NEC3 - ECC - SOCC - Expenses

The Contractor and Employer are working on an NEC3 ECC Option E Contract.

The Contractors core staff team are based a significant distance from the Employers heads office and travel from their homes to the office each day (not staying overnight). Each core staff member of the Contractors team purchases and claims for breakfast, lunch etc. each day, which has added to a significant amount of defined cost to the Contractors application for payment.

The Employer and Project Manager realize that the Contractors is allowed to apply for expenses (subsistence) under the NEC3 ECC Schedule of Cost Components. However the Employer feels the Contractor is taking liberties in relation to what expenses are being incurred i.e. expensive lunches, Starbucks coffee etc. The Project Manager also feels as the Contractor is travelling from home each day the purchase of lunch, breakfast isn’t required as the Contractors employees have ample opportunity to make their own lunch / breakfast, as they would if they were travelling to the Contractors offices.

The Project Manager has taken the stance to date, that the expenses aren’t reasonably incurred and aren’t required to provide the works due to this excessive nature and has deemed the costs associated with these items as disallowed costs. The Contractor disagrees with this stating the expenses are incurred in line with the Contract and with the Contractors expenses policies and should therefore be payable.

Please could you advise where this stands contractually.

As you have implied, the Schedule of Cost Components (SCC) is not comprehensive with regard to the detail it provides for certain component costs, including subsistence for People, which can lead to disagreement, as is evident in your case.

Although an amount is required to be actually paid by the Contractor, essentially this issue is one of quantum, although I expect main option E does influence this point, whereby a different amount in question would be more likely under a main option C or D.

If the People are working at a ‘temporary place of work’ then it is accepted that subsistence can be claimed where travel time is ‘excessive’, that is more than 5 hours per day. HMRC guidance stipulates that a breakfast rate of up to £5 per day can be paid where the person leaves home before 6am. There is also an additional meal allowance of £5 where the travel time exceeds 10 hours a day. Note that the ‘temporary place of work’ applies to a time period of less than 24 months, after which it is no longer treated as such and tax relief for subsistence can no longer be claimed.

Although the HMRC ‘rules’ are not definitive for interpreting the SCC, any cost must be incurred in order to Provide the Works for it to be treated as Defined Cost. A further issue to consider is the requirement at sub-clause 52.1 and how the principle of ‘open market’ applies to such costs. As HMRC have given clear guidance on the matter of subsistence, I would suggest that this is persuasive in determining what an ‘open market’ price would likely be for such costs.