NEC4 ECC January 2023 amendments allow home workers to be a defined cost

Key Points

• NEC3 ECC and the original 2017 NEC4 ECC do not readily allow NEC users to include the cost of contractors’ site staff working from home as defined cost.
• The January 2023 amendments to NEC4 ECC added a bullet to the SCC to include people outside the ‘Working Areas’ who are not involved in manufacture or design.
• To compare bids, clients should now set out in contract data part two the ‘categories of person’ and ‘work’ to be included as defined cost when carried out outside the ‘Working Areas’.
• This will allow for payment for stated categories of people doing stated work outside the ‘Working Areas’, including those working from home.

The January 2023 amendments to the NEC4 Engineering and Construction Contract (ECC) set out how clients can allow people working from home to be included in the contractors’ defined cost. This article sets out the background and how clients and contractors might use this.

Difference between ‘Working Areas’ and ‘working areas’

In NEC3 ECC, the schedule of cost components (SCC) says the cost of people is only included if they are working in the ‘Working Areas’. The exception is people doing manufacture, fabrication or design outside these areas, whose defined cost is a tendered rate in contract data part two. ‘Working Areas’ are defined in NEC3 ECC clause 11.2(19) as:‘those parts of the working areas which are necessary for Providing the Works and used only for work in this contract unless later changed in accordance with this contract’.

There is a similar definition in NEC4 ECC clause 11.2(20). Bidders can insert ‘working areas’ outside the site in contract data part two, but clearly not all contractually identified ‘working areas’ can be included in the defined term of ‘Working Areas’.

A specific situation where this might cause a problem is where a contractor sets up an area to support work on multiple contracts under a framework agreement. A subtle modification to the definition of ‘Working Areas’ would be needed to allow such an area to be considered as such in each of the framework contracts.

The intent is to exclude contractors’ head office staff from defined cost and keep them part of the tendered fee percentage. However, this creates an incentive for the contractor to put people in the ‘Working Areas’ even if that is not the best place for them.

Defining people cost components

In NEC3 ECC, the allowable people costs are defined in the SCC as the cost of

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

The second bullet was extended in the 2017 NEC4 ECC to add: ‘proportionate to the time they spend working in the Working Areas’.

Contractors also can recover the defined cost of ‘Charges’ incurred in the ‘Working Areas’. According to NEC3 ECC SCC component 41, these are payments for the provision and use in the ‘Working Areas’ of water, gas and electricity, to which NEC4 ECC added telephone and internet costs (SCC component 51).

Clause 15.1 in NEC3 ECC and 16.3 in NEC4 ECC allow contractors to ask after award for more ‘Working Areas’. Project managers can ‘not accept’ this without causing a compensation event if the proposed additional areas are not necessary for providing the works or are used for work not in the contract.

However, none of the above provisions really deal with the modern issue of staff increasingly working from home. If the homes of everyone working on a project were allowed to be ‘Working Areas’, clients could end up paying towards the water, gas, electricity, telephone and internet bills of every home worker, which is not really a practical option.

NEC4 January 2023 amendments

In the January 2023 amendments to NEC4 ECC, a new bullet point was added to SCC component 1 stating that people cost includes ‘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.’ A new paragraph also states, ‘If the Project Manager agrees, additional people may be assessed as if they were listed in the Contract Data.’

The contract data section headed ‘Data for the Schedule of Cost Components’ was also amended to relate to this by adding ‘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 are [category of person] [work]’.

NEC users can therefore now set out the categories of people and work of people not working within the ‘Working Areas’ (and not working on manufacture, fabrication and design) that the client is happy to pay at defined cost, rather than forcing bidders to include them in the fee percentage. This entry is in the contract data and pointed to from the SCC.

Other entries in the contract data part two call for the rates for certain types of staff. For those, even though the table is completed by bidders, it is normal for clients to set out the types of staff for which they want a rate to allow comparable bids. In the same way, it is normal for clients to specify the jobs for which they want to see a named ‘key person’.

Clearly the new entries in the contract data are changing what people bidders have to include in their fee percentages. Although the categories of people and work have been included in contract data part two, if the client wants to ensure that bids (fee percentages) are comparable, it will clearly have to complete those entries rather than leave it up to the bidders.

While this change was mainly designed to cover working from home, it also allows clients to resolve the issue of contractors unnecessarily loading people into the ‘Working Areas’, as described above. For example, if the client is happy to pay for say quantity surveyors and planners, whether or not they are in the ‘Working Areas’, these ‘categories of person’ can simply be included in the new entries in the contract data.