Frequently Asked Questions

We are the project manager on an NEC3 Engineering and Construction Contract (ECC) Option C (priced contract with activity schedule). The contract has a clause X16 for retention of 5% upon ‘completion of the defects period’. The final total of the prices is much greater than the target cost. Do we determine the retention amount from the final total of the prices amount or the target cost amount?

The first thing to say is that it is always best to use the terms set out in the contract otherwise confusion can occur. In reality the total of the prices, which is calculated in accordance with clause 11.2(30), is, colloquially, called the ‘target cost’, although you will not see that latter term used in the contract. Therefore, those terms refer to the same figure. The amount you pay the contractor is called the price for work done to date (see clause 11.2(19)) and, in Option C, that is based upon the defined cost that the contractor is forecast to have paid by a certain date, see clauses 50.2 and 11.2(29).

In Option C after completion, you compare the total of the prices with the price for work done to date to calculate the share which one party has to pay the other. If the total of the prices is higher than the price for work done to date, the employer pays the share to the contractor. If the total of the prices is lower than the price for work done to date, the contractor pays the employer the share. How and when the calculation of the share is made is set out in clause 53.

You retain retention at the retention percentage rate from each payment of the amount due to the contractor, that is the price for work done to date. However, if there is a retention-free amount, you do not retain retention until the price for work done to date has reached that amount − see clause X16.1. You should release half the retention to the contractor immediately after completion of the whole of the works has occurred or immediately after the employer has taken over the whole of the works. Completion is a defined term (see clause 11.2(2)) and take over is set out in clause 35.

You should release the remainder of the retention when the defects certificate (see clause 11.2(6) for its definition) is issued by your supervisor. The supervisor is required to issue the defects certificate within the timescales set out in clause 43.3. When looking at this it is important to know that the term ‘completion of the defects period’ is not used in this contract. The terms used are the ‘defects date’, which is equivalent to the end of the defects period in other contracts, and ‘defect correction period’, which is the period in which the contractor must correct each notified defect.

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