You don't automatically lose the money, but you are exposed: with no records, Defined Cost is at risk, because cost your accounts and records don't justify is Disallowed Cost. What decides it is whether other evidence can still prove the cost was incurred, paid for and caused by the work.
The definition sits at 11.2(26) of Options C, D and E in the NEC4 Engineering and Construction Contract (ECC), and 11.2(25) in NEC3. Clause 52.2 lists what those Options expect you to hold. So start rebuilding now, because the Project Manager can inspect at any time in working hours (52.3). More on-site problems are in NEC questions answered.
What to do in the next two weeks
- Stop the gap growing. Find out why it happened, whether that is a person leaving, a system change or a Subcontractor who sends nothing. Fix that first.
- Size it. List by cost code and period what is missing. A gap of £20,000 is handled differently from one of £2m.
- Separate "not kept" from "not found". Search email, accounts systems, supplier portals and personal phones before you decide something is lost.
- Rebuild from the sources below, marking clearly which documents are reconstructions.
- Tell the Project Manager before the next application, if the sum is material. A disclosed reconstruction looks very different from one found during an audit.
Where evidence can come from
| Missing item | Next-best source | Strength |
|---|---|---|
| Invoice | Duplicate from the supplier; supplier statement | Strong, once tied to a bank payment |
| Proof of payment | Bank statements, BACS file, card records, remittance advices | Strong |
| Timesheets | Payroll, gate or biometric logs, induction and permit records, daily diaries | Good when two or more agree |
| Plant on and off-hire dates | Hire company's records, delivery tickets, fuel records, telematics, dated photographs | Good |
| Delivery tickets | Supplier's signed copies, quantities in the permanent works | Good for totals |
| Allocation of shared staff | Organisation charts, meeting records, emails showing what they did | Weaker: expect a challenge and a lower percentage |
| Subcontract compensation event assessment | Subcontractor's copies, exchanges with it. 52.2 asks for these specifically | Variable |
The line you can't cross
A reconstruction says what it is. A record made today and given last year's date, or a timesheet someone fills in now as if at the time, isn't a reconstruction. It could lead to allegations far worse than a disallowed sum, and NEC4 has its own rules about corrupt acts. Label each rebuilt document with the date it was prepared, who prepared it and what it was based on.
A fictional example
An Option C job, with illustrative figures. A site administrator leaves, and eight weeks of timesheets for a 12-person gang can't be found. Payroll shows £64,000 paid. Gate records show 11 of the 12 on site for most of those weeks, and the foreman's diary names the areas they worked in.
| Amount | Basis | |
|---|---|---|
| Proved by payroll and gate records | £58,500 | Two sources agree |
| Twelfth worker: payroll only | £5,500 | Offered, but likely to be disallowed without more |
The Project Manager accepts the first figure, and the Fee follows it. Disallowing the second costs the Contractor that sum plus its Fee. That may be an acceptable result: time spent on the rest may not be worth it.
How the Project Manager is likely to respond
The contract doesn't list which documents count as "accounts and records", beyond the items in 52.2 and whatever the Scope adds. So you can argue that reliable secondary evidence meets the test, and a reasonable reviewer may accept it. Equally, expect "these aren't the records you were told to keep", and a check on sample items. If you are told it's all out, ask for the reason on each line and see how to respond to disallowed costs.
Other main Options and compensation events
Under Options A and B, 52.2 and 52.3 don't apply, so there's no standing duty to show accounts. But if you are pricing a compensation event after the work, the Project Manager will expect support for the Defined Cost before the dividing date. Keep records of any event from the day it starts: clause 52 and the open book guide set out a sensible day-one system.
Related guides
- NEC Questions Answered: Real Situations on Site
- We Are Heading Over Target on Option C: What Now?
- Compensation Events Have Not Been Added to the Target
- The Client Wants to Audit Our Books: Do We Have to Agree?
- The Client Missed the Pay Less Notice: What Happens?
- The PM Disallowed Our Costs: How Should We Respond?
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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.