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Is this legitimate cost under the contract and should it be paid?

0 votes
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The Contractor has taken the project team out for a meal. He has now included the cost of it in his application for payment.

Is this a legitimate cost under the contract and should it be paid?

Option C
asked Aug 19 in Payment by chachee555 (170 points)  

1 Answer

+1 vote
By the 'Project Team', I assume you mean the Client and Contractor teams.

So firstly, the Client's team should not be counted as Defined Cost as they are not employed by the Contractor as per the opening bullet points of People in the full Schedule of Cost Components.

However, for the Contractor's team, it could be argued that it is "subsistence" as per People 13(b) of both NEC3 & NEC4 ECC. However, "subsistence" implies support at a basic level so, for instance, a £100 per head slap-up meal is almost certainly over the top, but a reasonable sum would. I'll leave you to argue over what a reasonable allowance would be.
answered Aug 19 by Jon Broome Panel Member (59,280 points)  
Surely this could be Disallowed cost as resources not used to Provide the Works.  Would also the fact that the location of the venue is outside of the Working Areas mean that it could not be claimed under People costs?
To answer your second point first (as something has to be a Defined Cost before it can become a Disallowed Cost), providing the people satisfy the opening bullets in People of the Schedule of Cost Components, then payments for subsistence would be an allowable cost under NEC3 ECC as they are "13. Payments made in relation to people for ...". However, NEC4 ECC has a little sting in its tail because it says "13. Payments made in relation to people in accordance with their employment contract ...", so there is a difference in the answer depending on whether it is NEC3 or NEC4.

Relating to whether it is a Disallowed Cost, I do not think "resources not used to Provide the Works" applies to the food they are eating. It applies to people based on Site but not working on the contract; Equipment left on Site in the hope of getting standing charges and over ordered Plants and Materials which are then used elsewhere in the hope that the Client pays for them.
I think this is a contentious issue but Jon has answered it well.  If the cost is for the meal and not the People's time then, as Jon has said, a reasonable amount per head, provided it was specifically related to the project and not embracing a wider audience.  

Under a Main Option C you should also have access to records for Defined Cost so can confirm that the amount has been paid and also allocated as a project cost, which could make the decision for you.