I am the Project Manager administering an NEC Option A project. The Contractor has submitted a quotation for a compensation event claimed under X2.1, for additional national insurance contributions incurred from 1 April.
The quotation includes for the effect upon Defined Cost for all people on the project employed by the Contractor, and all the Subcontractors. Whilst I appreciate the contract allows for this, my suspicion is not every Subcontractor will submit the claims they are entitled to. If this is the case then the sums agreed at the main contract level, not spent by the Contractor will effectively be used to enhance their profit. Given the purpose of the compensation event process is designed to ensure that the Contractor is not put at a disadvantage, the converse is true that they should not stand to gain from it neither.
In requesting a revised quotation, I have included a PM assumption that Subcontractors do not submit claims. Should the Subcontractor later submit a claim, I would then notify a subsequent compensation event to enable recover of this cost. To me, this feels the most collaborative way to approach the matter i.e. the Client retains the risk. Is this a robust process given the terms of the contract?
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An interesting perspective can be gained here if we invert the situation and ask whether you would have taken the same action if the rate for National Insurance was reducing. If the Contractor provided you a forecast, at the dividing date, of the reduction of its defined cost for subcontractors, would you not have accepted the saving because its supply chain hadn’t notified and passed on the reduction or would you have provide a PM assumption because the effects cannot be forecast? If the answer is that you would have accepted the quotation and reduced the total of the prices, then I would reconsider if you have made the right decision.
Project Managers assumptions are a tool to be used where the effects cannot be reasonably forecast, note that this states effects, and I think that it is quite simple in this case to forecast the effects and so I don’t think it is necessary to provide a PM assumption. Also, the Contractor provides its forecast as at the dividing date of the event. It is highly unlikely that their supply chain will not have notified the Contractor at that point, so I don’t think that believing that the Contractor may not incur all of the costs is sufficient ground or justification for assessing the quotation without those parts of the costs.
You may be correct in saying that the Contractor may not receive costs for the change in the law from all of their Subcontractors, but what is certain is that the supply chains costs have increased and they will pass those costs on, just not necessarily through or under this specific notification. The Contractor retains the risk here and also carries a risk that it receives higher costs than forecast.
I would also add that the drafting of the PM assumption needs careful consideration. If you have simply stated that the Contractor does not receive any claims from its subcontractors, then any claim invalidates the PM assumption and the full forecast cost is admitted into the new Compensation Event.