Back to Basics #23 – 6 Reasons That Costs Will Be Disallowed Under NEC Option C, D, E and F

Back to Basics #23 – 6 Reasons That Costs Will Be Disallowed Under NEC Option C, D, E and F

NEC target and reimbursable options (Options C, D, E and F) provide for the contractor to be reimbursed for the actual costs of carrying out the works.  These Contracts include reference to costs described as “Disallowed Costs”.

The Contract defines Disallowed Costs in Clause 11.2(25) of NEC3 and Clause 11.2(26) of NEC4 Disallowed Costs include:

1. Costs that are not justified by the Contractor’s accounts and records.  Maintaining detailed site records is crucial as the Contractor will need to demonstrate the costs incurred (including for example evidence of the timing of when work was carried out and the resources and material was utilised).
2. Costs incurred due to the Contractor not following a procurement procedure.  It is vital that the project team understands the contractual procedures, and that these are followed.
3. It should not have been paid to a subcontractor or supplier in accordance with the Contract.
4. The cost of plant or materials not used to provide the works will be disallowed.
5. The costs of preparing for an adjudication are not reimbursable.
6. The cost of rectifying defects after Completion and the cost of correcting defects caused by the Contractor not complying with a constraint are deemed to be Disallowed Costs.

A clear understanding of what Defined Costs are, what Disallowed Costs include and crucially what is included and excluded within the Fee are vital in maintaining the profitability of a project.

Finally, be aware of bespoke amendments to the definition of “Defined Costs” as a number of public bodies have standard schedules of Allowed Costs which vary from the normal NEC definitions and failure to recognise this can create additional risk.

Understanding and avoiding disagreement as to Defined and Disallowed Costs is crucial to the profitability on a project.

If you need assistance with live or upcoming NEC projects, Ramskill Martin’s Team of Consultants have an experienced team which can help.

 

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