NEC4 DBO: How payment works during the Service Period 💸🛠️

If you’ve used NEC before, the DBO flavour flips a familiar switch: after the “build” bit, you’re paid for operating the asset. The money still flows by assessment dates and certificates—but the ingredients and tweaks are a little different. Let’s unpack it step by step, in plain English, with just enough detail to run a real contract.

1) The monthly rhythm: application ➜ assessment ➜ certificate ➜ invoice ➜ payment ⏱️

• Contractor’s application for payment: submit it before each assessment date in the form stated in the Scope and show how you worked it out. The Service Manager (SM) considers only applications in on time.
• Assessment dates: the first is set by the SM (no later than one assessment interval after the starting date). Then each interval until four weeks after the Service Period ends (or until a termination certificate).
• Amount due if an application arrives on time = Price for Service Provided to Date + other amounts due − amounts to be paid by/retained from the Contractor. If no application was made, the amount due is the lesser of the SM’s assessment and the previous amount due.
• Certification & payment: SM certifies within 1 week of each assessment date; the paid-party invoices within 1 week of the certificate; money changes hands by the later of 1 week after invoice receipt and 3 weeks after the assessment date (unless Contract Data says otherwise). If the change since last time is negative, the Contractor pays the Client. Late payment attracts interest.

⚠️ No accepted plan yet? The SM retains ¼ of the Price for Service Provided to Date until the first plan is submitted for acceptance.

2) The core metric: Price for Service Provided to Date (PFSPTD) 🧮

PFSPTD is the heart of each assessment and is built differently for Part A and Part B of the Price List:

• Part A (lump sums/quantities): add the Prices for completed items (and for any item with a quantity, multiply completed quantity × rate). “Completed” means no notified Defects that would delay the Client/Contractor/Others.
• Part B (reimbursable operations): add the Defined Cost the SM forecasts will have been paid before the next assessment date, plus the Fee. (Yes—forecast forward to the next assessment.)

🔎 Defined Cost controls (Part B): keep proof of payments, accounts, and CE communications; SM may inspect.

3) The performance lever: Performance Table 🎯

During the Service Period, performance against the Operational Requirements can adjust payment:

• Miss a target? Contractor pays the amount stated in the Performance Table (abatement).
• Exceed a target? Contractor is paid the stated amount (bonus).

There’s also a Part-B cost sharing check at the dates stated in the Performance Table:

• If PFSPTD (Part B) is less than total of the Prices (Part B) → Contractor is paid the table amount.
• If it’s greater → Contractor pays the table amount.

4) Indexation: Price Adjustment Factor (PAF) 📈

Every amount due includes price adjustment:

• For Part A: add change in Price for Service Done to Date × PAF since the last assessment.
• For Part B: add to the Prices an amount = change in Price for Service Done to Date (Part B) × PAF/(1+PAF) since last time.

ℹ️ The contract defines PAF using indices B (latest before base date) and L (latest before the assessment), mirroring the familiar NEC mechanism.

5) Currency and forecasting details 💱🔭

• Multi-currency Part B: payments made in other currencies are included and then converted to the contract currency to calculate the Fee and any share (use the stated exchange rates).
• Finalising slices of Defined Cost (Part B): once the Contractor says a portion is final, the SM has 13 weeks to accept / request records / notify errors; then Contractor has 4 weeks to supply; then SM has 4 weeks to accept or notify the correct assessment—otherwise the Contractor’s assessment stands.

6) Corrections, interest & tax 🧾

• SM may correct any wrongly assessed amount in a later certificate.
• If an amount is corrected later (mistake, CE, delayed test/inspection, adjudicator/tribunal decision), interest on the correcting amount is paid from the date of the wrong certificate to the date of the corrected one; calculated daily and compounded annually.
• Any tax legally required to be paid to the other Party is added to payments.

7) The final assessment after the Service Period 🧮🏁

The SM assesses the final amount due and certifies a final payment no later than 13 weeks after the end of the Service Period (or after a termination certificate)—unless Contract Data states a different period. Invoices follow within one week, and payment is made by the later of one week after invoice and three weeks after the assessment date (or the periods in Contract Data). If the SM doesn’t do it in time, the Contractor may issue its own assessment; the contract then sets out challenge windows (W1/W2).

🇬🇧 If Y(UK)2 is used, UK statutory timings/“notified sum” rules overlay the above (payment becomes due on invoice or 14 days after assessment, whichever is later; final date typically 7 days after due date; “pay less” notices etc.).

8) Worked example (GBP) — one monthly assessment during the Service Period

Assumptions (for illustration):

• Price List split: Part A (lump sums/quantities) + Part B (Defined Cost + Fee).
• Fee on Part B = 12%.
• Price Adjustment Factor (PAF) this month = 0.60% (i.e., 0.006).
• Performance Table has both bonus and abatement lines; and it includes a Part-B sharing rule of 50% of the variance to the Contractor when the forecast beats the Prices for that period.
• Ignore tax for simplicity. Where relevant to UK, statutory payment mechanics under Y(UK)2 apply in your contract (due/final dates, pay-less notices, etc.).

i) Build the PFSPTD (Price for Service Provided to Date)

Part A (completed outputs)

• A1 Mobilisation milestone (completed): £120,000
• A2 Preventive maintenance – Q1 (completed): £80,000
• A3 Metering units (measured): 350 of 500 @ £400 = £140,000
  Part A subtotal = £120,000 + £80,000 + £140,000 = £340,000

