Under the NEC Contract option A, when do you apply the direct fee % and the Subcontracted fee percentage?

Can you porvide me with a simple explanation on when to use these two different fee percentages.


Rob Horne - Construction Partner at Trowers & Hamlins

Achille - These fee percenatges are relevant, in Option A and B, only when pricing compensation events (for C, D and E they are also relevant to interim payment). You apply the fee percentage relevant to the type of work being undertaken as part of that compensation event. So, CE work that is subcontracted has the subcontractor fee % added to it otherwise it will be direct cost and has the direct fee % added.

Glenn Hide - NEC3 Management Consultant

Just worth emphasizing to Rob’s comments above, that you only apply one or the other. You apply subcontracted fee percentage to those works that are subcontracted, and direct fee percentage to everything else. Some seem to think that they can apply direct fee percentage on top of subcontract cost/subcontract fee percentage and that is not the case!

Rob Horne - Construction Partner at Trowers & Hamlins

Thanks Glenn, I deliberately did not go there as there is a lot more complexity to that issue than is apparent. I have been discussing this offline with a number of the usual suspect and I am yet to be convinced that the contract is in fact anywhere near as clear on this as it should be.

For clarity, the discussion and difficult I allude to relates to what amounts to “cost” for a main contractor to which one of the two types of fee is attached. There is no question that you cannot have both but there is, in my view at least, a question mark over whether subcontractor fee is a cost to the main contractor to which his own fee is then added (in effect layering of fee) or if the description is intended to prevent this so that the subcontractor gets his fee percentage on his cost and the main contractor gets his fee percentage on the subcontractors cost but not his fee.

The is question raised here by Achille doesn’t get into this second point but care needs to be taken by contractors to identify and agree exactly what the subcontracted fee percentage attaches to or he (or indeed the employer) could carry massive cost or risk that was not anticipated.

You apply the the subcontracted fee % when work is subcontrcted and the direct fee % on other work, basically to work which is priced using the shorter schedule of cost components. See the defuinition of Fee at 11.2(8). The percentage is added to the Defined Cost, for Option A this is defined at 11.2(22)

Under Option A this will only be relevant when pricing Compensation Events.

Agree with all the above comments - Contractors really need to understand how the percentages are appled


Please can you clarify something in your response for me.

In your response you have referred to subcontract fee and direct fee being used in the assesment of compensation events under an option A ECC however in pricing compensation events under an option A (or B) the subcontract fee is not used as the defined cost is defined as the cost of the components as defined in the shorter schedule of cost components. The SSoCC makes no reference to Subcontract costs. All works are priced as if the contractor had carried them out without subcontracting the work.

Therefore I believe the correct answer to the original question is that the subcontract fee posted in contract data part 2 is not used if main option A or B is selected.

However that is my reading of it and I would like that confirmed or corrected please.

Could I add to the question my case scenario where there is a % for the plant & materials clarified within the Activity Schedule, am I to include this percentages and add the Direct Fee on top?

Yes you do. Direct fee is applied after you have applied any other relevant percentages to the individual elements of the schedule of cost components, and then you apply the direct fee on top of everything.

Many thanks for your prompt reply Glenn.