ECC option D: Should the contractor submit variation order for their subcontractor/supplier to PM for acceptance?
No acceptance means disallowed cost?
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This is an area where the contract is pretty silent. On a practical basis I would say that the Contractor should share such information, but if they do not I do not agree that it is a disallowed cost. I see no bullet within the definition of a Disallowed Cost that makes it disallowed… As in any case under option C and D, a cost is payable unless there is a reason within the disallowed cost clause that states that they should NOT pay it.
A Project Manager should look at disallowed costs more objectively. They need to see elements that are true disallowed costs, rather than “I don’t want to pay this element now lets see what reason I can shoe-horn it into for being a disallowed cost” (not that I am saying for one second that is what you are suggesting here).
Thanks Glenn, My view is that any variation to the subcontract is an amendment to the terms and condition of the contract, clause 26.3 states that the contractor submits the proposed condition of the contract for each subcontract to the PM for acceptance. So if the contractor did not follow this acceptance procedure, cost can be disallowed under clause 11.2(25) bullet 3 " cost was incurred only because the contractor did not follow an acceptance or procurement procedure ". Especially if the client feels that the cost of variation is overstated or not competitive as stated in clause 52.1. Any difference from competitive price vs the cost of variation should be dis allowed.
Well, I do not believe that your view is what the contract actually states. Equally I am not quite sure what you are looking to disallow here. Clause 52.1 you mention is talking about Defined Cost – and a Project Manager is never “accepting” or commenting on a Subcontractors Defined Cost, only for the ability of the Subcontractor and their contract terms to allow the Contractor to Provide the Works in accordance with the Works Information.
If a client feels that a cost that the Contractor has paid a Subcontractor for a variation (by that you mean compensation event) is as you say overstated or not competitive, it is not the disallowed cost provisions that you need to think about or worry about. It will be the compensation event process that allows you to assess what should have been the Defined Cost for that “variation” rather than what the Contractor actually paid (clause 63.1) so you make your own assessment rather than simply “disallow cost”. This probably gets you to the same point that you wanted to but via a subtly different route.
Just because a change in contract terms has not been “accepted” by the PM (and I can see arguemnts whether this is or is not contractually required to be communicated/accepted) does not mean that you can disallow the whole cost of whatever the Subcontractor has done. The extreme example (which is not at all what you are saying – but to illustrate a point) I can think of is as follows: Contractor does not get acceptance of a Subcontractor before they go and do £1mil of works that are within the Contractors Works Information. Project Manager retrospectively disallows £1mil of defined cost because he never accepted them. Similar principle would apply for “amendments” to their terms.