What is NEC option C?

What is NEC option C?

It is a suite of construction contracts intended to promote partnering and collaboration between the contractor and client. …

What is the difference between NEC option A and C?

Under Option A, the crunch point is at the beginning and achieving an appropriate Activity Schedule breakdown whereas, under Option C, it is a month on month direct demonstration of cost to enable interim payment.

What is target cost NEC?

A ‘target cost’ is agreed between the parties which is made up of the Contractor’s estimate of the ‘Defined Costs’ plus a fee which is to cover the Contractor’s costs, overheads and profit. Throughout the works the Contractor is reimbursed for his “Defined Costs” plus fee minus any “Disallowed Costs”.

How do target cost contracts work?

A target cost contract is a type of cost reimbursable contract under which the contractor is paid the ‘actual cost’ (usually defined in the particular contract) it incurs in carrying out the works, but subject to a target cost which is agreed by the parties at the beginning of the project.

What is an option C contract?

Option C is a target cost contract with an activity schedule where the out-turn financial risks are shared between the client and the contractor in an agreed proportion. This document contains all the core and secondary option clauses, the schedules of cost components, and contract data relevant to an option C contact.

What is a disallowed cost NEC3?

Disallowed Costs are those which the contractor has incurred, but for which the employer does not have to pay. This could include costs which cannot be justified, those which should never have been paid to a subcontractor or supplier, or those incurred because the contractor did not follow certain stated procedures.

Is NEC option a fixed price?

Option A is a fixed price lump sum contract and interim payments are based upon the completion of activities which are included in an Activity Schedule. It is important that you understand how to produce an Activity Schedule and manage change to it as the work proceeds.

What is a target cost contract?

Target Price contracts are a form of cost reimbursable contract under which the contractor is paid the “Total Cost” it incurs in carrying out the works plus a fee, subject to a “Target Cost” agreed by the parties at the beginning of the project.

What is NEC option D?

Option D is a target cost contract with a bill of quantities where the out-turn financial risks are shared between the Client and the Contractor in an agreed proportion.

What is a target cost estimate?

What Is a Target Cost Contract? Target cost contracts base their pricing on a figure that’s aptly known as the target cost. This number is negotiated by both the contractor and the client before signing the contract, and represents the expected cost to the contractor of providing the agreed goods or services.

How are target fees calculated?

Target Fee: the basic fee to be paid if the Target Cost matches the Actual Cost (target profit)….For example, assume a CPIF with:

1. Target Cost = 1,000.
2. Target Fee = 100.
3. Benefit/Cost Sharing Ratio for cost overruns = 80% Client / 20% Contractor.
4. Benefit/Cost Sharing Ratio for cost underruns = 60% Client / 40% Contractor.

What is a disallowed cost nec3?

What do you need to know about Option C?

Option C is a cost plus contract which is subject to a pain/gain share mechanism by reference to an agreed target cost built up from an activity schedule. It includes core and secondary option clauses, the schedules of cost components, and contract data A target cost contract…

What does Option C in a NEC contract mean?

‘The NEC Option C is a target cost contract with activity schedule where the out-turn financial risks are shared between the client and the contractor in an agreed proportion.’ NEC. Target cost contracts can be beneficial where the scope of work is not fully defined or where the risks anticipated are greater than usual.

How are share ranges determined in target cost contracts?

The share ranges applicable to the actual (as compared to the target) cost are also set out in a schedule to the contract. Interim payments of actual cost are made during the course of the contract and compared with the target cost.

When to use Option C in construction contracting?

It is used for the appointment of a contractor for engineering and construction work, including any level of design responsibility . Option C is a cost plus contract which is subject to a pain/gain share mechanism by reference to an agreed target cost built up from an activity schedule.