Frequently Asked Questions

Question
We are the project manager on an NEC4 Engineering and Construction Contact (ECC) Option A (priced contract with activity schedule). In option X1 on price adjustment for inflation, is it compatible with NEC principles to have the proportions used to calculate the price adjustment factor (PAF) spilt into an adjustable and non-adjustable, say 40% adjustable and 60% non-adjustable?

The pro forma for option X1 in the contract data part one specifically allows for a non-adjustable element for the proportions used to calculate the PAF. The worked example in Appendix 5 of the ECC user guides suggests 10% for that, which is a reasonable figure to cover those items included in the prices which may not be affected by inflation.

The whole point of option X1 is to ensure that the contractor carries less risk for inflation, so that it lowers its prices to reflect the lower risk. Once you start having high non-adjustable figures, it is not worth using X1 because the contractor’s prices will rise to cover that risk, and therefore the benefit is lost because it is not worth the effort of carrying out the calculations each month.

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