The monthly application should set out a payment position the Project Manager has been following throughout the period. If the first sight of the expenditure is an accounts export with hundreds of attachments, the review is starting too late.
Under Options C, D and E of the NEC4 Engineering and Construction Contract (ECC), the payment assessment looks ahead to the Defined Cost the Project Manager forecasts the Contractor will have paid before the next assessment date, with the Fee added. It is not limited to expenditure already incurred or work already carried out. The application needs to explain that forecast and its calculation. Reviewing the supporting records throughout the period avoids trying to complete a comprehensive audit between the application and the payment certificate.
Know what to expect before the application
The fictional Ironbark Recycled Water Scheme uses Option C. A regional Australian water utility is procuring a pipeline, pumping station and balancing tank to supply an industrial estate from an existing treatment plant. The plant remains operational during construction and connection.
Ironbark's Project Manager should already understand the work carried out and the commitments affecting the next payment. The programme and site progress show which operations are active. Procurement information identifies deliveries and expected payments, while Subcontractor submissions and pricing information explain the packages being delivered. Earlier assessments and compensation event records help account for changes in the Contractor's forecasts.
Looking out of the window helps too. Seeing excavation and pipe installation gives the Project Manager a sense of the resources being used and a basis for asking about hire periods or subcontract progress. Observation cannot establish a contractual rate, payment term or cost entitlement, but it can help identify a figure which needs explaining.
I would expect a Project Manager involved in that work to have a reasonable idea of the amount and composition of the application before it arrives. A substantial departure from that expectation should prompt a discussion. That estimate helps the review, but the Project Manager must still assess the amount due under the contract.
The Contractor's forecasts under clause 20.4 help keep that understanding current. Under Options C, D and E, the Contractor forecasts total Defined Cost for the whole of the works in consultation with the Project Manager and explains changes since the previous forecast. This helps the Client understand likely final cost and, under Options C and D, the emerging position against the target. The payment assessment uses a shorter forecast, covering payments expected before the next assessment date.
Keep the application clear
The example assumes monthly assessments under the June 2017 NEC4 ECC incorporating the January 2023 amendments, without project amendments affecting these procedures. Check the signed contract, including Contract Data, Scope and additional conditions.
Clause 50.2 requires the Contractor to submit an application before each assessment date, showing the amount it considers due and details of the calculation, in the form stated in Scope. The Project Manager considers a timely application when making the assessment. The standard contract requires certification within one week of the assessment date and payment within three weeks of that date, unless Contract Data states another payment period. The operative contract and applicable Australian legislation must be checked before relying on those periods. Asking for clarification does not, by itself, extend the assessment or certification dates.
Ironbark's application should reconcile the previous assessment with the current cumulative position. Significant movements in paid costs, changes to forecast payments and the treatment of earlier queries should be explained. The Fee and other contractual additions or deductions should be identifiable. The Project Manager should be able to follow the calculation without rebuilding it from individual invoices.
The supporting records allow that calculation to be checked. Clause 52.2 requires accounts of Defined Cost payments, proof of payment, relevant subcontract compensation event communications and assessments, and other records stated in Scope. Clause 52.4 allows the Project Manager to inspect the required accounts and records during working hours. These standard provisions do not themselves require the Contractor's entire accounting system to be attached to every application.
An Equipment entry should reconcile to the cost records, with references to the relevant hire agreement, on-hire and off-hire records, invoices and payments. The Defined Cost provisions determine which costs qualify. The application needs to show the calculation and make those supporting records easy to find.
Supporting records and large attachments
Some contracts are amended to require all supporting information with every application. Resubmitting unchanged records each month can create a substantial burden without helping either team understand the current position. That burden needs to be considered when agreeing the requirements. Once they form part of the contract, the Contractor must comply with them unless they are properly changed.
An index linking application headings to source records makes the information easier to review. It can distinguish new documents from records already examined and identify corrections or unresolved items. Consistent file names and version control also help. Where the contract permits it, an accessible records repository can avoid repeatedly copying the same documents into attachments.
A repository link cannot simply replace an attachment which the contract expressly requires. Changing that obligation needs the appropriate contractual mechanism, including agreement between the Parties where necessary. An informal working arrangement does not amend an additional condition.
