NEC3 ECC: Option C, what fully qualifies as Defined Cost due to Subcontractors?

Under an NEC3 ECC contract - Main Option C, when assessing “the amount of payments due to Subcontractors” which of the following are the basis of a proper assessment under the contract:
(1) amounts actually paid to the Subcontractor by the Contractor (accounting for Disallowed Cost under clause 11.2 (25) )


(2) an assessment of the amount which will be due to the Subcontractor for work carried out in the valuation period (regardless of actual payment dates). I.e. Are assessments of a Subcontractor’s account and/or any accruals made for a timing adjustment between the date of the Subcontractors valuation and that of the main contract included?

In essence, (1) means that the Contractor carries the cashflow for the job as payments from the Employer always follow those actually paid whereas (2) enables the Contractor to potentially maintain positive cashflow throughout the contract.

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A good question!

This turns on how you read the definition of defined cost (being a component of the price for work done to date which is the basis of interim payment).

Under Option C defined cost under clause 11.2(23) is the amount of payments due to subcontractors… That must mean that your first option cannot apply because the definition is, quite rightly, looking at payments due not actually made. That does not however mean that your second option is entirely correct. You now have to read the definition of PWDD more closely.

11.2(29) defines PWDD as the Defined Cost which the PM forecasts will have been paid…before the next assessment date. Therefore, what you are looking for is payment liability accruing to the contractor in month one that will crystallise as having been paid in month 2.

Therefore, the real answer is somewhere between your two options. The amount for subcontractors is the amount accruing in this month which will have been paid next month. To ascertain this precisely you obviously need to look at the terms of the subcontract. However, in a practical sense, your option 2 is closest to what usually happens even if it doesn’t quite align with the contract.