The PM has begun a cost audit and requested substantiation for several areas of Defined Cost. Under all categories of cost the requested information has been provided as far as possible to date. Some is still to be provided to the PM. The PM has decided under several categories that the value of the substantiation provided is X and the value claimed in Applications to date is Y. The difference between the total X and total Y is 20%. This is based on the small sample (5 from 50) selected to be audited in the category. The PM has decided that he presumes the 20% therefore applies to all in the category and has decided to “withhold” that 20% from payments for 100% of the items in the category. This is applied as a deduction from current Applications.
This does not appear to comply with the requirements of Option C in regard to Defined Cost and Disallowed Cost. The withheld monies are not Disallowed Costs. The PM has said he is doing the Contractor a “favour” by not classifying them as disallowed. Is the PM administering the Contract incorrectly and is this effectively putting the Employer in breach of contract?