It depends on your main Option. On Options C, D and E, yes in substance: clause 52.3 lets the Project Manager inspect the accounts and records you are required to keep, at any time within working hours. On Options A and B there is no such standing right, unless the Scope or a Z clause adds one.
So a client audit of the contractor under NEC isn't quite what the contract provides. It gives an inspection right to a named person, over a defined set of records. Clause numbers are the same in the NEC3 and NEC4 Engineering and Construction Contracts. Other questions like this are in NEC questions answered.
What the contract covers, and what it doesn't
| Question | Standard position |
|---|---|
| Who has the right? | The Project Manager. The Client isn't named |
| How much notice? | The clause states none |
| When? | Any time in working hours |
| What can be seen? | Accounts of Defined Cost payments, proof of payment, Subcontractor compensation event communications and assessments, and other records the Scope lists (52.2) |
| Copies, or an audit firm? | Not mentioned. Look in the Scope and Z clauses |
| Subcontractors' own books? | Not covered, unless the subcontract is open book and gives that access |
| The make-up of your Fee or tender? | Not in the list. Fee is a percentage, not a cost to be proved |
| Options A and B? | 52.2 and 52.3 don't apply. A quotation can still be queried and supported with evidence |
If you receive an audit request
- Read the Scope and Z clauses first. Clients often add audit rights there, sometimes running for years after the job, with a right to take copies or to appoint outside auditors.
- Reply quickly and agree a date. Delaying has few benefits on Options C to E: the records are what prove your cost.
- Clarify who and what. Ask for the names of the people attending, who they act for and the scope and period they want. A consultant acting on the Project Manager's behalf is normal, though it helps to have that delegation in writing (the Project Manager can delegate under clause 14).
- Prepare a clean ledger. Reconcile it to your last application first, so you find any errors before they do.
- Deal with personal data. Payroll details need care under data protection law. Offer redacted bank details and a sample, and agree what is needed.
- Keep your own note of what was reviewed, and queries raised.
Sample reply, in our own words
"We will make the accounts and records required by clause 52.2 available for inspection at [place] on [date], in working hours, under clause 52.3. Please confirm who will attend and on whose behalf, the period and cost areas you want to see and whether you rely on any audit provision other than 52.3. Payroll information will be provided with personal bank details redacted. Please send any queries as they come up."
Where to hold a line
| Request | Sensible response |
|---|---|
| Inspect ledger, invoices and payment proof | Agree. It is within 52.3 |
| Copies of everything for a Client's outside audit team | Ask where the right comes from. If there is none, agree a practical set under confidentiality terms if you are willing |
| Your tender build-up and Fee make-up | Politely decline, unless the contract requires it |
| Costs on your other projects | Decline, unless a specific item is shared and the allocation is the question |
| Inspect on Option A with no audit clause | Not required. A targeted offer on one disputed quotation may still be sensible |
What happens if you refuse
On Options C to E, the sanction is practical as well as legal. Refusal is a failure to comply with 52.3. More directly, any cost that the Project Manager can't check is likely to be treated as not justified by accounts and records, and that is Disallowed Cost, so you lose both the cost and the Fee on it. You would then have a dispute that is hard to win. It isn't a strong place to be.
What the Project Manager will tend to say, and a fair answer
"We can see anything we like." The right is wide, but limited to the records you are required to keep. "We will extrapolate this error across the job." A sample can reveal a system problem, but Disallowed Cost is about specific items, so ask for each to be identified or agree a sampling method first. "We'll deduct it from the next certificate." Ask to see the query first. For how a fair inspection should run, see auditing Defined Cost and clause 52.
Related guides
- NEC Questions Answered: Real Situations on Site
- Are Our Head Office Overheads Recoverable?
- Can We Add Margin on Subcontractor Costs?
- When Should Retention Be Released?
- We Are Heading Over Target on Option C: What Now?
- Compensation Events Have Not Been Added to the Target
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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.