Disallowed Costs - Time Barred

NEC3 and NEC4 Contracts
1

Currently working under an NEC 3 Option D, which currently has 5 years until project completion.

We are concerned that there does not appear to be any time limit on when costs can be deemed to be disallowed.

Does anyone know of any protection offered within the NEC 3? or possibly outside of the Construction contract by legislation?

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2

Is the Contract executed as a deed?; would be my first point.

Secondly If you have not agreed costs over a 5 year period then I think that you should go about resolving them or at least trying to agree what can be agreed and what cant. That should allow you to focus on the areas of agreement. If costs have been incurred and you have not been allowed them after 6 years then there is a possibility of a time bar (subject to my first point) but my view is that the limitation period will probably run from the point when claims/costs are outright rejected rather than submitted.

Hope that this helps.

best

Mike

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3

Hi Mike,

Thanks for the prompt response.

The contract is executed as a deed.

We are “agreeing” costs as we go (month by month) in as much as we provide all the necessary substantiation requested by our client and the defined costs are paid as part of the monthly application. The concern we have is that this doesn’t appear to provide us any protection against someone re assessing the costs as disallowed at some point in the future prior to the contract completion.

Regards

Morgan

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4

I think that it is unlikely that anyone would disallow agreed elements of the prices; but if they came back and did so it would be at that point in time that the cause of action to challenge the disallowance would arise and you would have plenty of time to start an adjudication etc on any element that was disagreed.

Best

Mike

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5

Just to add to Mike’s points, your own detailed understanding of Defined Cost and Disallowed Cost should provide assurance that the matter of Disallowed Cost won’t be an issue at a later date.

There is Disallowed Cost, which is a defined term and is cost that is treated as Defined Cost but is disallowed for one of the reasons stated, and there is also ‘disallowed cost’ which is cost that should not be included as Defined Cost in the first place, so there may be 2 separate issues for you to consider.

Perhaps set up a process similar to sub-clause 50.9 under NEC4 whereby you look to ‘close out’ part of Defined Cost as you go along. Although this may not be a contractually binding procedure it will at least raise issues incrementally rather than leaving matters to be ‘opened up’ at a later date.

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6

Thank you for taking the time to respond.

We are maintaining what we consider to be an accurate and auditable defined cost account. Our main concern is that a change in client side commercial team at some point. Which may introduce a review of previously paid costs being re assessed and disallowed as shouldn’t have been included in the account or for one of the other Defined reasons for disallowing costs. The protection under the Agreement sadly seems very limited.

Regards

Morgan Williams