No, not as a separate item: head office overheads under NEC are treated as covered by the Fee, because clause 52.1 says any cost outside Defined Cost is already in it. You recover them only through the fee percentage, applied to whatever Defined Cost the work or compensation event generates.
This is true on every main Option, and it applies to prolongation as well. The one thing that can change it is a Z clause. For the NEC4 Engineering and Construction Contract (ECC), the fee percentage is at 11.2(10). NEC3 has two percentages at 11.2(8). The parent page is NEC questions answered.
What counts as what
| Cost | Where it falls (NEC4 ECC) |
|---|---|
| Regional and head office rent, IT, finance and directors | Fee |
| Bid costs, and estimating for quotations by non-Working Areas staff | Fee, unless they fit a component |
| Commercial manager or planner who is based in the Working Areas | Defined Cost, if within the people section |
| Those people working from your head office, not on this contract's site | Generally Fee. The Working Areas definition, and any wider area stated in the Contract Data, decide this |
| Design or fabrication outside the Working Areas | Defined Cost, at the Contract Data rates |
| Site security, welfare and similar running costs | NEC4: often Fee, if no component fits. NEC3: covered by the overheads percentage. See charges and overheads |
The boundary to watch is the Working Areas. A person's time counts as Defined Cost only where the schedule places them, so check the people section before assuming either way.
What to do when you price the event or the delay
- List the costs affected by the event, including people and Equipment kept on longer. Time-related site costs are real Defined Cost if they fit a component.
- Don't add a separate head office line. A Project Manager will take it out under 52.1.
- Apply the fee percentage to the whole of Defined Cost. That is your overhead and profit recovery on this event.
- Check Z clauses and the Contract Data. Some contracts state additional items, and the Working Areas may be wider than the Site.
- Quote on time. Three weeks from the instruction (62.3). Keep the eight-week notification limit in clause 61.3 in mind for any event you are notifying yourself.
A worked example: six weeks' delay
A fictional Option A contract with illustrative figures and a fee percentage of 10%. A compensation event delays Completion by six weeks.
| Item | Amount |
|---|---|
| Site team kept on, six weeks (Working Areas) | £96,000 |
| Cabins, hire and similar Equipment | £24,000 |
| Defined Cost | £120,000 |
| Fee at 10% | £12,000 |
| Change to the Prices | £132,000 |
| Head office overheads calculated by a formula from your turnover, say £70,000 | Not added |
The £12,000 is all the head office recovery there is, even if you can show the true cost of your overhead was higher. A tendered percentage is a tendered percentage. Under a different form you might have used a head office overhead formula. These don't have a place in an assessment under NEC, because the assessment works from Defined Cost and the resulting Fee (63.1). The prolongation claim page looks at the time-related side, and the loss of profit page covers what the Fee doesn't give back.
What you might try, and what you will hear
| You say | Project Manager says | Where that leaves you |
|---|---|---|
| "The Client's delay stopped us winning other work" | "Compensation events are your only rights for this" (NEC4 63.6) | Hard to get round on the standard wording. Take advice if the sum is significant |
| "The Fee is too low for this event" | "It's the tendered percentage" | Right, unless both agree rates or lump sums (63.2 in NEC4; 63.14 in NEC3) |
| "It's a breach, not an event" | "Breach by the Client is itself a compensation event" (60.1(18)) | On the standard form, it gets assessed in the same way |
The real time to deal with this: when you tender
The contract says what the Fee covers. The tendering decision is yours. A fee percentage that doesn't include your real overheads and everything else with no component will under-recover on every event, for the entire job. So a low fee to win a contract can cost more on a project full of change. In live projects, make sure estimators and commercial staff know the actual percentage, so nobody quotes a separate overhead line that will only be struck out.
Related guides
- NEC Questions Answered: Real Situations on Site
- Can We Add Margin on Subcontractor Costs?
- When Should Retention Be Released?
- A Defect Appeared After Completion: Who Fixes It?
- Compensation Events Have Not Been Added to the Target
- The Client Wants to Audit Our Books: Do We Have to Agree?
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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.