I’m working on a amended NEC4 PSC Option E which includes the Shorter Schedule of Cost Components not the SSC.
The people rates are stated in the contract as ‘The People Rates are the people rates unless later changed in accordance with the contract’
Option X2 Changes in the law is included however my question is. Due to the upcoming government increase in NIC are the consultants entitled to these changes in their People Rates or are these fixed and only subject to change via the X1 inflation option?
I assume that the clauses for People Rates under main option A have been incorporated into your Option E contract.
As you have a main option E, I am also assuming that the PWDD would use the People Rates to make an assessment for payment.
A change in the law under option X2 would likely relate to an ‘increase’ to the cost of People, although the contract only provides for a change to the People Rates in certain circumstances, namely clause 63.13.
Unless your contract has been amended to include ‘adjustments’ to People Rates, then they would not be altered as a result of a compensation event.
We have incorporated the SSoCC and the subcontractor element has been removed. The assessments are based on the People Rates which are hourly rates for PSPD.
The contract does state ‘the People Rates will be adjusted by a percentage equal to the percentage increase or decrease in the level of Index calculated by comparing the latest published Index… Any adjustment to the People Rates made in accordance with this clause X1.7 will only apply to amounts that become due after such adjustment’
However, X2 is included and I would assume this would raise a CE and alter the prices in the People Rates as normally NIC would be part of such rates.
The issue here is that not all components of ‘increased cost’ are discretely captured by a Defined Cost assessment, depending upon how Defined Cost is defined under your contract and what the ‘increased cost’ relates to.
The X1 PAF calculation is a separate procedure although may include the increased NIC premiums. It would depend, however, upon what indices are being used within the calculation and what information is used to determine the indices.
As X2 has been included, this is a CE although the determination of the effect would follow the assessment rules at clause 63.1 using Defined Cost. If you are directed to use the People Rates and there is no mechanism, other than X1, to adjust these rates then any CE assessment should use the ‘rates’, where applicable.
In your case it is a component of the People Rate that has changed although there doesn’t appear to be any assessment 'criteria to provide for this to be included in a compensation event quotation assessment.
‘The change to the Prices is assessed as the effect of the compensation event upon
• the actual Defined Cost of the work done by the dividing date, and
• the forecast Defined Cost of the work not done by the dividing date’
The Defined Cost is the cost of components in the Short Schedule of Cost Components less Disallowed cost as stated in the contract
The SSoCC states under People ‘The following components of the cost of people’
Does there need to be a specific mechanism in the contract stating the cost of people is subject to NIC increase and method of assessment/recovery or isn’t this just covered under the Defined Cost of the cost of people as NIC in business is naturally covered under cost of people?
The pricing model for the ‘rates’ does include NI contributions, however appears the ‘rates’ are just hourly rates submitted by the consultants
Just to note: I’ve checked the PAF calculation and index and this doesn’t cover NIC increases so wouldn’t be picked up under the X1 mechanism
I’m not aware of what your contract says but under the standard main option A you use the People Rates with the SSoCC at paragraph 11, which states;
‘Amounts calculated by multiplying each of the People Rates by the total time appropriate to that rate properly spent on work in the contract’.
People Rates simply the process although there are limitations, as highlighted by your ‘issue’, when each component of People cost is not assessed discretely, such as under the SoCC paragraph 11.