Demarcation between Costs and Fee

22nd August, 2005

For cost plus contracts, arguments can easily arise as to whether an expenditure should be treated as part of the reimbursable costs or part of the fees. Essentially those items which can be carried out by the head office of the Contractor rather than on site may be regarded as part of the office overheads and therefore as part of the fee rather than costs. Contractors would try to argue in reverse. Items which need careful descriptions in the cost plus contracts to avoid arguments include:

  1. Types and extent of design responsibilities.

  2. Types and number of head office supervisory, technical and clerical staff to be employed and deemed to be part of the fee.

  3. Types and number of supervisory, technical and clerical staff to be specifically provided for the Contract and chargeable as costs.

  4. Expenses in connection with sub-letting which can be done by the tendering and purchasing department of the Contractor at the head office or alternatively by a dedicated team, such as sourcing tenderers, preparing tender documents, inviting tenders, analysing tenders, preparing contracts.

  5. Types and extent of attendance of head office administrative nature rather than physical work upon sub-contractors and suppliers.

  6. Effects of fluctuations in the costs of labour, materials or plant, exchange rates of currencies, or Government taxes, fees and charges.

  7. Interests on money, finance charges, patent right and royalty.

  8. Entertainment expenses for customers and visitors, customary mid-year and year end gift expenses, expenses in connection with ceremonies at commencement of works, completion of works or part thereof, celebration and obituary offering expenses.

  9. Types and extent of taxes, fees or charges.

  10. Costs in connection with the obtaining of permits, approvals, consents from Government, local authorities and statutory undertakers.

  11. Import duties, custom clearance, administrative handling charges.

  12. Types and extent of usual preliminaries to be deemed to be part of the fee.

  13. Extent of Contractor's site office expenses including costs of stationery, paper, accounts, printing, fuels, office equipment.

  14. Site transportation vehicles including fuel charges, insurances and license fees.

  15. Extent of Contractor's communication expenses such as postal charges, telex, telegram, long distance calls, etc.

  16. Contra-charges imposed by the Builder for loading and unloading of materials, use of lifts and hoists, removal of rubbish, use of water and electricity, damage by one trade upon the other

  17. Acceleration and overtime to catch up programmes.

  18. Preparation of periodic reports and programmes.

  19. Taking of progress photographs.

  20. Provision of portable safety measures, first-aid kits.

  21. Accidental damage to utilities, roads and footpaths.

  22. Types and extent of protection, cleaning, rubbish removal and maintenance work during construction.

  23. Watchmen.

  24. Setting out team and responsibility.

  25. Types and extent of insurances. Deductibles under insurance policies.

  26. Types and extent of common plant, tools, etc.

  27. Extent of scaffolding, working platform at high levels, temporary supports, etc.

  28. Extent of hoardings, screens, protective covering to be provided.

  29. Establishment, operation and removal of storage sheds, workshops, offices, latrines.

  30. Off-site storage.

  31. Use of telephone, water and electricity. Provision of temporary plumbing, electrical installation, etc.