NEC ECC: Option A - difference between activity schedule and Works Information regarding payment

The contract is based on NEC3 Option A.

The Contractor when entering into the contract did not appreciate exactly how the activity schedule operated when it came to being paid. i.e. only paid on completed activity.

In pricing for the work, it only priced the 4 main activities presented by the Employer. Naturally this creates issues when it comes to cashflow as the contract is a 12 month contract with each activity spanning over a couple of months. The main issue is the purchase and fabrication which takes place over 6 months. The Contractor would like to get paid for each completed item of fabrication but can’t because the activity will only be complete 6 months from now.

However, the Works Information contains a clause regarding payment which provides that:

“The Contractor shall invoice on a monthly basis in accordance to the project progress and against the agreed project schedule and cash flow. All invoices shall be submitted on or before the 20th of each month for payment after 30 days of acceptance”

The Works Information appears to suggest that despite the activity schedule, payment is to be made based on project progress and based on the agreed project schedule, assume Accepted Programme and cash flow document.

The Project Manager has said that the activity schedule must be followed. In this case is there a discrepancy/ambiguity between Works Information and other documentation and if so by the PM issuing this instruction does it amount to a compensation event and if so can the Contractor then claim his financing costs?

This would be an ambiguity between two contract documents, namely the Works information and the Activity Schedule. This should be pointed out, and an instruction given to resolve the ambiguity. 63.8 states that ambiguities that lead to an instruction changing the Works Information would be assessed in favour of the party that did not provide the ambiguity or inconsistency. However, this may not help here as that is specifically between two pieces of Works Information and this isn’t.

I have no idea why that clause was added into the Works Information. As long as the Contractor knows they will be paid on completed items, they know they need to break the schedule down into a sensible level of detail. It makes the assessments each period quick, simple and not subjective allowing the Parties to focus on more important elements than arguing how much of a percentage an item has been completed.

What should have happened here is that there should not be something casually dropped into Works Information that contradicts the wording of the contract. If there really was an intent to pay on part percent complete then there should have been a Z clause to change the wording of clause 31.4 that states Contractor is paid upon completed activities.

Contractor is allowed to propose a change to the activity schedule (clause 54.2), and issue this for acceptance. The only contractual reason the Project Manager would have to reject is that it is not in line with the programme, does not add up to the total of the Prices or that the costs are not reasonably distributed i.e. not excessively front loaded. You would like to think that no Project Manager would want to restrict the sensible cash flow to the Contractor, particularly when good cash flow will help them to complete the works by the date the Employer wants them to finish by.

Thanks Glenn, unfortunately, we are not dealing with a reasonable PM. The PM appointment is an internal appointment by the Employer for one of our SOE projects and so the Employer does not want to pay money sooner than it has to.

We can try and follow the clause 54.2 process but if rejected i’m not sure whether it would be worth going to adjudication as the adjudicator might take a strict interpretation in that you need to follow the activity schedule.

In that case try to make sure you give them no reason not to accept your revised activity schedule. They do have to correct the ambiguity between the two documents though, although you may also have another Z clause that gives a hierarchy between the documents.

Without stating the obvious - it is another reason why the Contractor has to read the documents carefully to understand the contractual implications of either Z clauses and/or Works Information and make sure any such ambiguities are cleaned up before signing the contract where you have more leverage/control at that point.

Thanks Glen. i think our best chance is to submit the revised activity schedule. If there are only 4 main activities, is the Contractor entitled to break these down into smaller activities?

Agreed with you regarding understanding the Pricing Option. This is something I am continuously working on with my clients and contractors in general. You would be surprised how many contractors enter into contracts without reading them.

The contract is not explicit on when “entitled” to break it down - it says when you change your method of working so the items do not relate to programme, or corrects activity schedule so it relates to Scope.

I would notify an early warning and explain the lack of cashflow is affecting your ability to deliver by the date they actually want and then discuss ways/actions that could improve that situation. The obvious one is to allow you to break that down into sensible realistic bite size chunks.