We are the Project Manager of an NEC option E contract, the Contractor is potentially claiming severance pay for six of their employees as works are set to be complete soon and they may not be able to redeploy them. The contract contains with the SOCC People cost “severance related to work on this contract” with no further amendments to severance.
Both parties are looking for advice on how to calculate the acceptable cost. Understand their are many variables to the potential calculation, we are just looking for a rule of thumb on how this could be approached.
Thank you for any help.
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I would suggest establishing the following information:
- Has the contract run to programme, or been extended (via implemented CE’s)?
- Assume the contractor resourced according to an outline tender programme, has much changed since then?
- What other contracts are the company working on, more detail required in why they are unable to redeploy. Could they be trying to milk this contract for redundancy pay due to other poor performance within their business?
- Details on their forward order book, turnover and annual accounts.
In short, they need to demonstrate what has changed on this contract that is causing them to lay staff off. For example; did you issue a big descope to the Works Information/Scope? If so they can price an element of severance in their forecast of Defined Cost + Fee for the CE. There are no rules as such, but I would highlight it is only applicable to “this” contract, the burden of proof is very much with the Contractor here. If they can’t demonstrate it but put it in a payment application, it’s a disallowed cost.
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