NEC3 ECC: does the unrecovered down payment to supplier become disallowed cost?

NEC3 and NEC4 Contracts Payment
1

Under ECC option D: Contractor purchased 2 units fuel tank from the supplier. Contractor pays 50% down payment. The supplier defaulted and Contractor learned that supplier cannot deliver the fuel tank, and the Contractor did not recover down payment.

Is it correct to dis allow the un-recovered down payment? which clause is more appropriate; clause 11.2(25) bullet 1) not justified, 2) not in accordance with his contract and 7 resources not to provide the works?

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2

My views are :

  • Under first bullet point of clause 11.2 (25), if the payments were clearly made, then they are justified by the Contractor’s accounts and records.

  • Under second bullet point, the “his contract” applies to the contract between the Contractor and supplier / Subcontractor. Consequently, you would have to look at that contract to see if the payment was or was not made in accordance with that contract.

  • I don’t think this was the intention of the 7th bullet point, but by a strict interpretation, it is a possible. I think you would need to look at the size of the contract and say that at some point on a larger contract, something like this would happen. However, the tipping point between what is “reasonable” and what is not is subjective. Having said this, as a Contractor, given the words “after allowing for reasonable availability and resources”, I would argue that the clause is clearly getting at wasteful use of resources, not the situation described.

3

Thanks Jon, in the first paragraph you mention that if the payments were clearly made it is justified, but how about the delivery? the contractor should receive something in exchange of the payment. In my view to justify the payments there should be a records to show that the items (subject of the contract) has been received.

  • in the second, I agree that the contract is between the supplier and the contractor.
    in my case the contract between the contractor and the supplier has not been perfected because of the default of the supplier, legally the contractor has the right to rescind/cancel the contract and recover the down payment plus damages.

  • in third, In my view the contractor just wasted the money for nothing when he did not do something to recover the down payment from the supplier. His resort is just to recover it from the client. I feel it’s injustice in the part of the client for paying the negligence of the contractor. I say negligence because the contractor should have required the supplier a guarantee bond for the Down Payment which is their policy.