NEC4 Option C. Our Contractor has provided quotes for sub-contractors as part of their CE quotation submission. These sub-contractor quotes were not competitively tendered or market tested, but single-source. The work has been completed. What can the PM’s team do in terms of assessment of these sub-contractor quotes, are we now bound to accept them as they are defined cost increases resulting from the CE, even though they have not been competitively tendered or market tested?
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Cl.63.7 deals with this - It requires the Contractor to react to notifications for Compensation Events “promptly” and that “cost” and “time” incurred are “reasonably incurred”.
Cl.52.1 (payment) requires Defined Cost to be rates at “open market, or competitively tendered prices”. The PM needs to take a view on this, it’s not reasonable to always go out to the market. If the PM feels the rates used are near to “open market” rates then accept the quote. If the PM can demonstrate the quotation is wrongly assessed they can carry out their own assessment. A note of caution! a quote being on the high side is not necessarily “wrongly assessed”. Value for money is subjective and changes from person to person and on different projects.
If the PM really sticks to the requirements of Cl.52.1, then the Contractor may down tools for weeks while a procurement exercise is undertaken, that would not suit anyone. If you consider the quotation too high then talk to the Contractor and request a new submission of the quotation as a starter.
To protect from this in the future, why not amend the Project Managers Instruction to include “no works to commence until a quotation has been agreed by all parties, in writing”.
Could this form a “disallowed cost”? possibly if there was a stated “procurement policy” in the Scope and the Contractor did not comply with it. I think that’s going out on a limb as it would cause very bad feeling with the Contractor.
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Thanks. That is my interpretation and despite 52.1 the Contractor can in practice get away without market testing or competitively testing their supplier prices.
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Hi SaintNEC and LU, if I may I would definitely not recommend including the words offered by LU in the instruction.
Firstly, ‘open market or competitively tendered prices’ does not mean the cheapest, simply put the Contractor has to demonstrate that the price has been obtained from the open market, ie. they are not selling things to themselves at inflated prices, and secondly that some form of competition has taken place. The NEC does not prescribe the criteria for the competition, it could be quality, reliability, etc, it does not have to be the cheapest - you probably wouldn’t want the cheapest timber available as it might not be to the required standards and/or result in high wastage, etc.
Provided the Contractor can demonstrate that the price is the open market and that there was some form of competition then that should be acceptable.
The issue with the subcontractor prices and the apparent gun to the head saying this is the price from our subcontractor there’s nothing you can do about it, is totally wrong.
Firstly, all proposed Subcontractors and there subcontract conditions should have been accepted by the PM under clauses 26.2 and 26.3, so the PM should have that visibility.
Secondly, as you refer to Disallowed Cost I assume it is an Option C or the like, in which case under clause 52.2 the Contractor has to keep records including communications about and assessments of CEs under the subcontract. Also, accounts of payments of Defined Cost and proof that payments were made.
Thirdly, if the PM disagrees with the Contractor’s assessment of the CE the PM should make their own assessment of the CE under clause 64, this assessment is implemented by changing the Prices and Completion Date, the Contractor’s only remedy to this is to refer a dispute to the Senior Reps or Adjudicator.
Fourthly, yes the cost could be disallowed if it falls under any of the items listed under clause 11.,2(26), again the PM’s decision on this, the same as any other PM decision, is binding and the only remedy is to refer a dispute.
Finally, if the PM gives an instruction in accordance with the contract the Contractor must obey it - see clause 27.3. The CE process is triggered as a consequence to something that has happened under the contract it does not determine when work is done other than under clause 65 - a proposed instruction is given.
Hope that helps, happy to discuss.
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