I’m working on a Subcontract whereby the Contractor has included various activities for pavement (in a lot of detail), included a quantity, we’ve priced it at tender stage and the total has been carried through to our Contract Sum. There’s also no Z Clause within the contract giving any instruction on how to use these provisional sum items.
The Contractor now wants to remove these items from our scope and activity schedule and self deliver along with other items that aren’t listed as a provisional sum. I’m also aware that the NEC doesn’t allow for provisional sums within the contract.
My question is, if they were to simply remove these items from the activity schedule, would the provisional sum be treated the same as any other item removed? i.e. would we still be entitled to our profit via the CE process?
As you rightly say NEC does not use the concept of provisional sums so without Z clauses there’s certainly a problem. I presume they’re being classed as provisional by nature of some description within the activity schedule? NEC also doesn’t use the concept of a “Contract Sum” either so you have no entitlement to be paid the tendered total of the Prices which is a term you see in Contract Data part two. Further, ECS Option A is a lump sum subcontract, not a remeasurable one so the use of quantities and rates in the Activity Schedule is also a problem (again, unless there are Z clauses).
You’re obligation is to Provide the Subcontract Works in accordance with the Subcontract Works Information (clause 20.1), not in accordance with the Activity Schedule (clause 54.1). So if the Contractor wants to change this there should be an instruction (clause 14.3) that would trigger a compensation event under clause 60.1(1) which you would submit a quotation for based on Defined Cost plus Fee (clause 63.1). You can use rates and lump sums to assess a compensation event but both Parties need to agree to this (clause 63.14), without agreement it’s back to Defined Cost plus Fee.
Removing work from your subcontract to either do it themselves or to give to another subcontractor without good reason (e.g. you are not performing) could amount to a repudiatory breach of contract if the amount of work was substantial enough. This would give you the right to terminate the subcontract and recover the direct fee percentage on the value of work that was omitted. This is probably the only way you could recover lost profit. Note in NEC you never recover profit, you would only recover Fee but this amount should include profit.
In the ordinary scheme of things, the assessment of a negative compensation event will mean you cannot recover the profit you thought you were going to make on the omitted works. Also the Contractor cannot recover the time either, so if the remove work the basic principle is they get the cost but not the time, the time is for you to use as you wish.
You’re left in a difficult situation to resolve as the initial problem (inclusion of provisional sums, quantities and rates) isn’t easily remedied though the subcontract as it doesn’t cater for them, I suggest you negotiate a settlement with the Contractor.