We are working to a main contractor under Option c as detailed above. Contract arrangements in respect of retention specify once we get to 80% PWDD 25% retention is then claimed on PWDD above the 80%.
We assume the PWDD reflects the target price including CE’s, but our client has stated the target price remains fixed in terms of the 80% level. Although they state that all CE’s within the PWDD are included within the 80%.
Therefore we have carried out a considerable amount of CE works and are due to do further, under our clients understanding all CE’s plus the final 20% will incur 25% retention, which causes considerable strain on our cash flow.
Our understanding is that whilst CE’s are included in the PWDD they should also be included in the target cost thus limiting our level of retention when calculated over the whole project value to 5% maximum (20% x 25%).
Please advise which should be the correct interpretation of this scenario.
It would appear to me that the Employer has poorly stated what the 80% applies to. If that had stated 80% of the tendered Prices or 80% or the current target Prices or 80% of the forecast PWDD to Completion or just a monetary sum, it would be much clearer.
However, they have not done so and thereby are the ones which seem to have created uncertainty. I would have thought therefore that the legal situation would be a reasonable reading of what is favourable to the Contractor which, from what limited information you give, does not seem to be the Employer’s or PM’s interpretation.
Again on limited information, to me it would 80% of the current Prices.
I believe you are correct in your interpretation of this scenario, although you do need to look at the specific wording as to how they have incorporated it to verify. Certain contractual clauses make it clear that it is the total of the Prices at the Contract Date, e.g. clause 60.4 under option B. If it does not say the “target at the Contract Date” then it should be the revised target including CE’s.
At the end of the day the Employer should be looking at what the mechanism that it is trying to achieve. They want a pot of money to ensure that towards the end they have some security that you will correct defects or they have money to get someone else to do them. It should not be a means to limit your cashflow towards the end of the project when it is the very time you need the cashflow to meet their key objective which is for you to finish on time.
I also believe this is a reasonable interpretation of this situation. My opinion is that the NEC3 standard form assumes that the specific information would be entered in to the contract data i.e a retention free amount of x% of either the original target or the current target after implemented CEs and in the absence of this clarity a fair approach should prevail and one which does not penalise in this case the subcontractor. However an anomoly would be one where say a large volume of unimplemented CEs exists…what would be the fair approach in that case?