We are using ECC option C (target contract with activity schedule). ECC, clause 11.2(29) states the price for work done to date is the total defined cost which the project manager forecasts will have been paid by the contractor before the next assessment date, plus the fee. For example, if the assessment date is 1 October, in establishing the price for work done to date on 1 October, does the project manager assess the total defined cost the contractor will have paid by 1 October, or by 28 October.
Answer
It is important to understand how a contractor deals with costs in its systems. Standard accountancy practice requires that when a contractor becomes liable to pay an amount, an estimate of that amount is accrued into the contractor’s accounts even thought it has not been paid. When it is eventually paid then the accrual is deducted and the actual amount paid is inserted. You therefore need to look at the contractor’s accounts on that basis. It is also important to understand that contractors have different payment periods for different subcontractors and suppliers. Finally it is important to understand that ECC clause 11.2(29) refers to when the amount is paid, not when it is accrued.
So, to answer your question, let us say that some materials were delivered to site on 20 September, and the supplier invoices for them on the 21 September. The contractor will accrue the cost of that in its accounts on 20 September, or, at the latest, when it receives the invoice for it. If the supplier’s payment terms are 30 days after date of invoice, then the amount will be paid before ‘the next assessment date’, that is 28 October, and will therefore be included in the assessment on 1 October. However, if the supplier’s payment terms are 45 days then the amount will not be paid before the next assessment date, and will therefore not be included in the assessment on 1 October.
There is of course nothing to stop the contractor paying such invoices extremely promptly, but this may not be known in advance when the project manager is forecasting such amounts.
