NEC3 Supply Contract Can you claim for plant/equipment Balance Sheet assets as Defined Cost

A Supplier is providing goods and services under the NEC3 Supply Contract. The supply requires the use of significant plant and equipment. The Supplier owns this plant and equipment which it has fully depreciated in its accounts.

Compensation Events arise which have an impact on the Prices and the Delivery Date. When assessing the changes the Prices, and specifically the effect on Defined Cost:

a. Should the Supplier be recompensed for the plant and equipment?
b. If so, how should the amount be calculated?

I am assuming that there is not a corresponding rate in the Price Schedule which could be used to assess the value of compensation events, whereby, the assessment uses Defined Cost which, under NEC3, is the amount paid by the Supplier.

Fully depreciating the ‘plant and equipment’ in the accounts effectively means that the value is offset against corporate liabilities, namely corporation tax, which means that the tax liability would be reduced by (say) 20% of the value of the plant and equipment in question. However this may be further complicated by how the plant and equipment was initially paid for and any possible Capital Gains Tax to be considered, so perhaps not so straightforward an issue, without taking into consideration any other accounting or taxation matters to further complicate this.

When Defined Cost states ‘paid’ under the definition, this does tend to assume a simple cash transaction, although the word ‘paid’ has a very wide spectrum of meaning. This may include accounting for some form of ‘opportunity cost’ or the accrual of a liability as ‘payment’, at least in part.

A solution could be to assess the value of the ‘plant and equipment’ and liquidate that value into an amount which can be sensibly used to apply to a compensation event quotation, such as a daily rate or price per unit, in the same way that it might be calculated if added to the Price Schedule.