A Contractor has employed a Subcontractor on an NEC4 Option A Subcontract and following the subcontract element of the works being finished (with all required documentation being submitted ) the Contractor has certified in full based on the activity schedule and the Project Manager has certified that amount to the Contractor under their NEC Option C contract. 2 months after certification a defect has now been identified in the subcontract works. The Project Manager is now considering that as the works are not defect free and not ‘complete’ then the Contractor should be re-assessing the activity schedule payment to the subcontractor and deducting the relevant amount for the defective work. The Contractor’s contract has the Cl.11 disallowed cost clause stating a cost that shouldn’t have been paid to a subcontractor in accordance with that contract can be disallowed , so the P.M has further indicated that if the Contractor doesn’t make the deduction from the subcontractor ,they will assess a disallowed cost deduction from the Contractor’s next payment . Is that the correct interpretation ?
Under an unamended Option A the Price for Work Done to Date excludes an (completed) activity that has a notified Defects the correction of which will delay the following works, see 11.2(27). The test is therefore if the correction of the Defect is delaying the following works. If it isn’t then the completed activity (although having a Defect) should be certified and paid in full. The Contractor would be paying in accordance with the subcontract and it would not be a disallowed cost
Thanks Dave ,
For context the defects are in part of a structure that was assessed as ‘complete’ and the subcontract activity schedule was certified in full with the defects being discovered after the full certification was made. The structure itself is in fact in partial use , whilst the rest of the scheme works are still being completed. The subcontractor is in the process of rectifying the defects at their cost and the defect rectification isn’t delaying the follow on works at the moment . So based on the 11.2(27) clause the defective work should not be disallowed.
yes, there should be no deduction