FAQs

The change should have no effect on tendered prices as it is not about calculation of the ‘target’ (the tendered prices) but about what the contractor will be paid (defined cost). It could have a small effect upon the fee percentage quoted, but even that is unlikely. 

The percentage for working areas overheads has been in use now for over 20 years and in that time the construction industry’s costs systems have changed quite a bit. It was originally introduced on the principle that contractors did not want to have to justify every little item of cost, so instead these minor items would be included as a percentage addition. The practical problem is that most contractors’ costs systems now pick up these items and charge them to the contract anyway. That means a contractor needs to go through its cost reports to remove all items included in the percentage for working areas overheads (like hire of a hand drill or security alarm, or purchase of some hammers or a computer) before submitting them to the project manager. The project manager then has to check these to make sure everything is correct. So, what was meant to be a labour-saving short cut became anything but.

The other problem with the percentage for working areas overheads is the amount of arguments we see in the helpline about just what is and is not allowed for within this percentage. Security items, computers, surveying instruments, ‘hand tools not powered by compressed air’ and the people using them cause all sorts of arguments between contractors and project managers, both of which want to interpret matters in their favour.

For the above reasons it was decided to remove this percentage in NEC4. That does not 
of course mean contractors will not get paid for the items. The contractor will now be paid for them according to the rules of the revised schedule of cost components under the people, equipment, plant and materials and/or subcontractors items as appropriate. For example, a hand-held tool, computer or laser level are all equipment, so will now be paid as such under the rules of part 2 of the schedule of cost components. As such there should not be any real effect on the fee percentage either. 

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