates in the BoQ.

ie. Works total = £10,000, People % = 10%. Subcontractors staff total = £1,000, Sub-subcontractor staff total = £6,000. They applied the people % of 10% to the total (10% of £7,0000). There is not direct fee or subcontract fee in the contract. They are claiming £,7,700 in overall people costs and £3,000 in materials.

2

In the un-amended subcontract the assessment of the financial effect of the compensation event would be based on the Shorter Schedule of Cost Components whether the work is subcontracted or not. Therefore the People cost (Defined Cost) would be based on the Schedule and the % applied to the total regardless of who was providing the people. That said, you do not appear to be using an un-amended form given your comment about people rates being in the BoQ. You will therefore need to check the detail of your particular subcontract. I presume your comment on the PM instructing under cl 14.3 relates to the additional works.