What does the Fee mean under NEC4?
The Fee is the Contract Data fee percentage applied to Defined Cost, and it is your only pay for overheads, profit and unlisted costs.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
Under clause 11.2(10), the Fee is the amount you get by applying the fee percentage to Defined Cost. The fee percentage is a single figure entered in the Contract Data at tender, and it applies wherever Defined Cost is used. Under Options A and B that is only in assessing compensation events, so the Fee appears on every quotation and every own assessment. Under Options C, D and E, the Price for Work Done to Date is Defined Cost plus the Fee. So the Fee is paid at every assessment date, and also forms part of every compensation event that moves the target. The Fee covers everything the cost schedules do not list: head office overheads, profit, and any cost that is not a component. It is applied after Disallowed Cost comes out, so a disallowed cost loses its Fee too. It also works both ways. An omission cuts the Prices by the Defined Cost saved plus the Fee on it. Three things go wrong most. The first is double counting: a percentage for overheads added on top of the Fee, or quotation preparation priced as a cost. The second is the wrong base. The fee percentage is applied to the Prices or a subcontractor's quote instead of Defined Cost. Or it is applied to the net of an event, after a deduction that was never Defined Cost. The third is the belief that the Fee is where risk lives. It is not. Clause 63 puts risk allowances into the forecast Defined Cost, and the Fee is applied on top.
Example
Illustrative example. The scenario and figures are invented.
The facts
An Option C subcontract has a fee percentage of 10 per cent in the Contract Data. At an assessment date, forecast Defined Cost paid before the next assessment date is £200,000. Of that, £5,000 is Disallowed Cost for a delivery with no supporting record.
What happens
- Defined Cost is £195,000 once the £5,000 Disallowed Cost comes out.
- The Fee is £19,500, 10 per cent of Defined Cost, and the Price for Work Done to Date is £214,500.
- The subcontractor's £9,000 of head office cost for the period is not added, because it is within the Fee.
- In the same period, a compensation event omits work with a forecast Defined Cost of £20,000. The total of the Prices falls by £22,000: the £20,000 and the £2,000 Fee on it.
The assessment in figures
| Item | Amount |
|---|---|
| Forecast Defined Cost | £200,000 |
| Disallowed Cost | £5,000 |
| Defined Cost | £195,000 |
| Fee at 10 per cent | £19,500 |
| Price for Work Done to Date | £214,500 |
| Head office cost, within the Fee, not added | £9,000 |
The outcome
The Fee runs both ways: £19,500 on the Defined Cost assessed and £2,000 off with the £20,000 of work omitted, and head office cost is never added separately.
To have an event assessed too low rebuilt from the cost components and your records, see our Compensation Event Claim service.