NEC4 Compensation Events Fee

Under NEC Option A, the Contractor can issue a quotation as either defined cost using the SSOCC, rates or lump sum. Can you please advise on the following:-

  • Does the fee only apply on quotations using the SSOCC or would it also be applied to quotations using rates or a lump sum?

  • If the Contractor issues a lump sum quotation, is the Client / Employer entitled to ask for it to be broken down with substantiation such as quotations for subcontracted work / plant / equipment if they think the lump sum submitted is too high?

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Hi trauts80

The default position is by using the SSOCC. The Contractor does not have an option to unilaterally decide to issue a quotation based on a lump sum.

The lump sum option is contained at clause 63.2 and requires both the PM and the Contractor to agree to assess a specific compensation event using rates or lump sums that are agreed.

There are no rules to this, it is simply whatever the PM and the Contractor can agree. That being said, the Contractor would be entitled to add a percentage for overheads and profit. Whether that is the same as the Fee percentage is a matter for the PM and Contractor to agree, but bear in mind that the Fee includes not only overheads and profit, but also anything else that is not included in the SSOCC (clause 52.1). Accordingly, applying that same percentage in a lump sum based on actual costs rather than defined cost may result in a quotation that is higher than it should be.