Part B (Defined Cost forecast to next assessment + Fee)

• Labour: £95,000
• Spares/consumables: £22,000
• Plant hire: £18,000
• Subcontracted call-outs: £15,000
  Defined Cost subtotal = £95,000 + £22,000 + £18,000 + £15,000 = £150,000
  Fee (12%) = 0.12 × £150,000 = £18,000
  Part B subtotal = £150,000 + £18,000 = £168,000

PFSPTD = Part A + Part B = £340,000 + £168,000 = £508,000

ii) Apply performance adjustments (bonuses/abatements)

• Uptime target 99.90% → achieved 99.95% → bonus £7,500 ✅
• Cleanliness KPI missed by a small margin → abatement £2,000 ❌

Net performance adjustment = £7,500 − £2,000 = +£5,500

iii) Part-B cost sharing (as per Performance Table dates)

• “Total of the Prices” for Part B for this same period: £175,000
• PFSPTD (Part B) this period: £168,000 → £7,000 under the Prices
• Sharing rule (Contractor share 50% of variance): 50% × £7,000 = +£3,500 to Contractor

Part-B sharing adjustment = +£3,500

iv) Price adjustment (indexation) via PAF

• Part A: £340,000 × 0.006 = £2,040.00
• Part B: add to the Prices an amount = PFSPTD(Part B) × PAF/(1+PAF)
  • PAF/(1+PAF) = 0.006 / 1.006 ≈ 0.005964
  • £168,000 × 0.005964 = £1,001.95

Total price adjustment this assessment = £2,040.00 + £1,001.95 = £3,041.95

v) Pull it together → Amount due this assessment (before any withholdings)

Start from PFSPTD and add the moving pieces:

• PFSPTD: £508,000.00
  • Net performance: £5,500.00 → £513,500.00
  • Part-B sharing: £3,500.00 → £517,000.00
  • Price adjustment (PAF): £3,041.95 → £520,041.95

Amount due (pre-withholdings) = £520,041.95

vi) Two quick scenarios you’ll actually see on jobs

• If the first plan isn’t accepted yet (that early period snag) → the Service Manager is allowed to retain 25% of the PFSPTD.
  • 25% × £508,000 = £127,000.00
  • Amount certified = £520,041.95 − £127,000.00 = £393,041.95
• If the plan has been accepted → no 25% hold.
  • Amount certified = £520,041.95

(If the delta since last time was negative, you could see a “payment from Contractor to Client” month. Also note the usual UK due date / final date dance under Y(UK)2 when you invoice and when the money must clear.) 💬

vii) What to attach with the application (so it sails through) 📎

• One-page explainer: how you built £508,000 (Part A tick-list + Part B forecast table).
• Performance snapshot: the KPI proof (uptime log, inspection sheets).
• PAF working: the index references and the short calc above.
• Any withholdings noted (e.g., the 25% for plan not yet accepted), so finance isn’t blindsided.

9) What usually trips teams up on live jobs—and how we handle it 🧰

• Missing the paperwork window ⏳
  Payment apps that land late get shaved down or ignored. We put a recurring calendar block for the app pack, a 48-hour pre-flight review, and a “buddy check” so nothing slips.
• That awkward 25% hold 🙈
  No accepted plan yet? The contract lets the SM hold a quarter of the figure. Our move: submit the first plan early—even a lean, v1.0 is better than radio silence—then iterate.
• Part-B costs in a shoebox 🧾
  Forecasts are only as good as your records. We keep a single ledger for Defined Cost, tag it by activity, and attach proofs right there. Weekly ten-minute cleanups beat month-end scrambles.
• KPI dates sneak past 📅
  Performance bonuses/abatements and Part-B sharing are assessed on specific dates. We pin them on the team wall and in the calendar with short, plain-English labels like “Uptime check—bonus?”
• Indexation afterthought 📈
  The PAF isn’t a footnote; it moves cash. We wire the indices into our spreadsheet so the math rolls forward automatically each assessment.
• Finalising slices drifts 🧩
  That 13 → 4 → 4 mini-timeline (SM review → supply records → accept/correct) gets messy if no one owns it. We assign a single person to chase each slice to “closed.”
• Negative months feel personal 🔄
  Sometimes the delta since last time is negative—yes, you pay the Client. We warn finance early and include a one-liner in the cover note so no one is blindsided.
• Multi-currency gremlins 💱
  If you’re buying in other currencies, lock the contract exchange rates in your sheet and show the conversions next to each item. It saves a dozen emails.
• Corrections + interest confusion 💡
  Keep a tiny “corrections log” (what changed, why, from when → when). It makes the interest calc painless and prevents déjà vu next month.
• Evidence pack = peace of mind 📚
  We attach a one-page “how we built the number” to every application: PFSPTD Part-A tick-list, Part-B forecast table, performance snapshot, PAF note, and any withholdings. Clear, boring, effective.

10) Quick checklist ✅

• Application submitted before the assessment date and in the Scope format.
• PFSPTD: Part A = completed items (+ measured quantities); Part B = forecast Defined Cost to next assessment + Fee.
• Performance Table: apply bonuses/abatements and the Part-B share at stated dates.
• PAF applied (Part A direct, Part B via PAF/(1+PAF)).
• Certificate → invoice → payment within time limits; track interest on late or corrected amounts.
• Part B evidence filed; know the 13–4–4 workflow for finalising slices.