Please advise on the calculation of Defined Cost for work subcontracted. Should the subcontract price be detailed to show the people, plant and materials cost? Is the subcontractor overheads and profit allowable or deemed to be included within the subcontracted fee percentage?
If there is a rate in the Price List for the work, then that is used regardless of whether work is subcontracted or not - see X19.2, 2nd bullet as well as X19.3, last para.
If there is not a relevant rate for an item of work in the Price List, then it is assessed as if it was a compensation event - see X19.3 last para.
Clause 63.1 covers compensation event work where there is a rate, so clause 63.2 applies i.e. assessed as change in Defined Cost, whether forecast or not, plus Fee.
Defined Cost is broken down into various components under its definition in 11.2 (5) which includes “works subcontracted by the Contractor”. All these components are subject to “less Disallowed Cost” which we will come back to.
Under clause 52.1 “Amounts included in Defined Cost are at open market or competitively tendered prices with deductions for all discounts, rebates and taxes which can be recovered deducted.” So “open market or competitively tendered” implies some sort of market testing or evidence of this.
Going back to Disallowed Cost, I will pick out two of the most relevant bullets from clause 11.2 (6) :
" Disallowed Cost
- is not justified by the accounts and records" so the burden to supply evidence of open market prices is on the Contractor;
"- was incurred only because the Contractor did not
- follow an acceptance or procurement procedure stated in the Service Information …" so if, for instance, the SI said that 3 quotes have to be obtained to appoint a Subcontractor for a compensation event and the Contractor had gone straight to their existing one with no competition, then they would be liable for the ADDITIONAL cost of not having that competition … which could be a hard thing to agree on.
Trust this helps and apologies for the delay in getting back.