Demarcation between Costs and Fee

Go to End

-> Top

Note

29/1/2024: Updated to include NEC Schedules of Cost Components.

12/1/2018: Created.

-> Top

Views written on 22 Aug 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.
-> Top

NEC4 Schedule of Cost Components

 To be used in conjunction with NEC4 Option C, D or E for cost reimbursement. Source: NEC4.

Schedule of Cost Components

This schedule is part of these conditions of contract only when Option C, D or E is used. An amount is included

•       only in one cost component and

•       only if it is incurred in order to Provide the Works.

 

People

1     The following components of the cost of

•     people who are employed by the Contractor and whose normal place of working is within the Working Areas,

•     people who are employed by the Contractor and whose normal place of working is not within the Working Areas but who are working in the Working Areas, proportionate to the time they spend working in the Working Areas and

•     the people listed in Contract Data who are employed by the Contractor, whose normal place of working is not within the Working Areas and who are working outside of the Working Areas other than on manufacture and fabrication and design.

If the Project Manager agrees, additional people may be assessed as if they were listed in the Contract Data.

11     For people who are directly employed by the Contractor, wages, salaries and amounts paid by the Contractor for people paid according to the time worked on the contract.

12     For people who are directly employed by the Contractor, payments related to work on the contract and made to people for

(a)     bonuses and incentives

(b)     overtime

(c)     working in special circumstances

(d)     special allowances

(e)     absence due to sickness and holidays

(f)     severance.

13     For people who are directly employed by the Contractor, payments made in relation to people in accordance with their employment contract for

(a)     travel

(b)     subsistence and lodging

(c)     relocation

(d)     medical examinations

(e)     passports and visas

(f)     travel insurance

(g)     items (a) to (f) for dependants

(h)     protective clothing

(i)     contributions, levies or taxes imposed by law but excluding the Contractor’s mandatory contribution under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) and contribution under the Occupational Retirement Schemes Ordinance (Cap. 426)

(j)     life assurance

(k)     death benefit

(l)     occupational accident benefits

(m)     medical aid and health insurance

(n)     a vehicle

(o)     safety training.

14     For people who are not directly employed by the Contractor but are paid for by the Contractor according to the time they work, the amounts paid by the Contractor.

 

Equipment

2     The following components of the cost of Equipment which is used within the Working Areas.

21     Payments for the hire or rent of Equipment not owned by

•     the Contractor,

•     the Contractors ultimate holding company or

•     a company with the same ultimate holding company

at the hire or rental rate multiplied by the time for which the Equipment is required.

22     Payments for Equipment which is not listed in the Contract Data but is

•     owned by the Contractor,

•     purchased by the Contractor under a hire purchase or lease agreement or

•     hired by the Contractor from the Contractors ultimate holding company or from a company with the same ultimate holding company

at open market rates, multiplied by the time for which the Equipment is required.

23     Payments for Equipment purchased for work included in the contract listed with a time- related on cost charge, in the Contract Data, of

•     the change in value over the period for which the Equipment is required and

•     the time-related on cost charge stated in the Contract Data for the period for which the Equipment is required.

The change in value is the difference between the purchase price and either the sale price or the open market sale price at the end of the period for which the Equipment is required. Interim payments of the change in value are made at each assessment date. A final payment is made in the next assessment after the change in value has been determined.

If the Project Manager agrees, an additional item of Equipment may be assessed as if it had been listed in the Contract Data.

24     Payments for the purchase price of Equipment which is consumed.

25     Unless included in the hire or rental rates, payments for

•     transporting Equipment to and from the Working Areas other than for repair and maintenance,

•     erecting and dismantling Equipment and

•     constructing, fabricating or modifying Equipment.

26     Payments for purchase of materials used to construct or fabricate Equipment.

27     Unless included in the hire rates, the cost of operatives is included in the cost of people.

 

Plant and Materials

3     The following components of the cost of Plant and Materials.

31     Payments for

•     purchasing Plant and Materials,

•     delivery to and removal from the Working Areas,

•     providing and removing packaging and

•     samples and tests.

32     Cost is credited with payments received for disposal of Plant and Materials unless the cost is disallowed.

 

Subcontractors

4     The following components of the cost of Subcontractors.

41     Payments to Subcontractors for work which is subcontracted without taking into account any amounts paid to or retained from the Subcontractor by the Contractor, which would result in the Client paying or retaining the amount twice.

 

Charges

5     The following components of the cost of

•     charges paid or received by the Contractor and

•     providing accommodation and transport for the Project Manager and Supervisor

51     Payments for the provision and use in the Working Areas of

•     water,

•     gas,

•     electricity,

•     telephone and

•     internet.

52     Payments to public authorities and other properly constituted authorities of charges which they are authorised to make in respect of the works, but excluding the Contractors payment of levies to 

•     the Pneumoconiosis Compensation Fund Board under the Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Cap. 360) and

•     the Construction Industry Council under the Construction Workers Registration Ordinance (Cap. 583) and Construction Industry Council Ordinance (Cap. 587). 

53     Payments for

(a)     cancellation charges arising from a compensation event

(b)     buying or leasing land or buildings within the Working Areas

(c)     compensation for loss of crops or buildings

(d)     royalties

(e)     inspection certificates

(f)     charges for access to the Working Areas

(g)     facilities for visits to the Working Areas by Others

(h)     consumables and equipment provided by the Contractor for the Project Manager’s and Supervisor’s offices

54     Payments made and received by the Contractor for the removal from Site and disposal or sale of materials from excavation and demolition.

