NEC Frequently Asked Questions on NEC Payments

FAQ: NEC Payments

Frequently asked questions around section five of the contract and payments.

Does the Contractor have to apply for payment?

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Yes, in ECC4. Under clause 50.4 the amount due will not go up from its previous assessment – and could go down if the Contractor does not submit an application within the period.

Is payment always monthly?

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The ‘assessment interval’ is stated by the Client in Contract Data part 1 and is most commonly either monthly or four-weekly.

Does the Price for Work Done to Date include VAT?

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No, any tax which the law requires a Party to pay to the other Party is added to any payment made under the contract (clause 51.5)

If the Contractor has not submitted a programme, is an amount of money is retained from the Contractor?

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Clause 50.5 requires the Project Manager to retain one quarter of the PWDD only if:

– there is no programme referenced in Contract Data Part two and
– the Contractor had not submitted its first programme or;
– the Contractor has submitted first programme but it has been not accepted (31.3) for the reason that it does not show ‘the information which the contract requires’.

Does the Contractor have to give the Client the benefit of discounts they receive e.g.
for its total purchases of an item across all its projects?

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Yes. Clause 52.1 states: “Defined Cost includes only amounts calculated using rates
and percentages stated in the Contract Data and other amounts at open market or
competitively tendered prices with deductions for all discounts, rebates and taxes which
can be recovered”

Should compensation events appear on the Activity Schedule (options A and C)?

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Assessments for changed Prices for compensation events are in the form of changes
to the Activity Schedule (clause 63.14). So, while the quantum is agreed in 63.1 or 63.2,
the amount agreed also must be shown in the activity schedule. Practically speaking this
will be added to the bottom line of the activity schedule, so that the Prices will be the
original activity schedule plus/less the amounts of implemented compensation events.

Under Option A, can the Contractor get paid based on the agreed ‘percentage
completion’ of activities in the Activity Schedule?

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No. Payment under option A is only on completion of activities.

Under option A, can a Contractor propose a revision to the activity schedule?

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Yes, if it no longer represents how the Contractor plans to carry out the works. Any revised activity schedule has to be accepted by the Project Manager. The only reasons for not accepting a revised activity schedule is that it is not in line with the programme, no longer reflects the total of the Prices, or the costs are not reasonably distributed (clause 55.4).

Under Option C, does the Activity Schedule affect monthly payments?

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No. Under option C, the Contractor is paid forecast Defined Cost + Fee. Individual Prices in the Activity Schedule are not used in the contract unless by agreement. The only number in an option C Activity Schedule that matters is the total of the Prices which is used in calculating the Contract’s share.

Under Option C, does the Contractor get paid for correcting all the Defects?

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No. There are two relevant bullets under 11.2(26) that would be a Disallowed Cost to do with defects:

– the cost of correcting Defects after Completion, and
– the cost of correcting Defects caused by the Contractor not complying with a constraint on how it is to Provide the Works stated in the Scope,’

Under option C, does the Contractor stop getting paid when the PWDD goes above the latest total of the Prices?

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No, although this clause is very commonly amended in the Z clauses where the Client may at least retain their forecast share percentage of any overspend.