NEC4 ECC Option C - PWDD definition includes for 'advance payments' based on forecasts?

Referring to:
11.2 (31) The Price for Work Done to Date is the total Defined Cost which the Project
Manager forecasts will have been paid by the Contractor before the next assessment date plus the Fee.

Are the forecasts here effectively advance payments for the next month?

I will try to illustrate with an example:

The next assessment date is Friday 31st January.

The Contractor submits a payment application before this date on Monday 27th January, as required by Cl 50.2.

It includes £100 actual costs up to the 27th Jan and £10 for the next few days for what the Contractor “considers is due at the next assessment date” of 31st January (Cl 50.2).

On the 31st January, let’s assume the PM takes the application into account accepts £110 as the Defined Cost for January. The PM adds the fee percentage and it comes to £120.

Under Cl 50.2, does the PM take the Defined Cost + Fee of £120 for January and then add their own forecast of the same for February (£130 for arguments sake) and certify a payment of £250 for PWDD?

Or are the forecasts referred to in Cl 11.2(31) more an acceptance of the Contractor’s ‘considers due at the next assessment date’ (aka forecasts) in their application and so £120 is due?

In this example, the simple question to answer is should the PM certify £120 or £250 as PWDD?

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The clue is in the definition of Price for Work Done to Date (PWDD) which refers to an assessment by the Project Manager (PM).

At sub-clause 50.1 the PM assesses the amount due at each assessment date, which in your case the next one would be Friday 31st January. An application from the Contractor is effectively their view of the PM’s assessment, that is an assessment made as though it were the assessment date (Friday 31st January).

As the assessment amount is based on PWDD, the definition introduces an element of forecast of the amount paid before the next assessment date, (end of February).

Therefore, in your example, the ‘correct’ amount would be £250.

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Hi Andrew,

Thank you for your prompt response. One further clarification would be appreciated.

The Contractor submits their actuals + few days forecast for Jan (£120) and then adds their own forecast for Feb (£180 let’s say) and applies for £300 on their payment application.

The PM them takes the Contractor’s Feb forecast into account. However, as it is the PMs role to make the assessment, the PM judges the forecast to be £130 for let’s assume justifiable reasons. The PM then certifies £250. The Contractor feels underpaid.

From a practical point of view, I was pondering is it best practice to encourage the Contractor to only apply for their actuals on their payment application (£120) and provide their forecast (£180) for information? That way, they are only ever getting more than they applied for (apply for £120 and receive £250). Rather than less on the occasions when the PM doesn’t agree with the Contractor’s forecast.

In response ‘no’ as the Contractor’s obligation to submit an application for payment setting out their assessment of the amount due at the assessment date is separate to the PM’s assessment responsibilities and you wouldn’t be complying with clause 10.1.

From my experience, to ensure a common understanding and an ‘aligned’ process, it is useful to have a ‘post payment review meeting’ whereby the variance between applied v certified can be examined in further detail, especially as the PM is obliged to provide details of how the amount due has been assessed.

From what you have said it seems that the forecast part is the main issue. I would suggest providing details of the forecast, including scheduling of payments to Subcontractors, forecast of People cost (with their payment dates), your accrual for Plant and Materials, etc. The more cost information you have the greater you can analyse the information to assess the accuracy of a forecast and make appropriate adjustments accordingly. Ultimately you need to provide the PM with assurance that the forecast part has been assessed ‘correctly’.