Disallowed cost NEC style is money the Contractor really spent but cannot recover. It applies on Options C, D, E and F, it comes off Defined Cost, and the list is short and specific. Anything not on it stays in, provided the cost fits the schedule.
The definition is at 11.2(26) of Options C, D and E in NEC4 ECC, and at 11.2(25) in NEC3 ECC. Option F has its own shorter version, at 11.2(26) in NEC3. It belongs with the rest of the NEC payment and Defined Cost guide.
The list, and what proves each item
| Disallowed Cost | In plain terms | What decides it |
|---|---|---|
| Not justified by accounts and records | No paper trail, or one that doesn't support the sum | The Contractor's records |
| Paid to a Subcontractor or supplier when its contract didn't require it | A payment beyond what its contract required | The subcontract terms and assessment |
| Incurred only because a procedure in the Scope was not followed | For example, skipping a required tender process | The Scope and the cost difference |
| Incurred only because a required early warning wasn't given | See missed early warnings | When a warning could have been given, and what it would have saved |
| Incurred only because notification of an adjudication or tribunal with a Subcontractor or supplier wasn't given (NEC4 only) | The Project Manager wasn't told | The notification record |
| Correcting Defects after Completion | The whole cost of this | Date and cause |
| Correcting Defects caused by not following a constraint in the Scope | Rework following a breach of a stated method or limit | The Scope and the cause |
| Plant and Materials not used, beyond reasonable wastage | Over-ordering, unless a Scope change caused it | Quantities and the wastage allowance |
| Resources left unused beyond reasonable availability and use, or kept after a request to remove them | Idle plant and surplus people | Allocation records and any request to remove |
| Preparing for and conducting an adjudication or tribunal between the Parties | Your own dispute costs on the main contract | Nature of the cost |
The NEC4 list above is taken from the NEC4 Engineering and Construction Subcontract, whose text matches this structure, so check the wording of your own ECC. NEC3 has the same list without the fifth row.
"Only because" and other small words
Three limbs of the definition use the word "only". If the cost would have been incurred anyway, it stays in. Suppose a supplier's tender process was skipped but the price paid was the lowest available. That's a breach of procedure, but it may not have caused any extra cost.
By contrast, Defect correction after Completion is in the second group, with no causal link needed. It doesn't matter who was careless. And Defect correction before Completion, unless a Scope constraint was broken, isn't on the list at all. That's a large and often missed point: normal rework during construction generally counts as cost on these Options, and the Contractor's incentive comes through the target and share.
Who decides, and who proves
NEC3 says Disallowed Cost is what the Project Manager decides. The NEC4 subcontract removes those words and states it as cost that meets the description. In practice, the Project Manager still has to reach a view at each assessment, and either side can dispute it.
The first limb puts practical weight on the Contractor, since a cost with no records fails. For the others, the Project Manager should be able to explain why the item is caught. For example, "cost is too high" is not a reason. "This £18,000 of crane time follows your off-hire request of 3 May" is.
Worked example
A fictional NEC4 Option C job with illustrative figures. The Project Manager reviews a £20,000 crane cost.
- Week 1 to 6: £12,000, used as planned. Stays in.
- Week 7 to 8: £4,000, on site but unused during a planned gap. Reasonable availability, so it stays in.
- Week 9 to 10: £4,000, after a written request to remove it. Comes out.
Defined Cost is £16,000 for the crane. Only the last two weeks are affected, and the written request does the work.
Practical steps
- Contractor: run your own Disallowed Cost review before you apply. It's better to find a missing proof of payment yourself. Then see the open book guide.
- Project Manager: state which limb applies, how much and why. The audit guide covers what to sample.
- Both: agree early what "reasonable wastage" and "reasonable availability" mean for the main items. The contract gives no numbers for them.
Related guides
- NEC Payment and Defined Cost: The Complete Guide
- The Fee Under NEC
- The Prices
- Price for Work Done to Date (PWDD)
- Schedule of Cost Components: Charges and Overheads
- Subcontractors and Defined Cost
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