Frequently Asked Questions

We are the project manager on an NEC4 Engineering and Construction Contract (ECC) Option C (target contract with activity schedule). The contractor recently included in its payment application a sum for a professional indemnity insurance premium. The contractor says that at tender stage it included the premium cost as part of its target and believed it could claim this.

Our understanding is that the contractor’s cost for taking out and maintaining such insurance under the contract is part of the contractor’s fee and not recoverable through defined costs that fall within the schedule of cost components?

You are correct. In Option C the contractor is paid the defined cost it has incurred based upon the components set out in the schedule of cost components, see clauses 11.2 (24) and (31). And you are correct that those components do not include the cost of professional indemnity insurance. Therefore, that cost does not form any part of the price for work done to date.

The prices in the activity schedule are not used to calculate the price for work done to date. Instead, they are only used to set the total of the prices, which is commonly called the ‘target’ and this, in turn, is used to assess the contractor’s share, as set out in clause 54. Of course, the total of the prices set out in the activity schedule for the purposes of calculating the share will include the amount set out for insurance.

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