NEC ECC: Option C Contract - Pain/Gain Range and Percentage Blank

I am looking for some advice on behalf of a PM colleague of mine. She has inherited a scheme from others and at Completion it has become apparent that the pain/gain shares in CD1 haven’t been completed.

My understanding is that as part of the tender, as required within the ITT, the winning Contractor submitted proposals for the pain/gain share range and percentage. However, this was never inserted in the sealed contract.

They have also submitted correspondence that suggests the previous PM agreed to change the range and percentage to a simple 50:50 regardless of range, although this is only an email communication between the Director and Commercial Manager at the Contractor confirming a verbal discussion that was had.

The question that I have been asked is whether the Employer needs to make a pain/gain payment given that CD1 is blank?

My personal view is that given the ITT requested Contractors suggest pain/gain ranges and shares and selected an Option C contract they should be aware of the need to pay pain/gain. As the values are blank in the Contract, I would go with the values submitted by the Contractor as Tender stage as the basis and advice that the communication regards 50:50 be ignored as it was not instructed formally by the PM.

Am I missing anything or would you agree? If they choose to not pay pain/gain share on the basis that the sealed contract is blank is it really an acceptable approach/view?

Any comments thoughts welcome.

For me, a target cost contract cannot operate without a pain / gain mechanism, so there has to be one in existence somehow. From what you say, this does not seem to be in dispute, it is just what is the pain / gain split.

So the question becomes which one ?

  • is the one that the winning Contractor submitted at tender and which, presumably following a trail of correspondence, can be demonstrated to be the one in which the Parties entered into the contract under ? For this to be the case, the last correspondence between the Parties with these details is highly likely to be the one that applies; OR

  • has the previous bullet been replaced by an agreement between the Parties (who are the Employer and Contractor, NOT the Project Manager). A Director has this standing to agree a change in the contract, but a manager might well not. Ideally, this is in accordance with clause 12.3, but if both Parties have acted as if (for a sufficient time / number of communications), then it could be by conduct. Note the subjectivity of ‘sufficient’.

Thanks Jon.

Acknowledged that the parties Employer and Contractor need to agree any changes, the slight issue is the PM is an individual within the Employers organisation. I will need to confirm whether this person had adequate authority to make such agreement but regardless the only record is an internal email at the Contractors end stating “I have verbally agreed with the PM”.

I will suggest the best solution for all parties is to use the pain/gain shares submitted in the Contractors original bid as there would be a clear chain of submission and of course contractual award.

Jon has answered the question - but my question would be how an earth did either Party allow this to happen and sign a contract with this information missing???

Pretty fundamental that people check such information before signed.

Hi Glenn, I agree and have stated as such to the Employer.