A Contractor may also choose to export its accounts package to Excel and attach hundreds of documents when the contract does not require it. The workbook may mix invoices, commitments and cash payments, with repeated entries and credits which are difficult to trace. A concise calculation reconciled to accessible records is easier to assess and leaves the detailed information available for continuing review.
Forecasting payments
Under Options C, D and E, Price for Work Done to Date is the total Defined Cost which the Project Manager forecasts the Contractor will have paid before the next assessment date, plus the Fee. It is a cumulative forecast to that future date, including eligible payments already made and those expected before the next assessment. It is neither just the cost incurred so far nor just the additional cost expected during the coming period.
Despite its name, Price for Work Done to Date can include payments relating to work not yet done at the current assessment date. The question is what the Project Manager forecasts will have been paid before the next assessment date, applying the Defined Cost rules. A cost already incurred but not expected to be paid until after that date is outside the current forecast. A commitment alone does not establish when payment will be made.
On Ironbark, suppose the $120,000 forecast comprises $70,000 for pipe already delivered, expected to be paid in two weeks, and $50,000 of weekly wages for pipe laying planned during the next two weeks, also expected to be paid before the next assessment date. Some of that labour has not yet been carried out. Both amounts can be included if the Project Manager reasonably forecasts those payments and the costs meet the contract's requirements. The programme, resource arrangements and payment terms support the forecast; the later records establish what actually happened.
The forecast needs to reconcile with the previous assessment. When an expected payment has been made, it moves into the paid-cost figure; it is not added again as another cost. If payment has been delayed, the current forecast must reflect its revised timing. Changes should be explained so that the Project Manager can follow the movement between the two assessments.
Assessing the application
In Defined Cost in Practice, Ironbark's commercial team reviewed an extract from a cost return. The $100,800 of Defined Cost, with an illustrative Fee, produced $110,880. A complete payment assessment also needs the cumulative cost position, the forecast of payments and any other contractual adjustments.
Assume the previous amount due was $990,000. The Contractor now puts forward $900,000 of cumulative paid costs and the $120,000 of further eligible payments forecast before the next assessment date. That forecast includes the forthcoming wages as well as the materials account. The paid-cost figure includes the unexplained $1,000 for two excavator days from the earlier example, submitted again without reconciling the hire records.
The illustrative fee percentage remains 10%. The assessment takes place before Completion, with no other net contractual additions or deductions. All figures are in Australian dollars, before any tax required to be added.
| Basis | Contractor application AUD | Project Manager assessment AUD |
|---|---|---|
| Cumulative paid costs put forward | $900,000 | $899,000 |
| Additional eligible payments forecast before the next assessment date | $120,000 | $120,000 |
| Total Defined Cost forecast | $1,020,000 | $1,019,000 |
| Fee at illustrative 10% | $102,000 | $101,900 |
| Price for Work Done to Date | $1,122,000 | $1,120,900 |
| Other net contractual additions or deductions | $0 | $0 |
| Amount due at this assessment | $1,122,000 | $1,120,900 |
| Previous amount due deducted for payment | $990,000 | $990,000 |
| Resulting payment | $132,000 | $130,900 |
The Project Manager's assessment is $1,100 lower: the unsupported $1,000 and its associated $100 Fee. The explanation should identify the discrepancy in the hire period, the evidence reviewed, the relevant cost provisions and the records needed to resolve it. The Contractor should not have to infer the reason from a reduced total.
The new payment is calculated by deducting the previous amount due under clause 51.1, not the amount shown in the Client's bank records. Any earlier unpaid certified payment remains a separate payment matter. It does not disappear within this calculation.
Other contractual amounts must be assessed on their own basis. The unresolved hire query does not justify withholding unrelated amounts which are properly due.
Reviewing costs during the period
The evidence for a forecast payment differs from the evidence for expenditure already made. Payroll arrangements, planned resources, hire terms and expected payment dates can support a forecast, although timesheets or proof of payment for work not yet carried out will only become available later. Their absence at the current assessment date is not, by itself, a reason to strip those forecast payments out. The Project Manager needs a reasonable basis for expecting the payments and their eligibility as Defined Cost. An unexplained charge for past expenditure, such as the additional excavator hire, presents a different question.
