NEC4 Option A CE assessment

When providing our quotations to the PM we include direct costs of the team for activities such as compiling a quotation, raising requisitions or liaising with the supply chain. The PM is rejecting these costs stating that these tasks are not effecting our defined costs (people) i.e. we are doing these tasks within our day job and are therefore not incurring any additional defined costs such as payment of overtime or weekend working etc. Is this correct or are we entitled to these costs even if say the CE work is 100% subcontracted?

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Ryman, the problem you have here is that you have to demonstrate how these costs were/will be incurred - the PM’s view that you are undertaking these tasks “within you day job” is not necessarily correct, in my view; it implies that people in the Working Areas are filling gaps in their daily schedule by working on CE quotations.

What you need to do is show how this time was or will be spent, over and above the time allowed for the daily tasks of the people in question (e.g. the PM or the QS), provided that they would be working on the job anyway (e.g. as part of the prelims in the AS).

Regarding subcontracting - I guess you mean outsourcing (for Subcontracting you would have to follow the process set out in section 26) - it depends on what you have allowed for in terms of prelims in the AS; if you have allowed for a full time QS, you would have to explain why you need to outsource for the additional time rather than pay overtime. It all depends on the context.


Thanks for your response Peter. What would be the best way to demonstrate that we have incurred these extra costs if for example we (PM/QS etc.) are 100% to the project and haven’t worked overtime or weekends but have been doing this extra CE related work within are normal working hours?

Apologies, with regards to subcontracting I meant that the work associated with this CE is being undertaken by a subcontractor but that we (the Contractor) have added extra direct costs for preparing the quote, liaising with the subcontractor etc. It is these extra direct costs that are being questioned by the PM.

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Sounds like you’ve answered your own question in the first paragraph. If you’re unable to demonstrate entitlement because you’re already 100% assigned to the project & haven’t had to do overtime or weekends, then where does the additional cost come from?


Ryan, you would need to show how the Defined Cost increased - if as you say this was done without causing any delay or overtime, it will be an uphill battle. Unfortunately this is how the NEC works - the next time you see the PM sitting around give him a chore and don’t take no for an answer but ask him to demonstrate how his Defined Cost increased (only joking and my view - not necessarily correct).

If you have timesheets showing the time spent and how that delayed your planned Completion (e.g. by half a day) by delaying another activity the PM or QS had to undertake, then you might have a case - you will probably need to show that in an impacted programme!


Thanks Peter! Have a great weekend.

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You too Jon, take care.

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In my view Peter is correct. The only way to demonstrate the additional cost is by providing a programme with your CEQ that demonstrates the impact to your programme as a result of the additional works being undertaken. If you can demonstrate the impact, the Prelim element should be an allowable inclusion.

I.e. you have a full time QS, PM and Planner and the additional work on the CE elongates your programme by a week, you should be entitles to claim the costs of the people as part of the forecast costs of the CE.

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I would disagree with the analysis above.

Regardless of the contract option, the Scope of works doesn’t ask you to make a staff allowance for dealing with compensation events.

A contractor may have allocated resources to a project but would expect (in the world of no compensation events), that some of the staff on a contract which is going as planned, would either finish earlier or be able to assist in tendering, training etc or even double job on otrr projects.

However, in a project with a lot of change, the contractors staff have to deal with the change as you wouldn’t bring in a team who deal with a CE.

A lot of Employers and PM’s (who aren’t from a contractors background) think that because a contractors staff have been allocated to a project, they will not be used to assist the Contractors business in other ways. This way of thinking is often due to a lack of understanding and the tendency of Employers and PM’s not to ask staff double job at all. The fact is that the Employer assigns its staff to manage the scope and modify the scope, whereas the contractor priced the scope without allowing for change.

That being the case, on a prospective CE, the PM should be allowing the Contractor include additional time for its staff to deal with all the effects of the event (e.g. additional scope might require additional people, who have to be sourced, interviewed, trained etc).

You needs to go into the detail of what the various staff members will do in the compensation event to close the gap in the PM’s knowledge of how a contractors business works.

In the case where the PM is being difficult and refusing to accept a quote, you will need all of your staff to keep a daily diary of what activities they are working on so you can demonstrate the time spent on each CE. At least you will have that information for a 3rd party if you end up with “death by a thousand cuts” and you have to get paid for your “prelim thickening” by the dispute mechanism.

It should be noted that the principal of staff being paid in a CE, is often rejected by PM’s and Employers on the lazy argument that your staff are there anyway. If that form of CE assessment is permitted to continue in a project unchecked and you end up with a lot of CE’s, the contractor will lose money.

As an overall strategy, your first programme should clearly show your staff resources, when they will finish and their % allocation for the original scope and combined TRA.

Then as the CE’s mount, your staff resources should be shown to increase either by percentage allocation or by prolongation.

In that strategy, you should have the supervisory staff assigned to tasks as much as possible.