NEC people cost means the part of your labour bill allowed by section 1 of the Schedule of Cost Components on Options C, D and E. The key test is where the person works: the Working Areas decide most of what can be recovered, and head office time usually doesn't count.
This guide covers NEC4 with NEC3 differences. It's one part of the Schedule of Cost Components and of our guide to NEC payment and Defined Cost.
Who qualifies
| Type of person | Treatment in NEC4 | Item |
|---|---|---|
| Directly employed, normally based in the Working Areas | Cost counts | 11 to 13 |
| Directly employed, normally based elsewhere, working in the Working Areas | Cost counts in proportion to the time they spend there | 11 to 13 |
| Not directly employed, paid for according to time worked while in the Working Areas | The Contractor's payments for them count | 14 |
| Directly employed, not in the Working Areas at all | Doesn't count as people cost. Off-site design and fabrication have their own sections. | None |
Since the Working Areas are defined by the Contract Data entries, it's worth asking at tender whether an off-site office, a compound or a fabrication yard should be listed. Whether a place is listed or not can move a lot of cost in or out of Defined Cost. Being paid by day rate through an agency falls under item 14. A labour-only gang paid for a measured quantity is more likely a subcontract, which is treated differently under the Subcontractors section.
What is covered
- Item 11: wages, salaries and amounts paid to people paid according to time worked on the contract.
- Item 12: payments related to the work for bonuses and incentives, overtime, special circumstances, special allowances, absence for sickness and holidays, and severance.
- Item 13: payments under the person's employment contract, including travel, subsistence, lodging, relocation, medical examinations, visas, levies and taxes imposed by law, pensions and life assurance, health insurance, a vehicle, protective clothing and safety training.
- Item 14: amounts paid for those not directly employed.
Item 13 in NEC4 ties these to what's in the employment contract. A discretionary payment made outside it may be harder to justify, so keep the employment terms or the company policy to hand for a sample of staff.
Worked example: a shared quantity surveyor
A fictional Option E contract with illustrative figures. A QS is based at the regional office and spends about two days a week at the site offices, which are in the Working Areas.
| Monthly cost | Amount |
|---|---|
| Salary (item 11) | £4,500 |
| Employer pension and national insurance (item 13) | £1,000 |
| Car allowance (item 13) | £500 |
| Total people cost | £6,000 |
| Time in the Working Areas: 40% from sign-in records | |
| Defined Cost | £2,400 |
The remaining £3,600 falls on the Fee or to other contracts. Ask whether work done remotely for this contract counts. Under the NEC4 wording, it isn't time in the Working Areas, so the answer is usually no, even though the work is clearly for this job.
Differences in NEC3
- NEC3 item 11 refers to time worked while the person is within the Working Areas, and the opening words don't spell out proportioning for visiting staff as NEC4 does.
- NEC3 applies a percentage for Working Areas overheads to items 11 to 14 at item 44. That charge doesn't appear in the NEC4 schedule. See charges and overheads.
- NEC4's list at item 13 was reworded around employment contract payments. Compare it line by line if you're moving rate build-ups between editions.
Records that make it stand up
- Timesheets or sign-in records showing days in the Working Areas, not just allocations made at month end.
- Payroll summaries that tie back to bank payments.
- Employment terms for allowances and bonuses, with a sample of contracts available.
- Agency invoices and proof of payment for item 14.
- A written method for any on-cost percentage. If an average on-cost is used, the people auditing will want to see how it's derived. The open book guide has more on setting this up.
What people get wrong
- Charging 100% of a shared manager. Make the allocation first and support it with evidence.
- Including people working on defects after Completion. Those costs are Disallowed Cost even where the person qualifies.
- Treating the plant operator as Equipment and People. Item 28 sends an operator to people cost unless the hire rate already includes them, so check each hire agreement.
Related guides
- NEC Payment and Defined Cost: The Complete Guide
- Schedule of Cost Components: Equipment
- Schedule of Cost Components: Plant and Materials
- Schedule of Cost Components: Charges and Overheads
- The Schedule of Cost Components Explained
- The Short Schedule of Cost Components
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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.