NEC3 ECC: If the Contractor makes a successful claim against another company is the Employer entitled to this?

NEC3 and NEC4 Contracts General
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Under an Option C contact, the Contractor is pursuing a claim against a design company for a faulty/incomplete design which resulted in costs against the ECC and PSC. If the Contractor gets a settlement of, say, £10,000 for the extra labour resources that the ECC provided, which the Employer has paid for as part of the Defined Cost, and was required to work around the faulty design then is the Employer entitled to any/all of the £10,000? It wouldn’t appear as part of the Defined Cost as it would be agreed outside of the contract. As the Employer has paid for the initial extra labour through Defined Cost would it be a fair compromise, in the spirit of mutual trust and co-operation, to raise a Compensation Event for the value of the claim which would be shared via Pain/Gain in the Final Account. If so, which clause?

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I have two responses to this :

  1. you arguably should not be paying for these costs as they are a Disallowed Cost under the last bullet point of clause of 11.2 (25) i.e. “preparation for and conduct of an adjudication or proceedings of the tribunal”.
  2. Under core clause 52.1, Defined Cost is “with deductions for all discounts, REBATES and taxes which can be recovered.” I.e. this is a rebate on a contract, so it is ‘shared’ under the pain gain arrangement.

I personally would be wary of pursuing the former line due to the effect on relationships and motivations, as well as the precise application of the contract wording to your circumstance. However, I think the wording in the later exactly suits your circumstances.