Acceptance via PMI

NEC3 and NEC4 Contracts
1

Good Morning,

We are a subcontractor under a bespoked NEC3 ECS agreement. We’ve quoted an item that was EW’ed and submitted as a CE. We showed our buildup and have discussed our quote on calls to which an agreement was reached that a formal acceptance was needed.

The item in question has been accepted via a PMI with 0 cost subject to showing them the supplier quotation. Is the contractor allowed to make a PMI conditional? I can’t find anything expressly stating we need to forward on our quotes from our supplier and it seems counter intuitive given we are providing a full package and the supplier is thus an element to our supply. We have already quoted our works and it has been agreed?

Keen to hear experts opinion and any remedies, clauses we can use?

2

Good question Leroy - @Barry_Trebes @Neil_Earnshaw can you give us the benefit of your experience?

3

Which clause was the CE submitted & Accepted under?
Was the accepted quotation for the CE a forecast, or was it based on costs actually incurred, or a mixture of both?
Did the quotation include cost and time elements?

4

It doesn’t sound like the subcontract is being operated correctly by either party. The compensation event procedure operates in discreet stages - notification, quotation, assessment and implementation. It sounds like you may have notified the CE but did the Contractor accept it and instruct you to submit a quotation? Also have you submitted a quotation and have they either accepted it or assessed it in order for it to be implemented. The Contractor definitely has no right to “instruct” conditional acceptance of a CE. The PMI deals with the work and is operational i.e. if the CE is for additional work then before doing the work you should always insist on a PMI under clause 14.3 which then triggers a CE notification and then you work through the rest of the procedure to get the cost and time implications decided.

In terms of justifying your quotation it is reasonable for the Contractor to ask for you to justify the amounts included. Generally the burden of proof here falls on the Subcontractor to justify Defined Cost, specifically clause 13.4 allows the Contractor to reject on the basis of needing more information. If you read the Schedules of Cost Components unless they refer to using rates from the Subcontract Data you are only entitled to recover costs that relate to payments e.g. payments for purchasing Plant and Materials would cover your supplier costs, so if you can’t prove that you’ve had to pay for it then you can’t charge the Contractor for it. Clause 10.2 is also important as it requires you to act in a spirit of mutual trust and co-operation which implies a lot of things into the subcontract, which for me includes honesty, openness and transparency.

5

Neil, you got that right…not being operated correctly at all. We notified an EW initially. We then submitted a CEN with costs to follow. Costs were sourced to which we updated with a quote. The step with them accepting it as a CE never happened. We just did it off our own back as we can’t wait for the contractor to do it. Some time passed and we had a call, discussed and were advised that they wanted us to supply the elements on the quote. They then issued a PMI which to our shock was conditional and had 0 cost against it.

Regarding cost components, we used subs + 20%. Might be worth clarifying that the element in question is purely subcontractor, i.e an onpassed item with our fee.

@neil1 Submitted under 60.1.1 as it was an instruction. Was only accepted via the PMI @ 0 cost…no formal “CE acceptance” document which we find is fairly common. Sometimes we don’t get anything until we apply for it and then get a 1 liner in a payment application with the result that was never communicated. The quote was a forecast. The quote is purely subcontractors materials and labour plus their fee.

FYI, we’ve also emailed to clarify the terms of this conditional acceptance and it will be discussed again in a meeting, but we’ve taken a commercial decision to proceed and accepted that the valuation might change.

6

Leroy,

Here are a few points to consider.

I presume the EWN was not time barred.

Did the Contractor reply to your EWN? Or did the Contractor fail to reply and thus create a CE under 60.1(6).

Was there a Risk Reduction Meeting derived from the EWN?

Was the Risk Register amended after the RRM?

You issued a Compensation Event Notification relating to 60.1(1), relating to a Contractor’s Instruction (not a PMI, as you don’t have a contractual relationship with the Project Manager).

Did the Contractor reply to your CEN? Or did the Contractor fail to reply and thus create a CE under 60.1(6).

Was the Contractor’s Instruction issued in accordance with the Subcontract?

Were you invited, by the Contractor, to submit a Quotation for the CE, or did you submit an unsolicited quotation, due to the Contractor not acting “as stated in this subcontract” – in breach of clause 10.1?

Did the Contractor detail under what contractual authority they requested “the elements of the quote”?

You refer to a PMI, but I presume that you mean a Contractor’s Instruction regarding the Quotation. Is this a different instruction from the one mentioned above, which generated the EWM?

I don’t know the details, but it seems that the Contractor’s qualified acceptance of your quotation isn’t an acceptance at all. Moreover it seems to be a flagrant breach of clause 10.1. See recent Scottish appeal Court case of Van Oord v Dragados.

I’d be happy to get involved, or give you more guidance if you want to contact me directly.

Neil - note that this issue is on a NEC3 subcontract, so there is no clause 10.2, it’s all in 10.1.