NEC3 ECC: Pay less notice under option E

I am hoping you can help with a query I have on an Option E contract. We are now nearer the end of the project for the client and the client have stated within a pay less notice “We would like to note that substantiation is required on the staff rates contained within your application. At present the framework ceiling rates are being charged which is acceptable for interim payments. Prior to the final payment certificate the Defined Cost of staff employed to undertake the works shall be supplied by the Contractor and verified by the Project Manager”.

Within the Framework Agreement for the Low Complexity Framework we are on, there is a schedule of defined costs. In the schedule, it states that the rates are "Not to be exceeded (‘ceiling’) Rates & Fee Percentages. Therefore we have been using these rates in our application for payment for staff, and our interpretation is: That the quoted rates are average rates for staff, and if we used actuals capped at the quoted rates, we lose out on any averaging as we would take all of the pain above the average rate and the client would receive all of the benefit when they are below. Therefore we should not be required to prove actual costs for people, when a schedule of defined cost has been agreed. Would you concur with our interpretation?

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This is a very hard one to answer as I am pretty sure there would be more general rules stated elsewhere in the schedule you filled and quite possibly as option Z clauses.

On it’s own though, be aware of clause 52.1 second sentence which states “Defined Cost includes only amounts using RATES and percentages stated in the Contract Data and OTHER amounts at open market or competitively tendered prices with all discounts, rebates and taxes deducted.”

So if the rates are stated as part of your tender in or referenced from the Contract Data, you could argue, given 52.1, it doesn’t matter what they actually are, it’s what you tendered and the Employer accepted. However, I can see their perspective and as, I said, I would be surprised if there weren’t other words elsewhere which impact on the interpretation.

The complication, as you point out, is the words “Not to be exceeded (‘ceiling’) Rates & Fee Percentages”. A literal interpretation would be they won’t be exceeded but they won’t be less 'cos that’s the figure we tendered and you have accepted.