Fee

The NEC Fee definition is arithmetic: the fee percentage in the Contract Data multiplied by Defined Cost. The Contractor tenders the percentage, and it's meant to cover everything the contract doesn't pay for as cost. In practice, that means head office overheads, profit and any cost outside the Schedule of Cost Components.

That last point is what makes the term matter. Because the percentage has to absorb what the schedule leaves out, a low figure can look attractive at tender and hurt throughout the job. It's at clause 11.2(10) in NEC4 ECC and 11.2(8) in NEC3 ECC. The fuller treatment is in the Fee guide; this page explains the term. It's part of the NEC definitions glossary.

NEC3 and NEC4 compared

	NEC3 ECC	NEC4 ECC
Percentages tendered	Two: a direct fee and a subcontracted fee	One fee percentage
How it's calculated	Each percentage on the Defined Cost of the matching work, then added together	The single percentage on all Defined Cost
Where the rates sit	Contract Data part two	Contract Data part two

A Contractor who moves between editions should reprice, since the old pair of rates has no direct equivalent. If most of the work is subcontracted, a single rate needs thought.

Where the Fee appears

• Options C, D and E: the Price for Work Done to Date equals forecast Defined Cost plus the Fee, so it's in every assessment.
• Options A and B: routine payment doesn't use it, as work is paid at the Prices. It appears when compensation events are assessed, since the change to the Prices includes the resulting Fee (63.1).
• Option F (NEC3): applied to the Option's own Defined Cost.

Disallowed Cost doesn't carry it on the cost-based Options, because it's left out of the base figure. That makes the Fee on any cost someone tries to recover a second reason to care whether that cost is allowed.

A worked example

A fictional job with illustrative figures. The same compensation event has a Defined Cost effect of £100,000, of which £60,000 is subcontracted.

	NEC3: direct 12%, subcontracted 4%	NEC4: single 8%
On own work (£40,000)	£4,800	£3,200
On subcontracted work (£60,000)	£2,400	£4,800
Total Fee	£7,200	£8,000
Change to the Prices	£107,200	£108,000

The percentages are made up for the arithmetic, and don't represent typical rates.

Why it causes problems

• Thinking of it as profit. It isn't called profit, and most of it may go on overheads. Comparing it with a target margin alone can lead to underpricing.
• Double counting. Items the schedule treats as outside Defined Cost shouldn't be added as lines in a quotation, because the Fee already pays for them. The usual example is head office time that isn't working in the Working Areas. This doesn't apply to items the schedule does include.
• Adding preliminaries or overhead uplift. A quotation that adds "overheads" on top of Defined Cost and the Fee will rightly be queried. The Fee is the only general uplift.
• Trying to renegotiate it event by event. Once tendered, the percentage stays the same. Claiming that a particular event deserves a higher rate has no basis without a signed change.
• Forgetting the base. It applies only to what counts as Defined Cost, so the argument is often about the base, not the percentage. See what Defined Cost includes.

For tenderers and assessors

If you're tendering, work out what your own costs look like outside the schedule, then work out how they're recovered at your likely turnover. If you're assessing tenders, compare the fee alongside rates in part two and the Prices, not as a figure in isolation.

The term "Fee" is written the same in other forms, but the rate and method can differ, so check the form you're on.

Related guides

• NEC Definitions: A Glossary of Key Terms
• Key Date
• Others
• Parties
• Early Warning Register
• Equipment

This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.