In the final few months of a 6 year contract with a value of circa £150m, the Employer has replaced the Project Manager and his commercial team. This new team has reassessed costs previously paid and, as a result, have increased the disallowed cost from circa £100k to circa £6m.
Surely this goes against the principle of the NEC3, especially clause 10.1?
Yes this probably does go against the spirit of the contract and clause 10.1 - but I am afraid this will not help you contractually or I believe in adjudication. there is no time limit within the contract when disallowed costs can be assessed.
The flip argument is that if something is dis-allowable then it shouldn’t have been paid. The fact you are being told this only at the end when you have little/no time to do anything about it is unfair in a practical sense. Many clients claim they will not do this and put in place regular audits to avoid such issues and ill feeling.
NEC4 has recognised this issue by putting in place a mechanism for the Contractor to ring fence elements of defined cost and put that in for “final” assessment mid-project. The Project Manager/Employer is obliged to assess within a certain timescale, and there is even a point they can become deemed accepted if they are not responded to. But, this is NEC4 not NEC3.
I can only symphasise in this case(which will be little consolation) - and suggest your efforts as a Contractor are focused on contractually whether individual items are right to be disallowed, rather than whether the principle of doing disallowed costs generally at the end is fair or not.
I agree with Glenn’s comments.
Your circumstances appear to have similarities with the situation in the Costain v Bechtel case, although I’m not sure whether the outcome would be the same.
I can appreciate your frustration, although one point to make is whether the previous client team was actually doing their job properly. If the revised assessment of Disallowed Cost (c£6m) is genuinely sustainable and contractually robust, then it shouldn’t be a surprise. Your commercial team should have extensively and thoroughly examined the entire contract terms and conditions at the outset and been through all these issues in great detail. If they didn’t then it sounds like it shouldn’t just be the Employer who replaces their commercial team !
I would add a comment which I often make around the level of detail required. It is a ‘civil’ law which applies, not a criminal law and therefore the burden on the Contractor is to demonstrate / justify Defined Cost is “on the balance of probability” not “beyond all reasonable doubt”. This is reflected in the first bullet of what Disallowed Cost is.
Aggressive QS’s often forget this. For instance : if there are several bits of paper, such as a quotation from a supplier, an invoice and evidence that a payment has been made + the thing has actually been incorporated into the works, but there is a missing delivery note, well on the balance of probability, has the cost been incurred. Answer “yes” !