We are a subcontractor contracting in to a Contractor on an ECS NEC 4 Option A contract. In our compensation event build ups, we use a NEC style breakdown showing people, plant, materials etc with agreed contractual rates for disciplines.
We add a risk % to cover unforeseens and clearly show the amount which cover for unknowns at time of pricing as with any estimate. The Contractor when assessing zeros it out and states that the risk needs to be significant. We have stated that the risk is significant, as with every CE and listed out what we deem the risks that could be present to our works. If we don’t allow for this, then there is a risk our forecast is affected by risk elements outwith our control.
We typically add anywhere from 2-5% based on historical trends.
We can’t seem to convince the contractor that risk is inherent in every CeQ. They have also raised a valid point that if our working space is impeded for example, then another CE can be raised to capture.
It seems counter intuitive to provide outputs and add a % for risk, to then take it away? isn’t this the whole point of risk?
You are entitled to include for your (Subcontractor’s) risk within the forecast of Defined Cost. The test is not that the risk is significant, the test is that the risk has a significant chance of occurring. If the Contractor is not prepared to consider a % approach (which would seem reasonable for minor compensation events) then you will need to do a risk assessment. The other option would be to ask for Contractor’s assumptions to effectively transfer the risk to the Contractor.
The risk has a significant chance of occurring and is also significant. It is not reasonable to go in to an indepth risk register for minor events. The % approach is the way we approach it and this is the first project we have worked on where the contractor is refusing to entertain the idea that there is risk in a forecast.
If we ask for Contractor assumptions, wouldn’t that just mean they’ll just remove the risk? can you point me towards the Clause that states the subs can ask for contractor assumptions when assessing the CE’s? is it Clause 61.6 in NEC 4?
I might be misunderstanding your reply. If the risk has a significant chance of occurring and is significant then I would expect a risk assessment to be appropriate.
The fact that the % approach has been accepted on other projects does not mean the Contractor is not within its right to request further detail and not accept the blanket % addition.
I’m not clear what types of unknowns the risk % is intended to cover. In the earlier post you have said you listed out what risks could be present so it would seem sensible to carry out a risk assessment based on probability and impact to arrive at a reasonable forecast. If that approach is not acceptable to the Contractor then I would request that they take the risk under clause 61.6. The clause does not state that the Subcontractor can ask for the assumptions but the intention of the clause is clear. Yes the Contractor will remove the risk but if it occurs you will be entitled to a new compensation event to assess the effect of it occurring.