Defined Costs

Question 1

Explain what defined costs are

Answer 1

Defined Costs are the actual costs incurred by the Contractor on the Works minus retention and any costs which would fall within the overheads covered in the Fee. From those are deducted “Disallowed Costs”.

Defined costs are ACTUAL COSTS

It the amount of payments due to Subcontractors for work which is subcontracted without taking account of amounts deducted for;

1. retention
2. payment to the Employer as a result of the Subcontractor failing to meet a Key Date
3. the correction of Defects after Completion
4. payments to Others and
5. the supply of equipment, supplies and services
   included in the charge for overhead
   cost within the Working Areas in this Contract
6. the cost of components in the Schedule of Cost Components for other work
7. Disallowed Cost

Question 2

What are the Schedules of Cost Components in Option C?

Answer 2

1. The schedules are set of rules used to define those components of the contractor’s cost which are included in Defined Cost
2. Linked to Contract Data Part 2

It is used to used to assess Compensation Events and determine the Price for Work Done to Date

Question 3

What are disallowed costs?

Answer 3

Disallowed Cost is cost the Contractor may have incurred and fall within the definition of Defined Cost, BUT the costs have only been incurred due to some failure or default of the Contractor

Question 4

What are the issues of the Schedule of Cost Components?

Answer 4

■ Value for money tests:
■ Value is achieved by driving efficiency in the Contractor and their supply
chain
■ How do you ensure value for money achieved?
■ Works undertaken by internal or affiliated companies
■ Subcontractors – Direct Cost

Question 5

Give an example of Disallowed Costs?

Answer 5

Costs incurred because the Contractor did not follow an acceptance or procurement procedure stated in the Works Information
■ Assessing the extra over cost due to the failure – what costs could have been saved

Correcting Defects prior to Completion
■ Defect – not in accordance with the Work Information or applicable law
■ Not all Defects covered only Defects caused by the a failure to comply with a constraint on how to provide the works stated in the Works Information