NEC3 Short contract termination

NEC3 and NEC4 Contracts Termination
1

I have received a termination notice under reason 5 within the NEC3 Short form. What I am trying to clarify is following 92.1 and what the amount due on termination includes.

What is the amount due assessed as normal payment? Is this a percentage of the outstanding work value for my profit and then 5% of the profit value submitted??

Any advice would be appreciated.

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2

I am assuming that it is the Employer terminating for Reason 5 which is “for any other reason”.

If this is the case then, as with all terminations, the Contractor is paid an amount in accordance with the 3 bullet points of 92.1.

Because it reason 5 and the Employer is terminating then, under clause 92.3,"the amount due on termination also includes 5% of any excess of a forecast of the amount due at Completion had there been no termination over the amount due on termination assessed as for normal payments.

In other words :

  1. Calculate the amount due to termination INCLUDING for both implemented compensation events i.e. added to the Price List, and those in process of being assessed and for where cost has been incurred.
  2. Subtract from this all the payments that the Contractor has been paid and will be entitled to e.g. work done but not yet paid for, both it was done early in a month & an assessment date has not been reached to pay them for it AND due to compensation events which have happened and are in process of being assessed. Slightly simplifying this is the forecast end Prices minus the current PWDD.
  3. Multiply the figure by 5%.

For most builders this 5% won’t cover your overheads + profit but would come close to covering your overheads. Whether it does or does not is contractually irrelevant as the Parties signed a contract with these express provisions detailing how payments on termination were sorted out.

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