Pricing JCT D&B after NEC Option C/E?
What your estimating and commercial teams should check before committing to a fixed-price lump sum
SAME WORKS. DIFFERENT COMMERCIAL RISK.
If your business regularly works under NEC Option C (Target Cost) or Option E (Cost Reimbursable) contracts, your estimating and commercial teams will be familiar with managing Defined Cost, compensation events and changes as the project develops.
Being asked to price the same type of work under a fixed-price lump-sum JCT Design & Build arrangement requires a different commercial approach.
The question isn't simply:
“Have we priced the works?”
It is also:
“Have we understood what we are agreeing to include within the lump sum?”
Under a fixed-price arrangement, additional cost incurred during delivery does not automatically mean additional payment.
That makes the quality of the tender information, allocation of risk and basis of your price particularly important before you submit your tender.
NEC OPTION C/E → JCT FIXED PRICE
The commercial mindset needs to change.
Under NEC Option C/E you may be accustomed to:
Defined Cost and cost records forming a significant part of the commercial mechanism.
A structured compensation-event process for dealing with qualifying changes.
Early warnings and proactive management of developing risks.
Forecasting and assessing the financial consequences of change as the project progresses.
Under a fixed-price JCT D&B arrangement, greater emphasis needs to be placed on:
What exactly is included within your lump sum.
Whether the scope and tender information are sufficiently complete to price that lump sum.
Which design, quantity, programme and interface risks you are accepting.
What constitutes a Change under the proposed contract.
Whether bespoke amendments alter the standard contractual position.
What assumptions, exclusions and qualifications need to accompany your price.
10 THINGS TO CHECK BEFORE SUBMITTING YOUR PRICE
1. SCOPE
Is there a clear and complete Scope of Works?
Can you identify exactly what is included — and equally importantly, what isn't?
2. DESIGN
What design responsibility are you accepting?
Is the design complete, or are you expected to allow for future design development within your lump sum?
3. DRAWINGS & SPECIFICATIONS
Are the drawings, specifications, schedules and other tender documents coordinated?
Where information conflicts, which document takes precedence?
4. QUANTITIES
Where quantities have been provided, what contractual status do they have?
If the actual quantities differ during construction, who carries that risk?
5. PROGRAMME
Have you been provided with a sufficiently developed programme?
Have you allowed for phasing, sequencing, access restrictions, working hours, mobilisation and interfaces with other trades?
6. INTERFACES
Is responsibility between your works and those of other subcontractors clearly defined?
Scope gaps frequently occur between packages rather than within them.
7. CONTRACT AMENDMENTS
Are you pricing the standard JCT position — or a heavily amended version?
Bespoke amendments can materially change the allocation of commercial risk.
8. CHANGE
Do your estimating and delivery teams understand what will constitute a contractual Change and how entitlement needs to be established?
Additional cost does not automatically equal additional entitlement.
9. NOTICES & COMMERCIAL PROCEDURES
What notices, records and contractual procedures will your project team need to follow?
A commercially valid entitlement can become considerably harder to recover if it is not managed correctly during delivery.
10. YOUR BASIS OF PRICE
Could somebody who wasn't involved in preparing your tender clearly understand:
what you priced, what you assumed, what you excluded and what information you relied upon?
If not, your tender may need a clearer Basis of Price.
RED FLAGS TO LOOK FOR
Before committing to a fixed-price lump sum, pay particular attention where you see:
Incomplete or developing design
“Contractor to complete design” obligations should be understood and priced.
No clear Scope of Works
A collection of drawings does not necessarily provide a complete definition of package responsibility.
Information “for reference” or “indicative only”
Understand what information you are actually entitled to rely upon.
Undefined quantities
Particularly where quantities could materially change.
Unclear interfaces
Especially builders' work, temporary works, access, logistics, testing and commissioning.
Programme still under development
Your price may nevertheless be expected to accommodate the eventual construction sequence.
Broad compliance wording
Phrases such as “all works necessary for completion” need to be considered carefully against the information available at tender.
Extensive bespoke amendments
The contract title may say JCT D&B, but the amendments determine the actual commercial position you are being asked to accept.
IF YOU CAN'T PRICE THE RISK, IDENTIFY IT.
Uncertainty does not necessarily prevent you from submitting a lump-sum tender.
Where information is insufficient, the commercial response may be to:
CLARIFY IT
Ask for the missing information before tender submission.
QUALIFY IT
Clearly state the basis upon which your price has been prepared.
PRICE IT
Where the risk can reasonably be quantified, include an appropriate allowance.
EXCLUDE IT
Where appropriate, clearly identify matters that cannot reasonably form part of the lump sum based on the information provided.
The important point is that the uncertainty is dealt with before the lump sum becomes the contractual price.
HOW FIRE HORSE26 CAN HELP
Fire Horse26 provides independent commercial and contractual support to contractors and specialist subcontractors.
PRE-TENDER
We can provide an independent review of your:
Contract → Scope → Tender Information → Risk → Price → Qualifications
Our support can include:
JCT contract and amendments review;
tender commercial risk review;
scope and information-gap review;
design responsibility review;
programme and interface risk review;
Basis of Price review;
assumptions, exclusions and qualifications;
tender submission review; and
independent commercial peer review before submission.
AFTER AWARD
Fire Horse26 can continue supporting your team with:
commercial project set-up;
change management;
contractual notices and correspondence;
payment and valuation;
forecasting;
risk and opportunity management;
programme-related commercial matters;
commercial governance;
project health checks; and
ongoing commercial support and mentoring.
Support can be provided for an individual tender, throughout a project, or on an ongoing basis through Fire Horse26's commercial support services.
BEFORE YOU TURN YOUR ESTIMATE INTO A LUMP SUM...
Know what that lump sum is buying.
PRICE THE WORKS.
UNDERSTAND THE RISK.
QUALIFY THE UNCERTAINTY.
MANAGE THE CONTRACT.
Independent Commercial Assurance for Major Infrastructure Projects
01403 913 360
Commercial Confidence. Independent Assurance. Better Outcomes.
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