NEC4 Payment and Defined Cost Masterclass · Module 1 · Lesson 3 of 4
What counts as Defined Cost
Why it matters
Leila's ledger holds nine costs, so which of them reach Dana's certificate?
Leila Moss is Merrow Vale's commercial manager and Dana Whitfield the Project Manager.
Source: ECC 52.1. ECC Option C 11.2(24).
The rule
Test each cost: component, price, ground
In this order.
Listed in the Schedule of Cost Components, spent to Provide the Works.
- Component?listed11.2(24)
- Price?Contract Data rate, or competitively tendered or market price52.1
- Ground?Disallowed Cost11.2(26)
Disallowed Cost takes out cost a ground names. Discounts, rebates and recoverable tax come off (52.1).
Source: ECC 52.1. ECC Option C 11.2(24), 11.2(26). Schedule of Cost Components.
The rule
The Fee covers profit and every cost that is not Defined Cost
The Fee is Defined Cost times the fee percentage. Merrow Vale, the Contractor, built its 11% like this.
“not included in the Defined Cost are treated as included in the Fee” (52.1)
What Merrow Vale's 11% fee percentage covers, percent of Defined Cost
Source: ECC 11.2(10), 52.1. Aldermere Contract Data.
See it on the project
Two salaries in the ledger turn on where each person normally works
Decide each one as Dana would, then check.
Gareth Lyle, the site agent, works from the site offices. How much of his salary counts?
Leila Moss is based at Kelworth and on Site two days a week. How much of hers counts?
Source: ECC 52.1. Schedule of Cost Components, component 1. Aldermere cost file.
Try it
Sort seven more lines from Merrow Vale's ledger
Use the three questions. Each answer tells you why.
…
Defined Cost
- Kestrel Staffing hours with signed timesheets.
Covered by the Fee
- Rent on the Kelworth office.
- Merrow Vale's insurance premiums.
Disallowed Cost
- Kestrel hours for the week of 15 June, with no timesheets.
- The spare 21 tonne excavator, kept after Dana asked for it to go.
Comes off Defined Cost
- Kelworth Readymix's 2% year-end volume rebate on concrete.
- The VAT on a Northway hire invoice, which Merrow Vale reclaims.
Source: ECC 52.1. ECC Option C 11.2(26). Schedule of Cost Components, items 11 and 14.
Recap
Ask which component before you ask which ground
Next, why Option C is not cost-plus.
On Monday at work
- Check each ledger line against a component before it goes in the application.
- Take rebates, discounts and recoverable tax off Defined Cost.
- Keep timesheets for every agency hour you apply for.
In the Toolkit: NEC4 Application for Payment (ECC and ECS, Options A to F) (Excel) Members
Independent course material. It is not published or endorsed by NEC. Clause references are to the NEC4 Engineering and Construction Contract, June 2017 with amendments January 2023. The project and the people are invented. Short quotes from NEC4 (© NEC 2017) and the FIDIC Red Book (© FIDIC 2017) are used for review and comment. Read the full clauses in your own copy of the contract.
Source: ECC 52.1. ECC Option C 11.2(24), 11.2(26).
Go deeper (optional)
Disallowed Cost is a closed list
Four points for later.
Why is office rent not Disallowed Cost?
Clause 52.1. Option C 11.2(26)
What does Disallowed Cost cost under E?
Option E 11.2(26). Clause 11.2(10)
How does Option F differ?
Option F 11.2(25), 11.2(27)
Did NEC3 work the same way?
Clause 11.2(10)
Source: ECC 11.2(10), 52.1. ECC Option C 11.2(26). ECC Option E 11.2(26). ECC Option F 11.2(25), 11.2(27).