Back to Basics #49 NEC4:- Termination and the Amount Due

Back to Basics #49 NEC4:- Termination and the Amount Due

“It is important that parties are familiar with any additional termination clauses applicable to their contract.”

Are you familiar with the Termination Clauses in your Contract? Can Ramskill Martin be of assistance?

In our last Mailshot, we looked at procedures for termination under NEC4. 

This Mailshot concludes the topic of Termination under NEC and looks into the amount due on termination, which is set out in Clause 93 ‘Payment on Termination'.

In determining the amount due, similar to establishing the procedure that is to be followed, NEC4 lists the method that is to be followed, dependent upon whether the terminating party is the Client or the Contractor, and the reason for the termination.

The Termination Table contained within Clause 90.2 identifies the process for determining the amount due, in accordance with the applicable terminating party and the reason for termination:

Clause 93.1 deals with the valuation of the work that was completed prior to the termination and costs reasonably expected to be incurred in completing the whole of the works. The amount due on termination (A1) includes:

• An amount due assessed as for normal payments,
• The Defined Cost for Plant and Materials
  • within the Working Areas or
  • to which the Client has title and of which the Contractor has to accept delivery,
• Other Defined Cost reasonably incurred in expectation of completing the whole of the works,
• Any amounts retained by the Client and
• A deduction of any un-repaid balance of an advanced payment.

Alongside the amount identified as being due at A1, Clause 93.2 deals with adjustments which are to be made to A1, to determine the final amount due on termination. Clause 93.2 identifies that the amount due also includes one or more of the following [as demonstrated in the Termination Table above]:

• A2 – The forecast Defined Cost of removing the Equipment.
• A3 – A deduction of the forecast of the additional cost to the Client of completing the whole of the works.
• A4 – The fee percentage applied:
  • For Options A,B,C and D, any excess of the total of the Prices at the Contract Date over the Price for Work Done to Date, or
  • For Options E and F, any excess of the first forecast of the Defined Cost for the works over the Price for Work Done to Date less the Fee.

The various NEC main options contain additional clauses in relation to termination, an example being Option A, which includes Clause 93.3 ‘‘The amount due on termination is assessed without taking grouping of activities into account’’. It is important that parties are familiar with any additional termination clauses applicable to their contract.

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