Frequently Asked Questions

We are the contractor on an NEC3 Engineering and Construction Contract (NEC3 ECC) Option C (target contract with activity schedule). When we purchase an expensive item of equipment for the works, such as a tunnel boring machine, when can we recover the initial payment? Secondly, when is the residual value accounted for and how do we calculate the change in value?

With NEC3 ECC, payment for such equipment is not quite as you state. You will not recover the initial payment but instead recover the change in value, calculated by considering the difference between the purchase price and either the sale price or the open-market sale price at the end of the period for which the equipment is required.

An interim payment of the change in value is made at each assessment date. This is as stated in item 23 of the schedule of cost components. On top of this, you receive the time-related on-cost charge stated in the contract data for the period for which the equipment is required. Such equipment needs to be purchased for work included in this contract and listed with a time-related on-cost charge in the contract data. That said, the final sentence of item 23 allows additional items of equipment to be assessed in this way if the project manager agrees.

Calculating the change in value can indeed be difficult. You will always though have the purchase price and should have a good idea of the likely sale price, which might just be a scrap price.

There is no difference in the answer if NEC4 ECC is used.

Back to FAQs