Webinar: Assuring People Costs Under NEC4 Contracts

About this video

• Video Title: Webinar: Assuring People Costs Under NEC4 Contracts
• Channel: NEC Contracts
• Speakers: Ian Heffy, Darren Ward
• Duration: 01:16:42

Overview

This webinar focuses on the crucial aspect of assuring "people costs" within NEC4 contracts, particularly those with cost-reimbursable payment options (C, D, and E). Ian Heffy and Darren Ward discuss the contract requirements, the definition of defined cost, and the schedule of cost components. Darren Ward then delves into the practicalities of auditing and inspecting these costs, offering insights into contract amendments, understanding the project environment, data analysis, and testing methodologies to ensure accurate cost claims.

Key takeaways

• NEC4 Contract Context: The webinar highlights that assuring people costs is most relevant for NEC4 contracts with cost-reimbursable payment options, specifically ECC Options C, D, and E. Option F (term contract) is less relevant as it primarily relies on subcontractors with pre-priced rates.
• Defined Cost and Schedule of Cost Components: Defined cost is the basis for payment in cost-reimbursable contracts and is used to assess compensation events and the price for work done to date. The schedule of cost components provides the detailed breakdown for verifying these costs.
• People Cost Definition: In NEC4, "people" includes anyone employed by the contractor. Recoverable costs are for those whose normal place of working is within the defined "working areas," or specifically identified remote workers if stated in contract data.
• Auditing and Inspection Principles: Effective cost assurance requires a proactive approach, starting early in the contract lifecycle. This involves understanding the contractor's costing systems, conducting thorough contract reviews, and identifying risks.
• Rates vs. Schedule of Cost Components: While rates offer simplicity, they can be prone to errors in preparation and can lead to over/under-recovery. The schedule of cost components, though more complex, provides greater accuracy and risk transfer to the contractor.
• Data Analysis and Visualization: Analyzing cost data, including trends and patterns, is crucial for identifying potential anomalies and focusing inspection efforts. This can involve using payroll reports, swipe data, and other relevant datasets.
• Testing and Sampling: Auditing should be risk-based, with tests designed for specific populations (staff, labor, agency) and supported by clear workpapers documenting the methodology, samples, and conclusions.
• Root Cause Analysis: When discrepancies are found, it's essential to understand the root cause rather than simply disallowing costs. This facilitates a more constructive approach to resolving issues.