NEC3 TSC: Requesting contractor for sub-contractor payment information

I’m currently investigating, on behalf of the Client, how the contractor’s final application for payment (submitted two months ago) included works which were demonstrably not undertaken and works item valuations which were demonstrably significantly inflated and bearing no relation to the (eventually submitted) measurement basis figures.

When the significant disparities were highlighted to the contractor’s QS his immediate reaction was to angrily refer to the HGCRA and demand that full payment of the application value be certified.

I went over the QS’s head to his contracts manager and suggested that he consider the reprcusions, under the circumstances of the clearly, partly fabricated application. He agreed that this would not happen and that a full, joint re-measure of the works should be undertaken.

I’m now considering requesting from the contractor copies of all payment notices and payless notices issued to his sole sub-contractor during the works which were completed three months ago.

Would you agree that this is a reasonable thing to do and might the contractor have any contractual grounds for refusing the request?

Your question doesn’t state which main Option is being used however I can answer for A or C/E.

If it’s Option A then your focus only needs to be on what work has been completed and there’s no need to get into what the Contractor may or may not have paid a Subcontractor. If the work hasn’t been completed then the Employer has no liability to pay for it - refer to definition of PSPD at clause 11.2(17).

If it’s Option C or E then it’s perfectly reasonable to ask the Contractor for evidence of amounts they are claiming they have paid. Both the definitions of Defined Cost at clause 11.2(5) and PSPD at clause 11.2(18) refer to amounts paid by the Contractor. Further clauses 52.2 and 52.3 require the Contractor to keep records of Defined Costs and to allow the Service Manager to inspect accounts and records.

Appreciate the response Neil.

Yes it’s Option A and, yes, I would normally completely agree regarding focusing on what work has been done which would be addressed by undertaking a full re-measure. (Incidentally, this was actually done yesterday and the contractor has today accepted that the submitted final application for payment was inflated by 14% on this one task order alone.)

However, and perhaps I didn’t make this fully clear, the Employer failed to issue by the due date a pay less notice in response to the final application. Therefore under the HGCR Act the full value of the application became due some months ago. i.e. including payment for works not undertaken simply because they were in the application. As I stated, the contractor was persuaded that invoking the Act might not be the wisest thing to do under the circumstances.

My reason for wishing to see what work was paid for by the contractor (and the accompanying basis for that payment i.e. measure) is that it would demonstrate quite clearly that the contractor would have been fully aware some months ago of the significant disparity between the work undertaken by the sub-contractor and that stated by the contractor in the submitted application. In which case, in the interim between then and now, the contractor should have rectified the submission of an obviously inacurate application by notifying the Employer, withdrawing the submitted application and submitting an amended, accurate application.

As I stated, I’ve been tasked with investigating the circumstances leading to the contractor’s admission of submitting a significanltly inaccurate final application hence my question of whether or not the contractor might have contractual grounds for refusing my request.