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NEC ECC: Payment/ Assessment for works/ Price for Work Done to Date (NEC3 ECC Option A)

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I am the PM on a project using an NEC3 ECC Option A contract. The Works Information specifies particular items such as testing, witnessing, record information and labelling etc.. The Contractor is asking for payment for "completed" lump sum activities such as "ventilation" when it is clear that components of the "activity' are incomplete, not started or defective in other ways which does not prevent the Employer from using the works.

Having looked into this subject further it would appear that ECC Option A allows "completion" of an activity for payment under clause 11.2(27)? Following this through to its natural end, monthly assessment of Prices for Work Done to Date, the PM is duty bound to assess the works as complete for payment even though the works are not as per the Works Information?

There is no retention monies/ X16 clause to incentivise the Contractor to complete the defects or pay for correction by others.

Options include:
a) Say the works are incomplete (defective) and with hold payment until complete?
b) Certify "completion" and allow the defect correction period to start and force the Contractor to fix the defects or the PM will instruct others to do so at the Contractors cost?

The Option A contract appears to allow full payment for defective works and put the Employer at a disadvantage? Or am I missing something here?
asked May 19 in NEC3 and NEC4 Contracts by Slick72 (200 points)  

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From reading your comments, my first observation is to say that 'incomplete works' are not a Defect.  A Defect is a part of the works not 'in accordance' with the Works Information, applicable law or accepted design, which means that 'the works' are completed but the end product is not how it is 'supposed' to be.

In this instance you would not certify Completion as the Contractor has not done all the work which the Works Information states.  With regard to payment, the activities have not been completed, therefore you would not include them in an assessment of PWDD.

Just because the Employer can 'use the works' doesn't mean they are 'complete' for the purposes of Completion or payment.
answered May 21 by Andrew W-I Panel Member (24,810 points)  
selected May 21 by Neil Earnshaw
Thanks Andrew, I totally agree with your logic and would like to adopt your position. Unfortunately under the NEC3 ECC Option A Identified & defined terms 11.2 (27) The Price for Work Done to Date is the total of the Prices for.
. each group of completed activities and
. each completed activity which is not in a group.
A completed activity is one which is without Defects which would either delay
or be covered by immediately following work.

NEC3 ECC guidance notes 11.2(5) notes 'The word ‘Defect’ has a restricted definition. It is intended to include unfinished or omitted parts of the works'.

Having read Steven C, Evens NEC3 Handbook on the subject, page 116, he suggests that the 11.2(27) definition should include unfinished works in the Prices for Works Done to Date?
I understand what you say, although with regard to the Guidance Notes they do state that they should not be used for legal interpretation of the meaning.  The Guidance Notes certainly describe the intentions of the clause drafters, but the contract conditions, by necessity, are a 'one size fits all' and when it comes to legal interpretation it depends upon the 'particular facts and circumstances', with projects varying through the entire spectrum of those 'facts and circumstances'.

With regard to .unfinished or omitted parts of the works' Steven Evans states in his book that it probably includes work which is not complete.  Does this mean that as soon as work achieves an acceptable state of being 'not complete' that you would make payment by automatically treating the 'not complete' part as a Defect, (which would not delay or be covered up by immediately following work)?  I would suggest that it includes work which is later discovered to be 'not complete' (measured against the Works Information or accepted design), following certification of Completion, so that a Defect can still be notified.

Strictly speaking you could not include an activity with unfinished work in the PWDD, unless that 'unfinished work' was an 'allowable' Defect, which is possibly what he is alluring to.

Remember that the activity schedule is the Contractor's document, as stated in Contract Data Part 2, so can be sub-divided in any reasonable way.  If it is causing problems, for instance due to delays to a specified testing regime, then they can propose changes under clause 54.2 to revise this, perhaps to include discrete activities for testing so that the other amounts are paid as PWDD, without treating the testing part as a Defect, which I don't believe is the intended definition of a Defect.
Thanks Andrew,

I agree with your point about payment for an acceptable level of 'not complete'.... the allowable defect.... Unfortunately the 'not complete' threshold is pretty low (delay or cover up) and I have no X16 retention to manage defects post completion.

We could breakdown the activity schedule to suit the activities not complete, but as you say the activity schedule is the Contractors and he has not incentive to do so to manage 'defective works' for payment...

I'm sensing that the term defect in the payment context is in the favour of the Contractor until completion. Post completion really needs an X16 to manage the defection correction period.... which I do not have. Oh well... :) Thanks for your feedback.