NEC ECC: (Option C) - What defined costs can the Contractor apply for?

I am currently working on behalf of the Employer on an NEC3 (Option C) contract. The contractor has included within his tender, the cost of two identical items of equipment to be manufactured by his sub-contractor. In the Works Information, the employer has only asked for one of these pieces of equipment.

During the Application for Payment process the Contractor has applied to be paid for both of these (as they are defined costs). The Employer believes that they should only be paying for one, as that is what was asked for in the Works Information. The Contractors argument against this is that it was within his gift to allow for 2 pieces of equipment to mitigate any risk, therefore he will deliver one, with the other being used for risk mitigation (as risk which has now passed).

I can see where the Contractor is coming from, in principle, however it seems a bit extreme in this example, as the equipment in question cost c£75k/each.

Further more, to add more confusion, the price that the Contractor submitted quantified both pieces of equipment as one item (with a total price for them both). The Employer did however view the Contractors original sub-contractor quotations.

Can anyone advise if the costs for the second piece of equipment are disallowable under the Contract?

Whatever was included in the Contractor’s activity schedule does not define the scope of works, which is essentially defined by the Works Information. Under a main option C the activity schedule gives a total of the Prices, which is the ‘target’, with payments made using Defined Cost.

Any Defined Cost is incurred in order to Provide the Works, including Equipment, although it seems that what you are actually referring to is Plant (Equipment is used to Provide the Works whereas Plant is included in the works). If that is the case, then you could treat this as a Disallowed Cost under 11.2 (25) 6th bullet.

If the Employer only specified one item in the Works Information then this is what should have been provided, regardless of what was stated in the activity schedule. Although NEC doesn’t have an ‘order of priority’ provision, clause 54 states that the activity schedule is not Works Information, which is the document that specifies and describes the works.

See also the case of Leander Construction Ltd v Mulalley and Co Ltd 2011, which dealt with the situation where requirements described in the activity schedule conflicted with the contract conditions.