NEC3 ECC- Acceptance of Reimbursable Costs

On a Option E (reimbursable) contract, when claiming for the Project Management team, i.e. Project Managers, Quantity Surveyors, Planner’s etc- does it matter if there is not an approval system in place for bookings (by either the Contractor or Employer)? The current project that I am looking at has 10,000 hours booked and has been paid on a monthly basis- although there are no signed records to verify this time.

Is the Employers entitled to disallow any costs associated with this?

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The first bullet point of clause 11.2 (25) is “Disallowed Cost is cost which the Project Manager decides - is not justifed by the Contractor’s accounts and records …”.

Clause 52.2. states what accounts and records the Contractor has to keep, although these are abit high level so many Employer’s are fleshing out in the Works Information more detail as per the last bullet of 52.2. However, it sounds as if there are no additional requirements stated in the Works Information, so based on the informatiion.

In addition, the second from last bullet point of clause 11.2 (25) gives another heading as “resources not used to Provide the Works (…) or …”

As this is a civil law, the Contractor has to satisfy the balence of probability test (not the beyond reaosnable doubt). So on the balance of probability, have they spent this amount of time working on your contract. Unless the time spent is obviously excessive, if you have no evidence to the contrary, the answer is probably not.

So, you need to :

  • to disallow historical costs, you need to find sufficient evidence to disallow historical cost e.g. emails which indicate they were doing planning, qs’ing etc on other projects while charging it to you (which is also fraud, a criminal offence !). Be aware that this could have quite a significant effect on relationships ! and / or
  • going forwards, change the Works Information to have more rigorous requirements for justifying Defined Cost.

The problem comes when the internal budget (even though Option E there will be a budget somewhere) is exceeded that this likely to become an issue or when the Project Manager wishes to inspect the accounts and records you are required to keep. You will be able to prove that payments have been made to your resources the issue will be what have they been working on? and is the time expended reasonable given availability and utilisation. As Jon recommends get a system in place asap not only to demonstrate to the Project Manager but for your own business management and control.