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NEC ECC: Disallowed Cost - Based on forecast Defined Cost of an AfP submission

+1 vote
We (the Contractor) have submitted our periodic application for payment submission and ultimately received the assessment back from the Project Manager within the period for reply. Notably, this is the first time I've seen a project manager incur Disallowed Cost against the Contractor's forecast Defined Cost.

Can the Project Manager assess an application and ultimately incur Disallowed Cost based on his forecasted estimate on resources not used to Provide the Works??
asked May 12 in NEC3 Compensation Events by Samtravis91 (130 points)  

1 Answer

+1 vote
I have assumed that you are on either an Option C or D contract.

It is one of the PM's actions to assess the amount due (assess an application) under clause 50.1. so the answer to the first part of your question is yes.

In respect of disallowed costs, these are defined under clause 11.2(25). Resources not used to Provide the Works (after allowing for reasonable availability and utilisation) is a situation for disallowed cost.

The PM does not incur disallowed cost so I have understood your second question to be that the PM is including a forecast of disallowed cost to be incurred by the Contractor.

The PM considers any disallowed cost when making his/her assessment however the disallowed costs can only relate to the Defined Cost that he/she is including within the assessment (prior to their deduction).

Therefore, no the PM is not entitled to include a forecast of disallowed cost unless he/she has also used the same amount within his/her assessment of Defined Cost.

Does the above help?
answered May 14 by dave bates (4,790 points)  
In relation to a forecast, the 'resources not used' Disallowed Cost provisions may not strictly apply, as you are not in a position to say whether they will be used or not, unless it is patently obvious.  What the PM can do, however, is assess whether the application amounts are calculated in an intelligent manner and in accordance with the contract principles (ie: must actually be paid by the next payment assessment date, not just accrued).

If by 'resources' you are referring to People, then the 'disallowed' element may be related to the forecast hours worked by certain individuals.  If their cost is built up using 'all inclusive' rates, then a suggestion is to include all working hours in the forecast and multiply by a suitable factor (say 80% or as determined by historic information) to account for time not worked.  If this information is retained in electronic format, over time this will provide an increasingly accurate assessment of forecast cost.

If you are not actually doing this and just entering all the available working hours for everyone then the PM is correct in making an adjustment as the forecast would not be a realistic assessment.