55     Amounts paid by the Contractor in providing accommodation and transport for the Project Manager and the Supervisor.

 

Manufacture and fabrication

6     The following components of the cost of manufacture and fabrication of Plant and Materials by the Contractor which are

•     wholly or partly designed specifically for the works and

•     manufactured or fabricated outside the Working Areas.

61     Amounts paid by the Contractor for the manufacture and fabrication of Plant and Materials outside the Working Areas.

 

Design

7     The following components of the cost of design of the works and Equipment done outside the Working Areas.

71     Amounts paid by the Contractor for design of the works and Equipment outside the Working Areas.

72     The cost of travel to and from the Working Areas for the categories of design people listed in the Contract Data.

 

Insurance

8     The following are deducted from cost

•     the cost of events for which the contract requires the Contractor to insure and

•     other costs paid to the Contractor by insurers.

 

Insurance premium

9      The following components of the cost of insurance.

91      The amounts paid for each insurance stated in the insurance table.

-> Top

NEC4 Short Schedule of Cost Components

To be used in conjunction with NEC4 Option A or B for Compensation Events. Source: NEC4.

Short Schedule of Cost Components

This schedule is part of these conditions of contract only when Option A or B is used. An amount is included

•     only in one cost component and

•     only if it is incurred in order to Provide the Works.

 

People

1     The following components of the cost of

•     people who are directly employed by the Contractor and whose normal place of working is within the Working Areas,

•     people who are directly employed by the Contractor and whose normal place of working is not within the Working Areas but who are working in the Working Areas, proportionate to the time they spend working in the Working Areas and

•     people who are not directly employed by the Contractor but are paid for by it according to the time worked while they are within the Working Areas.

11     Amounts paid by the Contractor including those for meeting the requirements of the law but excluding the Contractor’s mandatory contribution

•     under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) and 

•     under the Occupational Retirement Schemes Ordinance (Cap. 426). 

 

Equipment

2     The following components of the cost of Equipment which is used within the Working Areas.

21     Amounts for Equipment at competitively tendered or open market rates, multiplied by the time for which the Equipment is required. 

22     Unless included in the competitively tendered or open market rates under item 21, payments for

•     transporting Equipment to and from the Working Areas other than for repair and maintenance,

•     erecting and dismantling Equipment,

•     constructing, fabricating or modifying Equipment, 

•     the purchase price of Equipment which is consumed. 

23     Unless included in the competitively tendered or open market rates under item 21, the cost of operatives is included in the cost of people.

 

Plant and Materials

3     The following components of the cost of Plant and Materials.

31     Payments for

•     purchasing Plant and Materials,

•     delivery to and removal from the Working Areas,

•     providing and removing packaging and

•     samples and tests.

32     Cost is credited with payments received for disposal of Plant and Materials unless the cost is disallowed.

 

Subcontractors

4     The following components of the cost of Subcontractors.

41     Payments to Subcontractors for work which is subcontracted.

 

Charges

5     The following components of the cost of

•     charges paid or received by the Contractor and 

•     providing accommodation and transport for the Project Manager and Supervisor

51     Payments for the provision and use in the Working Areas of

•     water,

•     gas,

•     electricity,

•     telephone and

•     internet.

52     Payments to public authorities and other properly constituted authorities of charges which they are authorised to make in respect of the works, but excluding the Contractor’s payment of levies to 

•     the Pneumoconiosis Compensation Fund Board under the Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Cap. 360) and 

•     the Construction Industry Council under the Construction Workers Registration Ordinance (Cap. 583) and Construction Industry Council Ordinance (Cap. 587).

53     Payments for

(a)     cancellation charges arising from a compensation event

(b)     buying or leasing land or buildings within the Working Areas

(c)     compensation for loss of crops or buildings

(d)     royalties

(e)     inspection certificates

(f)     charges for access to the Working Areas

(g)     facilities for visits to the Working Areas by Others

(h)     consumables and equipment provided by the Contractor for the Project Manager’s and Supervisors offices

54     Payments made and received by the Contractor for the removal from Site and disposal or sale of materials from excavation and demolition.

55     Amounts paid by the Contractor in providing accommodation and transport for the Project Manager and the Supervisor.

 

Manufacture and fabrication

6     The following components of the cost of manufacture and fabrication of Plant and Materials by the Contractor which are

•     wholly or partly designed specifically for the works and

•     manufactured or fabricated outside the Working Areas.

61     Amounts paid by the Contractor for the manufacture and fabrication of Plant and Materials outside the Working Areas.

 

Design

7     The following components of the cost of design of the works and Equipment done outside the Working Areas.

71     Amounts paid by the Contractor for design of the works and Equipment outside the Working Areas.

72     The cost of travel to and from the Working Areas for the categories of design people listed in the Contract Data.

 

Insurance

8     The following are deducted from cost

•     the cost of events for which the contract requires the Contractor to insure and

•     other costs paid to the Contractor by insurers.

 

Insurance premium

9     The following components of the cost of insurance. 

91     The amount paid for each insurance stated in the insurance table.

End of Page

-> Top

Back to top with progress scrollbar