NEC ECC: Option A - Cancellation Fees

As a the Employer, we are currently engaged in Contract which dictates if we cancel a contractor’s visit to site, then a percentage of their subcontractor’ fees become payable.
This is an additional compensation event which has been inserted in Contract Data Part 2.

Ie if we cancel within a 4 weeks 25% is payable, within 3 weeks 50% is payable, within 14 days is 80% and within 7 days 90%.

Following the recent bad weather in which we lost around 6 visits, we have incurred costs which have made completion of the project unattainable.

I have requested the contractor provide some sort of substantiation before we hand over hundreds of thousands for nothing, however they refuse and simply state that it is back and white in the contract.

Please can you clarify exactly what it says in the Contract Data? Also it seems strange that this was inserted in Contract Data part 2 presumably by the Contractor? Option A is a lump sum contract based on an activity schedule so I’m not sure what is meant by “a % of their subcontractor fees”. Do you mean a percentage of a price in the activity schedule? Some more specific information would be useful.

Morning Neil,

My mistake, these are contained in Contract Data Part 1.
We have an additional clause 60.1(21) which says “the additional compensation events stated in the Contract Data Part one”.
The additional CE in CDP1 is "All parties have a duty to ensure that the effect of cancellation charges and changes that are applied by the operation subcontractor are mitigated:

  • Cancellation or amendment within 7 days of the planned service date = 90% payable
  • Cancellation or amendment within 14 days of the planned service date = 80% payable
  • Cancellation or amendment within 3 weeks of the planned service date = 50% payable
  • Cancellation or amendment within 4 weeks of the planned service date = 25% payable"

The activity schedule contains a lump sum quote from the subcontractor’s service. My current argument is that this isn’t necessary the fee I should be paying, but the charge should be a justifiable cancellation cost from the contractor.

Unfortunately the additional compensation event isn’t clearly drafted it’s not surprising that you’re struggling to interpret it!

Firstly what is the event that it is intending to compensate for? Cancellation or amendment caused by who or due to what? Who is the operation subcontractor? What is the planned service date and where is it stated? We know a % is payable, but a % of what? Notice the absence of any identified or defined terms in the clause - it doesn’t use NEC language and can’t be related back to the contract.

If you can overcome the challenge of understanding the compensation event then you might have a chance at being able to assess the cost of it. Compensation events are assessed using Defined Cost plus Fee, so whatever cost the Contractor incurs as a consequence of an event is paid provided it falls within one of the definitions of the Shorter Schedule of Cost Components. So yes in principle you are right the charge or cost should be a justifiable cancellation cost from the Contractor.

The contracted works were to provide a cleansing operation on sections of water mains. The event was the cancellation of this operation (as per 60.1(21) and CDP1) due a severer batch of inclement weather towards the end of March, due to H&S concerns, engineering concerns and a lack of client operational staff to facilitate, the works had to be cancelled (within 7 days of the operation date).

Currently the contractor has issued a CE quote for their staff which would have partially mobilized to site and 90% of the subcontractors quote (as per the activity schedule).

I am requesting substantiation regarding your mirrored NEC contract terms, claims from your subcontractor (the cancellation cost), CE negotiations with your subcontractor (as they should make an effort to mitigate the cost) etc.