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NEC ECC: X5 & X7 Damage Clauses - Crossed Out In Contract

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We have a situation where our customer is trying to hit us with delay damages at the end of the project.

The Subcontract Data - Lists Option X5 within the contract and there are Sectional Completion Dates listed.

The rest of the Options X5 & X7 - Sectional Completion Delay Damages and Delay Damages have been crossed out in the contract.Literally struck through.

My question is are there any delay damages on this job as we have interpreted it or are they uncapped as our client states?
asked Mar 22 in NEC3 Secondary X, W and Y options by GilerGiles (150 points)  

2 Answers

+1 vote
 
Best answer
General principles as explained by Jon are correct. A few extra thoughts below.

In liquidating a sum for delay damages you set a right to claim that amount and that amount only for delay related costs. So liquidated delay damages act as a benefit to both parties in setting out what can be claimed but limiting to only that. Delay Damages under the NEC are a form of liquidated damages.
 
If you had £nil as your delay damages value the benefit to the employer is nil as that is all it can claim in relation to time related costs whereas the benefit to the contractor is great as its liability is caped at nil.
 
If your contract has no delay damages then the benefit to BOTH parties is lost. There is no easily defined sum and there is NO MAXIMUM that can be claimed. This, in more abbreviated terms, is where both Jon has got to which, as you can see, I agree with. BUT the next step is also important.

Where there is no delay damages capping recovery unliquidated (sometimes called general) damages can be recovered. However, in order to do so, those damages must be demonstrated. So, beyond a demonstration of causing a late finish (the usual trigger for delay damages) the party seeking to recover general damages MUST also show the losses it says it has actually (or will actually) incur as a matter of fact. This is not always straight forward. However, when you are a subcontractor, no doubt the valuation will be based on the delay damages the main contractor suffers plus additional costs it will say it incurs (basically its delay costs) so these can mount up very rapidly. The up the line delay damages are fairly easily demonstrated but the other costs much less so. In addition to proving the quantum the claiming party will also need to show a direct causative link between the amount claimed and the demonstrated delay taking into account anything it could/should have done by way of mitigation. This is actually a very difficult hurdle to clear and is the main reason why we have liquidated/delay damages in the first place. So while there is a right to deduct unliquidated/general damages it is a right that is hard to exercise.
 
The final question you need to look at is who makes the deduction calculation and how. If you are a subcontractor presumably the Contractor is acting as judge, jury and executioner in suffering the delay, establishing it is your fault, calculating the loss and then deciding it is a valid deduction. However, you should have a close look at the payment mechanism to see what, when and how they are entitled to make deductions (this will vary depending on your contract form).
 
In summary, without delay damages there is a big risk to both parties as much more needs to be demonstrated but the recovery could be much greater.
 
On a purely practical point, ad assuming you are at tier 2 or lower, consider going and having a chat with the Employer/Client team. While they may not be able to do anything directly my experience has been that they will quietly work behind the scenes to try and get the “right” answer rather than allow part of the supply chain to be battered to death.
answered Mar 23 by Rob Horne (18,240 points)  
selected May 10 by Glenn Hide
0 votes
Unfortunately, without X7 specified damages are at large i.e. what it costs the customer. Check to see if option X18 : limitation of liability has been specified as this might cap some of the damages.
answered Mar 22 by Jon Broome (46,560 points)