NEC4 Opt C - Are Insurance Premium's part of the Contractor's PWDD or the Direct fee?

The Contractor is wondering whether insurance premium costs, which will appear on a cost ledger as defined cost, form part of the Contractors PWDD within each interim AFP, or should this cost be included within the Contractors direct fee and would therefore be disallowed?


Insurance premiums are not recoverable as Defined Cost, for a cost to be included as Defined Cost it needs to be covered by an item in the Schedule of Cost Components.

The cost cannot be classed as Disallowed Cost either as it is not covered by an item under that definition.

There is a third category of cost which is cost that is neither Defined or Disallowed, it’s simply cost that is not part of Defined Cost.

Insurance premiums fit this category and are therefore also part of the Fee and not reimbursed separately.


NEC 3 Schedule of Cost Components 1.13(i) states that payments made meeting the requirements of the law are a Defined Cost. Employer’s Liability and Motor Insurance are both required by law are the associated premiums for these insurances not recoverable?


@Leslie_Hall the original question was about NEC4 which amended NEC3 item 13(i) from “meeting the requirements of the law” to “contributions, levies or taxes imposed by law”.

In UK contracts under NEC3 employer’s liability insurance is a requirement of the law but public liability insurance is not. Whilst motor vehicle insurance is required by the law it is not a payment made in relation to a person.

In UK contracts under NEC4 employer’s liability insurance is not a contribution, levy or tax therefore it is not recoverable as Defined Cost. Also health insurance can be included in Defined Cost under item 13(m).

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Hi Neil,

Thank you for your response.

However, can I raise a query regarding your comment on motor vehicle insurance. Surely, the cost of providing a vehicle as part of the persons salary package includes the cost of the maintenance, fuel and insurance. As motor insurance is required by law it should form the part of the Defined Cost of providing a vehicle and is therefore covered both under NEC3 13(i) and NEC 13(n).

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@Leslie_Hall the SCC does not say “the cost of providing a vehicle …”, it says “payments made in relation to people in accordance with their employment contract for … a vehicle” which means the vehicle is paid for but not the associated costs of running the vehicle e.g. insurance, servicing, MOT etc. If insurance was recoverable as Defined Cost the SCC would specifically state this as it does for item 13(f) and item 13(m). Hope this clarifies things for you.

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With respect Neil I cannot accept your explanation. SCC 1.13 states “Payments made in relation to people for … (n) a vehicle”, this should mean all payments (or costs) made by the employer in the provision of that vehicle, i.e. the whole cost. The employer cannot provide a vehicle as part of the employees salary package without incurring its attendant costs.

That’s OK @Leslie_Hall I don’t think the contract is 100% clear which means it may be open to interpretation.

In answering your question I’ve checked all my NEC books and they support my interpretation. See in particular NEC4 Managing Reality by Mitchell and Trebes - Book 4 page 74 which states “Components not covered in the SCC include, for example: insurance premiums” then it lists out several insurances which includes vehicle insurance as well as professional indemnity, employer’s liability, public liability, and all-risks.

Some food for thought. I would be interested to find out if you can convince the PM that you’re right?

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