Scope: Practical commentary on NEC4 ECC. Check the edition, selected options, Contract Data and amendments used on your project.
Start with the main option
This article concerns NEC4 ECC cost-based options. Options C, D and E use clause 11.2(26), with ten bullets in the definition. Option F has a separate definition at clause 11.2(27). Check amendments before using either.
Do not apply one combined definition across all six main options. An Option A or B compensation event requires its own applicable Defined Cost provisions to be read.
Identify the contractual ground
When a cost is challenged, identify the specific ground and the facts said to satisfy it. The definition addresses more than missing records: it includes particular payment, procedure, warning, Defect, resource and dispute-cost circumstances.
This is not a substitute list of the ten bullets. Use the exact wording in the applicable contract. Broad labels such as “inefficiency”, “not approved” or “poor administration” do not replace that exercise.
Build a traceable cost record
- Link the cost entry to the relevant work, date and location.
- Connect labour and Equipment records with the accounts and applicable cost components.
- Retain delivery, procurement and subcontract payment evidence.
- Keep instructions, required acceptances and notifications accessible.
- Record the reason for idle resources or changes in deployment.
Agree a workable presentation of records early. That can reduce repeated queries, but an agreed format does not amend the contract or guarantee payment.
Separate substantiation from entitlement
A genuine expenditure may still fall within an exclusion. Conversely, an assessment must be grounded in the definition, not a general preference to pay less. Judgement can still be needed when applying contractual concepts to the evidence.
Do not assume that every correction of a Defect is treated identically. Timing, cause and the applicable wording matter. Nor should a missed compensation event notice automatically be treated as a new Disallowed cost category.
Explain the commercial consequence accurately
Disallowed cost is excluded in calculating Defined Cost. For target arrangements, distinguish that calculation from the Contractor’s share mechanism and apply the actual share ranges and provisions.
For an early-warning failure, analyse the applicable Disallowed cost wording separately from the compensation event assessment provisions. Calculate each consequence under its own provisions.
Sources and further reading
- NEC: Disallowed cost
- NEC101: Early warnings
- GMH Planning/CECA: NEC4 ECC Disallowed cost (practical commentary; check the applicable contract and amendments).
Related GMH guidance and discussion
These are practical commentary and discussion. Check the NEC edition and project amendments; older posts may use earlier clause numbering.
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