Ask which limb of the definition the Project Manager relies on, then answer that limb with evidence. If a PM disallows cost under NEC, the reason has to fit the short list in the Disallowed Cost definition: "too expensive" or "inefficient" aren't on it by themselves.
The definition is at 11.2(26) of Options C, D and E in the NEC4 Engineering and Construction Contract (ECC), and 11.2(25) in NEC3. The Disallowed Cost guide explains the list; this page is about replying to a real deduction. It is one of our NEC questions answered.
Replying in the right order
- Get it itemised. You want the amount, the item and the reason for each. A lump sum headed "disallowed" can't be answered.
- Diary the dispute period now. Under Option W1 a four-week limit runs from when you became aware. Under W2 there is no such limit to adjudicate. See time limits for disputes.
- Sort the list into three piles: we accept it; we can prove it and will send the proof; we dispute the reason.
- Send the proof with your next application, before the next assessment date. A wrong assessment is corrected in a later certificate under 50.6.
- Check for repeats. If one reason hits a system issue, such as a payroll on-cost, fix it for every period.
Match your answer to the reason given
| What the Project Manager says | Definition limb? | Best response |
|---|---|---|
| "No proof of payment" | Not justified by accounts and records | Bank record or payment run tied to the invoice. See rebuilding missing records |
| "Subcontractor overpaid" | Should not have been paid under its contract | Subcontract clause, assessment and quotation showing the entitlement |
| "You skipped the tender process" | Incurred only because a procedure in the Scope wasn't followed | Show the cost would have been the same anyway: quotes, market check |
| "You should have warned us" | Incurred only because a required warning wasn't given | Show either that a warning was given, or that it wouldn't have saved this cost |
| "That's rework" | Only after Completion, or where a Scope constraint was ignored | Show the date, and that no constraint was involved. Rework before Completion isn't otherwise on the list |
| "Plant stood idle" | Beyond reasonable availability and use, or kept after a request to remove | Allocation record and why it was reasonable to keep it. Was there a written request? |
| "Rates are above market" | Not a limb; this is 52.1 and the schedule | Open market evidence, or the Contract Data rate that applies |
| "You've overspent the target" | Not a reason | Point out the share deals with this: see target cost and share |
Sample reply, in our own words
"Certificate [number] disallows [£] for [item]. You have given the reason as [reason]. Please confirm which part of clause 11.2(26) you rely on. We disagree because [one sentence of fact]. The attached [record] shows [fact]. We ask you to correct this in the next certificate under clause 50.6. Please also confirm the amounts of Fee removed with this item."
Why the sums are bigger than they look
Disallowed Cost comes out before the Fee is worked out, so the Fee goes with it. On a target contract, it stays on the wrong side of the share calculation too. A fictional example, with illustrative figures: £50,000 is disallowed, on a 10% fee percentage.
| Effect | Amount |
|---|---|
| Lost Defined Cost | £50,000 |
| Lost Fee | £5,000 |
| Offset, because the cost side of the share falls by £55,000 (with an excess and a 50% Contractor share) | £27,500 back |
| Net cost to the Contractor | £27,500 |
So the target position can soften the effect on Options C and D, though Disallowed Cost still costs more than if the item had stood. Work out your own numbers before deciding how hard to fight for one line.
What to expect from the other side
- "NEC3 says the Project Manager decides." Its definition says so. That doesn't stop the decision being tested. The NEC4 wording, as seen in the subcontract, describes the cost itself instead. Either way, a decision without a reason fitted to the list is open to challenge.
- "It's your job to prove it." That is fair for the records limb. For the "only because" limbs, expect both sides to bring evidence, since cause is the question.
- "We'll sort it at final account." Under NEC4, the finalising process at 50.9 can close out parts of Defined Cost earlier, and you can start it yourself.
In practice, a monthly meeting between the QS and the Project Manager's cost team clears most queries before certification. Bring in lawyers only for a point of principle or a large sum.
Related guides
- NEC Questions Answered: Real Situations on Site
- We Do Not Have Records for Our Defined Cost
- We Are Heading Over Target on Option C: What Now?
- Compensation Events Have Not Been Added to the Target
- The Contractor Did Not Submit an Application: Do They Still Get Paid?
- The Client Missed the Pay Less Notice: What Happens?
See how this works in practice
Click through Contract Status with sample contracts: raise the notice, reply to it, and watch both sides of one record.
Take the guided tour Book a demo
Use the NEC deadline calculator, use the free NEC tools or download free NEC templates.
This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.