NEC ECC: Can disallowed costs be calculated by the PM

On an NEC3 ECC Option C contract can the PM only disallow costs that have actually been claimed?

The situation is as follows: the Contractor has wrongly undertaken certain works outside the boundaries of the site. This has resulted in damage to private property. However the type of work undertaken is required and has been carried out within the boundaries of the site - what is unclear from the Contractor’s application for payment and financial systems is whether the work undertaken wrongly on private ground has been claimed for. Can the PM estimate what they consider this wrongly undertaken work could have cost and include as Disallowed Cost or can he only disallow costs that it is clear the Contractor has applied for payment for?

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The definition of Disallowed Cost is reasonably specific so firstly you would need to decide if these costs fall into one of the stated bullet points, possibly Plant and Materials and resources not used to Provide the Works, linking this to clause 20.1.

If the work was subcontracted, then it depends upon which main Option the work was let under. If Option A or B then the Subcontractor would not get paid for this under their contract. If Option C or D then you could use the 2nd bullet point of Disallowed Cost, unless the Contractor can demonstrate that they properly disallowed such costs.

If this work occurred outside the boundaries of the site, this may also influence your assessment as under NEC3 People and Equipment are required to be incurred in the Working Areas for such cost to be treated as Defined Cost and the boundaries of the site is usually used to determine this area.

I would expect that under an NEC3 Option C contract you would be undertaking some form of regular auditing of Defined Cost, or at least monitoring of, anyway which would assist with any assessment.

One of my concerns with what has happened would be the damage to private property, although this is a further liability / indemnity issue.