NEC ECC: Abatement of compensation events without a valid pay less notification

Without a pay less notification, does an adjudicator have to award CE’s which were not agreed in the application or can they be abated as they are not due under contract (not implemented)?

Presumably you’re talking about an Option A contract? In which case you are correct.

In assessing amounts due the PM uses the Price for Work Done to Date which under Option A is based on completed activities. A compensation event is only added to the activity schedule once it has been implemented, at which point it can be assessed for payment. There is no entitlement for the Contractor to be paid an amount on account in respect of a compensation event. There is also no right for the PM to agree a CE in the application. It is simply either implemented under clause 65 then paid when compete, or not paid.

Note that a pay less notice would only be required if the Employer intended to pay less than the amount the PM had certified.

Assuming this is a main option A or B (as it would make no difference to payment under C, D or E), then the CE would have to be formally added to the Activity Schedule / BoQ. This actually occurs when the CE is implemented, as clause 65/66 (NEC3/4) states that the notification includes the ‘change’ to ‘the Prices’.

If the PM certified ‘on account’ amounts against non-implemented CEs then I assume that the Employer has disputed this, although they could have given a valid payless notice to deal with this matter.

In your described situation the Employer / Client would presumably be referring a dispute to an Adjudicator relating to an action of the PM, that is whether the PM has authority under the contract to certify an amount against a non-implemented CE.

You could say that the Employer / Client is relying on ‘Plan B’ as they should have issued a payless notice. Nevertheless, an Adjudicator has the authority to review and revise any action of the PM.

Using the above argument that the Prices are only ‘changed’ when a CE is implemented, then the PM would not have the authority to certify an amount against a 'non-implemented CE. The Adjudicator could, therefore, amend the previously certified amount to not include the non-implemented CEs.

This might seem harsh, especially as the Employer / Client did not take up their right to give a payless notice and the fact that the CE’s have probably since been implemented in the interim period. I am assuming, however, that this is a theoretical question and not an actual situation.

David, the answer will depend upon the question asked in the Referral eg if the question surrounds the amount to be paid based on a notified sum in the absence of a pay less notice or if the question is in respect of the correct assessment of the Price for Work Done to Date.

The question surrounds the amount to be paid on the notified sum in the absence of a pay less notification, can the Adjudicator abate any unimplemented CEs as a result of not being contractually due or does the Payee have to suck it up and pay as a result of not issuing a pay less notification, i.e. the infamous “smash and grab” , this is hypothetical speaking, but there is a tendency for Subcontractors to include un implemented CE’s in an AFP’s so if no pay less notification is submitted, what is the exposure.

this is a current hot topic and you should ask for legal advice. The answer really depends on the question posed. If its a straight whats the amount to be paid then my understanding is that the “smash and grab” would work ie the notified sum is the amount to be paid regardless of content but that you could start a parallel adjudication on the correct valuation. Simple lesson make sure you issue valid Payment Notices and Pay Less notices if required, but please take legal advice.