NEC ECC: Request Termination of Contract

We received a Purchase Order from our clients for an agreed scope of works. This was duly signed and returned.
Clients have without any formal notice offered another sub-contractor part of our supply. Approx. half the value of our agreed Purchase Order.
Have already incurred considerable costs and are asking the clients under NEC3 that we would like to terminate the Purchase Order and site works.
Not worth doing and would leave us at high risk.
No site works by us have been started so far.

  1. What if anything are we able to claim to recover some of our overhead costs incurred so far?

  2. Can the client issue Purchase Order and then without any formal notification change the scope of supply?

Many thanks in-advance, any advise would be appreciated.

Firstly, in a situation like this it is absolutely essential that you continue to comply with the contract. Under clause 90.1, if you want to terminate you must notify the PM and the Employer giving your reason for wanting to do so. Clause 90.2 limits the Contractor’s reasons for terminating to being one of the reasons identified in the Termination Table. The reasons are all listed under clause 91 (R1 to R21), if your reason doesn’t comply with one of these then the PM has no obligation to issue a termination certificate.

If you choose to stop Providing the Works without a termination certificate, you may still end up being liable to the Employer for delay damages (or unliquidated damages), as effectively you are delaying yourself without it - you cannot terminate for convenience which is what you appear to be saying you want to do.

If you can convince the Employer to terminate then clause 93 tells you what you are entitled to be paid for.

Alternatively you could just deal with this situation as a compensation event under clause 60.1(1) a change to the Works Information, as this is effectively what the Employer has done. The Project Manager should have instructed you under clause 14.3 to remove certain parts of the works from the Works Information.

How the compensation event is assessed is dealt with under clause 63.

Just to add to Neil’s answer, firstly I am not sure legally they can omit scope and award it to someone else, but not withstanding that this would be a the very least a (substantial) change to the Works Information. If this is then assessed as a compensation event, you would offer them the cost saving as to the cost you will now not incur as a result of this scope change. If you still need to be on site for most/all of the duration then you would not be offering prelims in any saving. Any cost you have already incurred you will not be giving back either. The only bad news is through the CE process you do not get to keep fee (overhead/profit) on that omitted work.

Just to enhance Glenn’s point - and I agree with Neil’s points - YOU have the contract to deliver the works.