Hi
We have been involved with a very difficult and complicated subcontract package on our project whereby the entire package of works has had to be re-scoped and repriced post contract.
We are on a main contract option C and have been using an option B subcontract with our subcontractor, and we have a few CE’s that have been open (non-implemented) for a few months now due to various complex issues that I wont bore you with, in the meantime we have been paying the subcontractor on an on-account basis whilst rates and quantities are eventually agreed.
The subcontractor is happy with this arrangement but the project manager has now told us that he will be disallowing costs from our next application on the basis that we have been paying our subcontractor against unimplemented CE’s, does he have the power to do this?
Your obligation as a Contractor is stated in Cl.20.1 “The Contractor provides the works in accordance with the Works Information”. Assuming you are following this obligation then the PM should be paying you for completed activities that are defect free for follow on trades. You are applying for payment against the activity schedule. There is no “payment on account” mechanism under an NEC Option B, you pay according to the BoQ for works completed (quantity x rate).
If you are applying for more Defined Cost than the activities completed to date, then this would constitute a “disallowed cost” under Cl.11(25) “cost which should not have been paid to a Subcontractor or supplier in accordance with this Contract”. The PM may be claiming that paying an amount for unimplemented Compensation Events is not in accordance with the contract ? The PM would be right if that is the situation.
If I have interpreted your question correctly and you are operating under the NEC 3 option C (Target), you do not get paid on completed activities but rather on “Defined Cost” plus fee. Refer to your definition of Defied Cost in your contract under clause 11.2 (23).
I suspect the PM is referring to 11.2 (25) bullet point 2 - shouldn’t have been paid to a subcontractor in the first place; or.
I would argue he does have the power to do this, as paying out to your subcontractor without proper assessment and implementation is not in accordance with the subcontract but also does not fulfil the requirement of Defined Cost in the main contract. You should always try and keep on account payments to a minimum. This is not always possible with very complex CEs and the subcontractor cash flow needs to be maintained. I would recommend you speak to your PM and agree additional time to allow you to assessment and implement these CEs with your subcontractor.