Transparency Does Not Guarantee Cost Recovery
The session examined why disallowed costs continue to arise under NEC cost-reimbursable contracts and highlighted the practical steps organisations can take to strengthen governance, improve cost assurance and reduce commercial risk.
Why Do Disallowed Cost Persist?
Drawing on practical project experience, Cecelia explored some of the most common causes of disallowed cost, including:
- Unsupported labour records and inconsistent timesheets
- Weak procurement evidence and poor value-for-money documentation
- Duplicate charging and incorrect cost allocation
- Unsupported plant utilisation and downtime claims
- Defects, rework and associated costs
- Delayed assurance activities that allow issues to escalate
These challenges highlight the importance of maintaining accurate records, applying contractual requirements consistently and embedding effective assurance throughout project delivery.
A Practical Framework for Assessing Disallowed Cost
To support consistent decision-making, the webinar introduced a simple five-question framework for assessing cost recoverability:
- Has the cost actually been incurred?
- Is there sufficient, reliable evidence?
- Does it align with the Schedule of Cost Components?
- Is it allowable under the contract?
- Is the cost reasonable in the circumstances?
Applying these questions consistently can help organisations strengthen commercial discipline and improve confidence in cost recovery.
Key Takeaways
The webinar concluded with five clear messages for organisations working under NEC cost-reimbursable contracts:
- Assure early to identify issues before they become disputes.
- Recognise that robust evidence underpins contractual entitlement.
- Apply the contract consistently and understand the Schedule of Cost Components.
- Encourage constructive challenge to strengthen commercial decision-making.
- Support open-book working with effective governance, controls and independent assurance.
Ultimately, disallowed cost management is not simply a commercial exercise: it is a governance discipline. By combining transparency with strong controls, reliable evidence and proactive assurance, organisations can improve cost recovery, reduce commercial risk and build greater confidence across project teams.
Governance & Assurance For Disallowed Cost Management
Independent assurance should be introduced at contract mobilisation and maintained throughout delivery. Early assurance helps identify weaknesses in controls, records and cost allocation before issues become embedded.
Continuous Verification and Assurance (CVA) provides an ongoing review of cost records, which improves accuracy, reduces disputes and supports timely corrective action.
Key Principles
- Treat assurance as a preventative activity, not a retrospective investigation
- Review costs while they are being incurred, not after they have crystallised
Preventing Disallowed Cost Through Records & Evidence
Parties should agree at mobilisation what evidence will be required to support labour, plant, material and subcontractor costs.
NEC requires costs to be justified by accounts and records. Timesheets do not need to record every hour, but they should demonstrate a clear link between resources, activities and the works provided.
Contract management systems such as CEMAR are highly beneficial because they provide structured records, approvals and audit trails that improve transparency and consistency.
Key Principles
- Unclear evidence requirements are one of the most common causes of disallowed cost disputes
- Agree minimum evidence standards at contract outset
- Technology supports assurance but does not replace good governance
Commercial Controls for NEC Disallowed Cost
Organisations should implement robust records, regular audits, agreed evidence standards and early challenges of questionable costs. It places greater emphasis on disciplined cost management because costs are reimbursed as incurred.
The challenge of disallowed cost is often interpretation rather than contract wording. Resource allocation, support costs, affiliates and productivity losses frequently create disagreement.
Accurate records reduce commercial exposure for all parties.
Key Principles
- Costs that cannot be justified through records may become Disallowed Cost
- Document agreed methodologies before costs arise
- Accurate records reduce commercial exposure for all parties
Labour, Plant & Materials
Plant utilisation can be demonstrated through site diaries, plant logs, GPS information, photographs, delivery records and productivity reports. Evidence should demonstrate that the plant was used to Provide the Works.
Contractor-caused inefficiencies such as poor planning or avoidable rework are generally Disallowed Cost, while client-caused disruption may be recoverable where properly evidenced.
Expected wastage levels should be established using industry benchmarks, manufacturer guidance or historic performance before assessing material variances.
Key Principles
- Availability alone does not necessarily justify recovery of cost
- Cause and effect must be clearly demonstrated
- Reasonable wastage may be recoverable; avoidable wastage may not be
Contact Administration & Information Sharing
Subcontractor delay costs should not automatically be disallowed simply because delay occurred. The underlying cause, contractual obligations and mitigation actions should be assessed before reaching a conclusion.
Although NEC4 does not require overtime approval, organisations should establish approval thresholds and governance arrangements to ensure overtime is necessary, reasonable and adequately supported.
Open-book transparency should be balanced with GDPR requirements through agreed data-sharing protocols, appropriate anonymisation and controlled access arrangements.
Key Principles
- Focus on evidence and causation rather than assumption
- Pre-agreed approval processes reduce disputes
- Transparency should be sufficient to validate costs while protecting personal data
CFBL Key Takeaways
- Disallowed Cost issues are usually caused by weak evidence, inconsistent interpretation or poor governance.
- Good records are the foundation of successful NEC cost recovery.
- Early agreement of methodologies prevents later disputes.
- Independent assurance strengthens confidence in cost submissions.
- Prevention is significantly more effective than retrospective recovery.
Webinar
🎥 Click Click here to watch the webinar: https://youtu.be/P3YxmttbZq0
References
- Built Intelligence Academy Webinar
- CICES Webinar Session Materials
- NEC Cost- Reimbursable Contract Guidance
- Continous Verification and Assurance (CVA) Principles
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References
- Built Intelligence Academy Webinar
- CICES Webinar Session Materials
- NEC Cost- Reimbursable Contract Guidance
- Continous Verification and Assurance (CVA) Principles
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