Frequently Asked Questions

We are a client using the NEC3 Engineering and Construction Contract (ECC) Option C (target contract with activity schedule) in Hong Kong and are considering using NEC4 ECC Option C. To meet legal requirements, employers must take out insurance to cover their liabilities under the Employees’ Compensation Ordinance and at common law for injuries at work. We consider the premium is covered under item 13(i), ‘meeting the requirements of the law’, of the schedule of cost components in NEC3 ECC Option C, so it is part of defined cost. However, in NEC4 ECC Option C, item 13(i) only covers ‘contributions, levies or taxes imposed by law’. Does this still include the premium for employees’ compensation insurance?
There is a similar legal requirement to provide such insurance in the UK and, with the previous wording of the NEC3 ECC schedule of cost components, we advised this could include the costs of that insurance. However, it has always been an anomaly as all other insurances the contractor takes out are not included within the definition of defined cost. This provision was therefore reworded in NEC4 contracts to make it clear what was meant and to limit what was covered. This means that employees’ compensation insurance premiums are no longer included as part of defined cost and therefore the contractor should make allowance for it, and all other insurances, in the fee (see clause 52.1).

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