A question from a client at the recent NEC Users' Group annual Seminar related to the thoughts of changing the variable Fee approach with target cost contracts. These are his further thoughts, a Newsletter article is likely but some opinion in the meantime would be very helpful.....
ECC target cost contracts
(main Options C and D) provide a mechanism for charging Fee based on the tendered fee percentage x
the cost (Defined Cost). This is a variable Fee approach.
A number of alternative
approaches are being adopted by clients to either fix the Fee amount regardless
of costs incurred (a lump sum Fee), or to “invert” the fee calculation to base
the Fee on the target (Prices) rather than the Defined Cost. In doing so, this
is thought to provide benefits of a “double incentive” to the Contractor to
optimise or dilute Fee when costs are below or above target, to give the client
better cost certainty of the amounts paid in respect of Fee sums, and not to
“reward” the Contractor by way of additional fee recovery when costs exceed the
target.
Comments, thoughts and
soundings on these alternative approaches are welcomed. Are these alternative
approaches commonplace throughout the industry, are they seen as fair and
equitable, are there any unintended consequences?
Rob
