NEC3 ECSC - Cancellation Charges and Stand Down

Contract: NEC3 ECSC - Option A

Issue: Late cancellation of works on site.

We have a situation where a small subcontractor was booked in to carry out a scope of civil works for 6 weeks. 1 week preparation on site and 5 weeks once access was granted to the “working area”.

The 1st week was completed no issue however the access to the work face was stopped at the end of week 1 and we had to demobilise the subcontractor to return at an unknown date.

We are trying to establish a fair quantum of payment. The subcontractor is a small operation and they have stated that they could not find other work for a number of weeks after the event - they are charging us for 3 weeks standing time after the 1st week of works i.e. 3 weeks of labour is the CE value being claimed.

This is not something which the Contract covers and I believe is more of a commercial negotiation to what is reasonable to allow re-deployment of men. The subcontractor has stated that they could have took another contract on prior to starting these works which would of occurred over the same time and is now not recovering their men from either of these works i.e. they took our work we cancelled and they could of been working for another gainfully employed.

The CE value is for 3 weeks of labour - we have asked for evidence of payment to these men and that they were not gainfully employed elsewhere and also challenged the duration that they may have been re-deployed to other work (this is more difficult for a smaller SC however). For the evidence of payment we have asked for bank statements redacted to show what we require however they have stated this is against data protection. Also they cannot prove other than word that the men were not doing other work.

Does anyone have a similar experience or advice?

I presume you are referring to the Engineering and Construction Subcontract (ECS) and NOT the Engineering and Construction Short Contract (ECSC), as you mention main Option A…

This situation looks very much like it should have been initiated by an instruction to stop the works, given under clause 34.1 of the ECS. This is a compensation event under clause 60.1 (4).

The assessment is based on the assumption that the Subcontractor has reacted competently and promptly and that any additional cost is reasonably incurred (clause 63.7). In this instance ‘reasonably’ is based on the balance of probabilities and assessed according to the circumstances which existed at the time, taking account of the factors you have mentioned.

I agree with the statement about data protection as they are a data controller under the terms of the GDPR and must process information in accordance with the ‘key principles’.

The problem for the Subcontractor is that they won’t get paid for this under the contract until the CE is implemented, so should be keen to resolve this matter in a timely manner. On the other hand your attempt to establish a ‘fair quantum of payment’ should be pursued within the boundaries of contractual authority and in accordance with the contract principles.

Easy to say in hindsight, but this situation could have been avoided by discussing how the compensation event was to be dealt with at the outset (clause 62.1) and by providing assumptions as appropriate (clause 61.6).

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Thanks for the reply.

Apologies it is the ECS - typo error.

We did issue an instruction to stop the works under clause 34.1 and this has resulted in the compensation event we are now assessing. They did react competently, it is however unfortunate they are a smaller civil’s entity so there ability to mitigate cost is less than some of the larger contractors we work with which has generated this issue for “fair payment” - I understand doing this in accordance with the Contract but we also have to maintain relationships due to the nature of this work.

A change in the industry has resulted in increased outage cancellations which is why we have now set about issuing a cancellation profile that we are looking to agree with the client to avoid this going forward. Hopefully we will not have the same issue next time.

This sounds like a ‘power’ contract, so I can understand the issues involved with outages etc Not an easy matter to deal with but it looks like you are calculating a cost per day to provide forward visibility of costs, which would mean no surprises if this occurs again, both for yourself and the Employer.

In the event that this was deemed a Compensation Event; I have an additional query surrounding the assessment of the Compensation Event.

To provide some set up for the query;

If you carry out your assessment in line with Clause 63.1 "The changes to the Prices are assessed as the effect of the compensation Event upon

  • the actual Defined Cost of work already done
  • the forecast Defined Cost of the work not yet done and
  • the resulting Fee"

If I then review definition of Defined Cost under Option A its states “11.2(22) Defined cost is the cost of the components in the Shorter Schedule of Cost Components whether work is Subcontracted or not excluding the cost of preparing quotations for Compensation Events”

The Shorter Schedule of Cost Components then states under section 1 (People) that;

• people who are directly employed by the Subcontractor and whose normal place of working is within the Working Areas,
• people who are directly employed by the Subcontractor and whose normal place of working is not within the Working Areas but who are working in the Working Areas and
• people who are not directly employed by the Subcontractor but are paid for by him according to the time worked while they are within the Working Areas.

My query is; we have stood down our Subsubcontractors and whilst they have tried to find other works in the interim they can not due to the late instruction to stand down. They are not within the working area due to current restrictions. Can they be included in assessment if not within the working area?

The reason I ask this is that in a meeting it was intimated by other party that we can only assess for people stood down that are within the working area.

Is this statement correct?

The Working Areas issue can be a ‘problem’ with the Schedule of Cost Components and the Shorter Schedule under NEC3, and to an extent under NEC4. The wording in relation to People under the SCC and SSCC is clear and makes direct reference to the Working Areas.

There are ways to address this, however, as follows;

Add an area(s) to the Working Area to capture this cost,
Agree appropriate rates or lump sums to assess the quotation (operates outside the ‘rules’ of the SCC/SSCC).

I would suggest that the ‘rates and lump sums’ would be particularly appropriate, especially under an Option A as the Subcontractor will be looking to get paid for this CE.