NEC3 ECC: Additional payment to Contractor required by the Employer

The Contractor proposed that he could carry out a statutory undertaker (SU)'s diversion works quicker and cheaper than the SU could. This was agreed by the Employer, agreements regarding the work were put in place with the SU, and a CE was implemented for the additional works in the usual manner.

The Employer has since agreed to a further proposal from the Contractor to pay a share of the saving made from the SU. No provision for such a payment is stated in the contract. Can this amount be paid as “other amounts to be paid to the Contractor” in clause 50.2 or would the original CE have to be “re-opened” to formalise the agreement between the Employer and Contractor despite not being in accordance with the contract?

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The only provision for re-opening the implemented quotation would be if a Project Managers assumption, on which the quotation was based, has proven to be incorrect.

Even if the quotation could be reopened, the share of the saving would not fall under Defined Cost so would not be included in the assessment.

I would therefore suggest that an agreement is recorded with the Employer under clause 12.3 that a proportion of the saving is one of the other amounts to be paid to the Contractor. This would then enable payment under 50.2 as you suggest.

I am assuming that this is an option A or B contract as otherwise the share of savings would be in the pain / gain share.

Strictly speaking the answer is ‘No’ as the PM does not have the power to assess a compensation event in this manner : the Parties have to follow the contract as written. Therefore, it should be by Supplementary Agreement between the Employer and the Contractor as they are agreeing something outside of the conditions of contract.

In reality though, under 63.14 (option A) or 63.13 (option B), the Parties might slightly twist the anticipated meaning a ‘lump sum’ by splitting the difference between what the SU said they would do it for and the actual sum that the Contractor did it for. If I was the PM though, I would make sure the Employer knows this.

Jon, I would have though that the Employer’s costs for SUs would not be part of the Target Cost and therefore the share of the saving between “Contractor’s costs” and SU’s would only appear in the pain/gain share if the CE quotation was the same value as the SU’s estimate.

Dave, my experience is that most Employer’s put management requirements wrt SUs in their contracts but, except in times of depression, most C’s charge a high premium for including SU physical works within the target Prices due to their inability to manage them i.e. SU’s only contract on their T&C’s and are a law under themselves. So if the C does all that is required under the contract to manage the SU’s and then they don’t perform, it is a CE which does not arise from their fault.