NEC ECC: Disallowed subcontractor costs for delays?

Under option C, Contractor causes a delay to the Subcontractor having failed to provide setting out engineer. Subcontractor stands for a couple of hours – no alternative work can be undertaken. Subcontractor raises a CE to the Contractor which is implemented and paid as a legitimate cost incurred.

Contractor makes monthly application to the Client and includes certified Subcontractor account (to include CE for standing).

PM disallows the cost of the CE under 11.2(25) stating the resource contained within the CE was not used to Provide the Works.

Contractor disagrees claiming that this is a legitimate cost incurred by the Subcontractor and paid as a CE so it should be included within the Contractor’s Defined Cost. Whilst not ideal, the delay caused by the Contractor impacts on them as this could potentially compromise any gain opportunity.

Surely the clause the PM is referencing is there to stop Contractors / Subcontractors from unnecessarily inflating the level of resources on site artificially to generate recovery (i.e. if they are not being utilised elsewhere), even in pain the PM would be liable for a percentage share of their costs up to a cap.

Thoughts would be appreciated.

The related Disallowed Cost bullet point states;

‘resources not used to Provide the Works (after allowing for reasonable availability and utilisation) or not taken away from the Working Areas when the Project Manager requested’.

To Provide the Works means to do the work necessary to complete the works in accordance with this contract and all incidental work, services and actions which this contract requires.

Although the term ‘resources’ is not defined, this could reasonably include Subcontractor’s People and Equipment. The above sub-clause also refers to resources ‘not used’ which suggests that they are not actually Providing the Works at all.

Although the Contractor Provides the Works in accordance with the Works Information there is no express obligation to proceed regularly and diligently, with any inefficiencies dealt with under the share mechanism and/or delay damages (if applicable).

Consequently I don’t see how this matter could conceivably be treated as a Disallowed Cost. If it could, then every time somebody goes to the toilet, has a tea break or rest break, then their time could be treated as a Disallowed Cost.

Thanks, and exactly as I’ve argued. This part of the clause is there to prevent recovery of resources not used and more importantly not necessary, it’s there (for my mind) to stop the fattening of Defined Cost for a commercial advantage. Does standing whilst waiting for delivery of materials to Provide the Works become disallowed, of course not. Similarly what about safety briefings !!

If the PM wanted to pay solely on works completed and avoid the risk of standing costs, inefficient working, reduced outputs etc (arising solely as a consequence of the Contractor’s performance) then Option C is the wrong procurement route whereas Option A or B removes that commercial risk to the PM.