NEC3: ESC Option A - Omission of Items by Employer

The Employer has omitted an area of works within the project.

They have included “Guidance Notes” within their “Price List” and “Preliminaries” both stating that the full cost of any item is to omitted from the “Price List” if the Employer decides to omit these items from the Works. Extract below.

“The Employer reserves the right to omit any Item(s) or Area(s) of work from the Project. If the Employer omits Item(s) of work or Area(s) of work, the full cost for the Item(s) will be omitted from the Price List. The Employer will not be charged for “Loss of Profit or Overheads” on any of these Item(s). Furthermore, if the Employer omits Item(s) or Area(s) of work and it is the opinion of the Project Manager that the Contract Period will be shortened he shall then determine a revised Contract Period and the Preliminaries will be adjusted by an amount ascertained by the Quantity Surveyor/Cost Consultant on Item(s) that he/she deems to be time related. When Tenders are submitted it is understood by the Employer that the Tenderers accept fully the conditions of this Clause”.

Are they entitled to exclude Loss of Profit or Overheads from the CE.

Can you please clarify whether this is an Engineering and Construction Contract, an Engineering and Construction Subcontract or an Engineering and Construction SHORT Contract … or Engineering and Construction Short Subcontract.

Engineering and Construction SHORT Contract

Hi Jon, would you have any advise on this issue?

Tony, firstly I think it is fair to say that the Price List is not the place to include those statements, they should be under the additional conditions in the Contract Data, having said that they are in the contract and it is clearly stated that the Contractor has signed up to them. The answer to your question is yes the Employer can impose the exclusion to claim loss of profit because the NEC conditions do not allow for it either, however there are issues with the drafting.
Firstly, any omission of items or Areas [sic] of work will require an instruction from the Employer changing the Works Information which will result in a CE under clause 60.1(1).
Secondly, they refer to the ‘full cost’ of the item and not the Price, Price is defined term (11.2(10)) and that would have meant the amount stated in the Price column, instead reference to cost must be taken to mean Defined Cost which means the assessment would be under clause 63.2.
The importance of clause 63.2 is that it assesses the changes to the Prices but ignores the Prices in doing so, instead it forecasts the effect of the CE upon the Defined Cost plus the percentage for overheads and profit.
So if an item in the Price List has a Price of £100 but the forecast effect of the omission is Defined Cost £80, oh&p 10% = £88; the changes to the Price is -£88. The difference between the original Price and the assessment of DC is kept by the Contractor, e.g. £12. People should also realise that this could go the other way, the forecast DC + oh/p could exceed the Price in which case there would be a greater reduction than the Price in the Price List.
With regards to the setting of an earlier Completion Date, this is unusual and usually not provided for within NEC contracts, the wording of the delay assessment clause 63.4 refers only to Completion being delayed. There is a clear contradiction here between clause 63.4 and the statement in the Price List and it maybe here that a condition of contract is preferred over a statement in the pricing preamble but I cannot be definitive on that; one for the lawyers.
I think this is a good example of why contracts need to be drafted so carefully, the amendor needs to know the contract and use the language of the contract, otherwise they are in danger of introducing ambiguity and/or inconsistencies which should be read against them under the law of contra proferentem.
That’s my view on it, happy to discuss.

Thanks Steve, your response is much appreciated.