NEC ECS: contra charges

Under an ECS Option C subcontract, the main contractor applies contra charges to the payment application. A portion of the contra charges relate to de-scoped work and others relate to works instructed by the main contractor to other subcontractors (for which the main contractor has been paid by the Client under a CE).

The main contractor should have issued a PMI to de-scope part of the works that were priced at tender stage but failed to do so and simply deducted contra charges from the subcontractors payment cert. There was no PMI, CEN, Risk Reduction Meeting and the subcontractor was not given the opportunity to mitigate the costs.

Under the ECC contract, the assessment of a CE has to be done based on the forecast defined cost. However, the defined cost is now is substantially higher than the original budget for the descoped works, but the subcontractor was not given the opportunity to complete the work.

The subcontractor has highlighted the contractual problem with the contra charge but the main contractor refuses to release payment and deal with them correctly through the contract.

What recourse has the subcontractor to get fair treatment and ultimately get paid


From what you have said it doesn’t sound as though the Contractor’s QS understands the principle of how a Main Option C operates. Any changes to the Scope are dealt with as a CE and do not affect the payment process which is based on ‘actual cost’ (Defined Cost plus Fee = PWDD), so I am not sure why they are applying ‘contra charges’ for ‘de-scope’. Even under a Main Option A, a contra charge for de-scope would not be the correct way to deal with this issue.

Any CE assessment for de-scope adjusts the ‘target’ (Prices), which is used to calculate the share amount.

If formal discussions lead to nowhere, then you could notify a CE under clause 60.1 (18) for a Contractor breach as they have not complied with their payment obligations under the contract. The 3rd bullet point under clause 50.2 is not a ‘catch all’ for any amount that the person doing the assessment thinks they might want to include and is specific to any entitlement under the contract such as clause 25.3, 45.1, X7 or X16. If that doesn’t work then you may have to notify a formal dispute, but hopefully it won’t need to go that far.

There are no such thing as “contra-charges” under the contract. If the works are de-scoped then these should be instructed and notified as a compensation event. The Subcontractor then should have the chance to price how much they think it would have been and the Contractor can consider if they agree with the quotation and assess themselves (in accordance with the rules) if they don’t agree.

The bad news is that it would be assessed at the cost of what it would have cost them at the point it was de-instructed - which might have been more than it would have been tendered for (but if it wasn’t removed it would have cost them more to install anyway).