Disallowed Subcontractor Costs as the PM has not Accepted the Subcontractor under 26.3

We are working on a NEC4 Option C Contract as the Contractor.

We have forgot to submit a proposed subcontractor to the Project Manager for his acceptance as required under clause 26.2.

The Project Manager is now saying that the costs are deemed disallowed and quoted “Disallowed cost is cost which; was incurred only because the Contractor did not - follow an acceptance or procurement procedure stated in the Scope”.

This is despite the Subcontractor being required to Provide the Works.

It is our view that despite our failure in submitting the subcontractor for acceptance (1 instance out of 30) that the costs are not disallowable as they are defined costs pursuant to clause 11.2 (23).

If the subcontractor has not been accepted by the PM (Cl 26.3) can he treat the subcontractor costs for Providing the Works as disallowable?

As you have stated, ideally you should have submitted the required subcontract information for acceptance prior to appointment, which has not occurred in this instance. Provided the reasons at sub-clause 26.3 do not apply then you probably would have expected the Project Manager to accept the submission.

The 3rd Disallowed Cost bullet point, which you have detailed, includes ’ … was incurred only … '. This suggests that any cost incurred would not have been incurred had the acceptance procedure been followed, which doesn’t seem to be the case. Furthermore, it also makes clear reference to ’ … the Scope … ', rather than the conditions of contract, so would essentially ‘fail’ on this point.

Clause 26 is one of the procedures in the NEC contract which details what should happen, but doesn’t state what rights or actions apply if the procedure is not complied with. As much as the PM may feel aggrieved with this situation (Contractor breach of contract) they can only act in accordance with the contractual actions applicable to their authority.

Thanks Andrew,

yes, we do expect him to accept the proposed subcontractor and expect the problem at that stage to disappear.

so for clarity and future reference, the PM cannot disallow costs of subcontractor’s just because a contractor has forgotten or failed to submit an acceptance and/or, the PM hasn’t accepted the subcontractor yet.
So as long as the works carried out are for Providing the Works and are not disallowable in any other way, then he cannot disallow them?

Quite simply, no they can’t disallow costs.

Having said this I would check that your contract has not been amended to include a ‘retention’ type clause, similar to sub-clause 50.5 in relation to the programme, as this is a common amendment.