We are the contractor on an NEC3 Engineering and Construction Contract (ECC) Option C (target contract with activity schedule). All is going well but we have just been alerted by our accounts department that one of our named staff resources had an increase in salary some three months ago. This would increase the rate to the employer and result in an additional cost for hours invoiced to date for this person. The invoice for the original rate times hours worked to date has been submitted and settled. However the employer is disallowing the additional (back-dated) cost incurred due to the rate rise and will only accept the higher rate and associated invoices moving forward. Is this correct?
Instead you gather together all the listed costs incurred for that person in the month and that is what you will be paid, plus, of course, the percentage for working areas overheads (see item 44 of the SCC) and the fee. If the person has spent the whole month in the working areas you will get paid all of the defined cost incurred in that month. If they have only worked for a part of that month in the working areas, you will need to pro rata the defined cost. What you cannot do is take a nebulous ‘average’ rate and multiply it by the time worked.
You are required to keep records of your defined cost and payments and the project manager is entitled to inspect all those records, including your payroll costs, see clauses 52.2 and 52.3. If you are unable to justify to the project
manager any of the costs you say you have incurred by these records, then that unjustified cost will be a disallowed cost and not paid, see the last line of clause 11.2(23) and the first bullet of clause 11.2(25).
If you have made mistakes in your application for payment, for example you have left out something in a previous application that should have been paid, or included something that should not have been paid, those errors are required to be corrected in future applications, see clause 50.5. In that case interest will be applied to these corrections.
If the employer has underpaid, it pays the interest; if you have been overpaid, you pay the interest − see clause 51.3.