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NEC4: Engineering and Construction Contract Option C: Target Contract with Activity Schedule

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All compensation events are also assessed based on defined cost plus fee. The only difference between options C and E is that option C has the target mechanism and the consultant’s share, which depends on how well the consultant does compared with the target total of the prices. The purpose of this is to encourage the client and consultant to collaborate and jointly manage risks and jointly reduce the defined cost during delivery of the service. The contract data part two enables the client to allow the tenderer to state different overhead percentages for different locations. The preamble to the SCC makes it clear that an amount is included ‘only in one cost component’. Hence ‘support people’ are covered by the overhead, and so not directly paid under SCC 1. This will include accounting staff and other staff normally considered an overhead. To avoid potential disputes over the intended coverage of this charge, clients may want to make clearer in the contract the staff intended to be covered by the overhead percentage and so not directly billable under SCC 1. Defined cost is as stated for options A and B in the short(er) schedule of cost components (SSCC) while in options C, D and E it is as stated in the schedule of cost components (SCC). In NEC3 ECC, the SSCC can, by agreement, also be used to assess compensation events in options C, D and E. One obvious record likely to be required, and needing to be stated in the scope, is the timesheets of employees and any subcontractor’s employees under a target or reimbursable subcontract. Clients are likely to want those timesheets to include details of the actual work being done.

Understanding and avoiding disagreement as to Defined and Disallowed Costs is crucial to the profitability on a project. Manufacture and Fabrication – cost of people involved in manufacture and fabrication of Plant and Materials by the Contractor, which are at least partly designed specifically for the works, and that are fabricated outside of the works, at their rate stated in contract data. Works that require immediate attention and cannot be defined at the project outset may benefit from a fast contract agreement. This option can either be Cost Reimbursable or pre-agreed Lump Sum. This Option is used with a Professional Services Contract for the appointment of consultants, paid on a time basis or pre-agreed cost. Some share ranges can sometimes be disproportionately unfavorable to contractors. Care should be taken to ensure you are not being put at financial risk.Option C and D assessing the target share percentage: The Contractor prepares forecasts of the total Defined Cost for the whole of the works at the intervals stated in Contract Data. For a majority of projects this forecast would be at each application, but for larger projects could be every three months. This means that there will be a regular assessment during the life of the project as to the actual amount spent and the forecasted remaining cost left to go and hence if predicting to be under or over the target price. Quality management– this section details NEC’s use of quality management systems (where the Contractor is required to use any such system as described in the Scope), tests and inspections, and how to deal with Defects (noting that, unless Defects are accepted … the ‘Contractor must correct all Defects which would prevent the Client from using the works or Others from carrying out their work …’ before Completion). Thomas Telford Ltd., NEC3: April 2013 Edition complete family of contracts, accessed 6 September 2021

Beneficial for developers who are just entering the market as responsibility for procuring and managing the works is with the management contractor.

In practice, disallowed costs have sometimes been used to reduce project costs and avoid the client having to bear a share of an overspend, as would normally be the case under ECC Option C. This has led to closer scrutiny by project managers who, for example, seek to disallow costs under the first bullet point of clause 11.2(26) in NEC4 ECC Options C, D and D or clause 11.2(25) in NEC3 ECC Options C, D and E 11.2, not just when cost records are not available but also when they are inconsistent or incomplete. Suitable for any construction based contract between an Employer and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil and gas, etc. Within the ECC contract there are six family level options, from which the Employer is to choose the most suitable and offer the best option/value for money on that project: The Contractor’s main responsibilities– detailed NEC’s requirements in respect of the provision of the Works, Contractor’s design, design of Equipment, people (key persons), working with the Client and Others, Subcontracting and other responsibilities. Brook M. (2004). Estimating and Tendering for Construction Work Butterworth-Heinemann ISBN 978-0-7506-5864-5 On completion of the works the final Defined Costs and Fee (the final “Price for Work Done to Date”) and the target costs are compared.

Plant and Materials – for all permanent works that are installed such as pipework, cladding, cabling etc The NEC4 FMC suite includes the Facilities Management contract (FMC), subcontract (FMS), short contract (FMSC) and short subcontract (FMSS). [15]


This option includes a target contract linked to an activity schedule. The target contract contains a price commonly referred to as a target cost. The Contractor’s “Defined Costs” will be subject to audits with the level of information required to justify the sum being substantial.

NEC target and reimbursable options (Options C, D, E and F) provide for the contractor to be reimbursed for the actual costs of carrying out the works. These Contracts include reference to costs described as “Disallowed Costs”. Disallowed cost is new to NEC4 PSC and defined in a way similar to that in the ECC. The definition needs close attention, but two key elements are costs, ‘not justified by the Consultant’s accounts and records’, and those, ‘incurred only because the Consultant did not … give an early warning which the contract required it to give’. These are two simple drivers for the consultant to keep good records and do what it says in the contract. The Schedule of Cost Components (and Short Schedule of Cost Components, which is only used in NEC4 for Option A & B compensation events) to be used in respect of Defined Cost and the assessment of compensation events, and Disallowed Costs are defined in clause 11.2(26) and as the names suggest are costs that can be disallowed from what the Contractor is claiming each period. It is important therefore for everyone in the Contractor’s team to understand what these are so that they can avoid them being incurred and affecting the amount that they will be paid overall. Some of the more significant ones are costs that: It can include a range of different services to be provided before, during and after engineering and construction works are completed.One former NEC3 clause which dealt with the "spirit" of the contract was divided into two clauses, to show that both aspects should be complied with: Most contractors will want to prepare their tender in much more detail, or at least in a different way to the Activity Schedule prepared by the Employer, so it is common to see a Contractor's tender estimate sitting behind the Activity Schedule, never submitted or officially recognised but the real driver for pricing the works and the means by which the Contractor will record cost. It is the link between the overall tender Prices, broken down to fit the Activity Schedule and the tender estimate used to manage and control cost once the project is live that is vital to dealing with change in the Prices. The NEC is a family of standard contracts, each of which stimulate good management of the relationship between the two parties to the contract and, hence, of the work included in the contract, can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location, and are clear and simple documents using language and a structure which are straightforward and easily understood. The contracts legally define the responsibilities and duties of Employers (the party which commissions the work) and Contractors (the party which carries out the work) in the works information. The contract consists of two key parts, divided between contract data provided by the Employer and that provided by the Contractor. The NEC3 complies fully with the Achieving Excellence in Construction (AEC) principles. The Efficiency and Reform Group of the UK Cabinet Office recommends the use of NEC contracts by public sector construction procurers on construction projects. [ citation needed]

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