Regular review can focus on new subcontract arrangements, unusual transactions, changed calculation methods and recurring discrepancies, alongside the reconciliations across the return. Queries should be discussed as they arise. Leaving them until the assessment date compresses the time available to resolve them. The Contractor remains responsible for keeping the records, and the Project Manager for assessing the amount due.
For the excavator, the invoice and payment entry establish the charge and expenditure, but the records support only ten days, not the additional two. Under Options C, D and E, cost not justified by the Contractor's accounts and records is Disallowed Cost. On these facts, the Project Manager excludes the $1,000. Describing an amount as 'under query' does not establish its entitlement to payment or provide a contractual basis for a deduction.
The head-office allocation in the earlier example fell outside the applicable cost components, whereas the extra hire is excluded because the records do not justify it. A classification error calls for an explanation of the cost rules. The hire query needs evidence about the period charged and the amount properly payable.
Resolving queries and correcting assessments
Suppose the Contractor later reconciles the off-hire records, supplier account and site records. Together, they show that the machine remained required for the additional two days and that the charge was properly payable. The Project Manager can then assess the cost against those records. Proof that the invoice was paid would not, on its own, resolve the query.
If the $1,000 qualifies and the relevant cost and assessment remain open under the contract, the cost and resulting Fee enter a later cumulative calculation. Clause 50.6 requires an incorrectly assessed amount due to be corrected in a later payment certificate. The assessment record should identify the adjustment so that it is neither lost nor counted twice. The next payment will also reflect other cost movements and revised forecasts, so it will not necessarily be $1,100.
If the additional hire was not properly payable, the exclusion remains and the query should be closed with that explanation. Later evidence does not automatically mean the earlier assessment was mistaken. Where a correction relates to a mistake, the interest provisions in clause 51.3 must also be considered and applied where required.
In Australia, the contractual payment provisions operate alongside applicable security of payment legislation and Y(Aus)1 where selected. Claims and responses have their own requirements and deadlines. A later audit or correction does not override a statutory payment obligation or remedy.
Finalising Defined Cost
Clause 50.9 provides a separate procedure for finalising Defined Cost under Options C, D and E. The Contractor notifies the Project Manager when Defined Cost for a part of the works has been finalised and makes the supporting records available for inspection.
The Project Manager has thirteen weeks to accept that part of Defined Cost as correct, request further records or notify errors. The Contractor has four weeks to supply requested records or advise corrections. Within four weeks of receiving that response, the Project Manager must accept that part of Defined Cost or notify its correct assessment.
If the Project Manager does not notify a decision within the applicable period, the Contractor's assessment is treated as correct. Clause 50.9 does not require an additional reminder notice before that consequence applies.
The notification should identify the part of the works, the cost being finalised and the supporting records. A general statement that payment remains subject to audit does not displace this procedure.
Ironbark's hire query needs to be resolved before the relevant Defined Cost is finalised. Clause 53 also sets limits on reopening the final assessment, including provisions for conclusivity and challenge.
Payment and target adjustments
Paying the additional hire cost, if justified, would not itself increase Ironbark's Option C target. Changing the total of the Prices needs a contractual basis, such as an implemented compensation event. Spending more than expected does not establish that a compensation event has occurred.
Routine payment under Options C and D is not capped at the target. An overrun is not automatically Disallowed Cost or a deduction from the current payment. Clause 54 separately calculates the Contractor's share by comparing Price for Work Done to Date with the relevant target figures and applying the share ranges.
Under Option C, the Project Manager makes a preliminary share assessment at Completion of the whole of the works, using forecasts of final Price for Work Done to Date and the final total of the Prices. It is included in the amount due following Completion. The final share assessment uses the final figures and is included in the final amount due. The standard contract does not provide for a monthly deduction of the Contractor's forecast share of an eventual overrun.
Option D has the same timing for share assessments, but its defined Total of the Prices reflects completed measured quantities and the relevant lump sums in the Bill of Quantities. Routine payment still uses Defined Cost plus the Fee. Option E uses the same underlying cost-based payment approach without a target and share mechanism.
At Ironbark's next assessment, the commercial team should trace the excavator decision, reconcile forecast and actual payments and explain changes in the cumulative amount due. That calculation can be simple when the underlying records have been reviewed throughout the period and any remaining queries are clearly identified. These assessments form part of NEC4 ECC Commercial Management training.
