Interim Deduction of Delay Damages

NEC3 and NEC4 Contracts Payment
1

I am working on a project as a Contractor where we have employed a Subcontractor under Option C who has failed to complete prior to the agreed date for completion, breached the Maximum Caps and has many months left on the Project.

We have calculated the sum due by using the process in the Subcontractor;

  • PWDD
  • Plus other amounts to be paid
  • Less amounts to be paid or retained

We have the following new clause 53.5

Provided always that and notwithstanding anything to the contrary herein

contained, no amount due shall exceed the Maximum Price (subject to adjustment

in accordance with clause 65.5) for that section of the subcontract works.

The issue we have is that the maximum caps have been breached and the Subcontractor is contesting the method of our Assessment;

  • We calculate the PWDD up to the maximum cap and then deducted delay damages
  • The Subcontractor is suggesting we should calculate the PWDD, deduct damages then apply the maximum cap

If we use the Subcontractors approach we will never see the benefit of the delay damages due to the cap breach being larger than the delay damages.

Which method is correct please? Or is there another mechanism for deducting delay damages on an interim basis?

2

Welcome to the community.

I have assumed you are using a NEC3 subcontract.

You have referred to 2 non standard defined terms, Maximum Caps and Maximum Price, so it would be necessary to understand their definition to answer in full. You have also referred to clause 65.5 which I do not believe is a standard NEC clause so its wording would need considering.

I have assumed the intention of the clauses is that the (cumulative) amount due is not to exceed the final total of the Prices, if the intention has been fully incorporated or not will depend on the wording of the subcontract.

If that is the case, the answer will also depend upon any changes to the timing of the assessment of the Subcontractors share (clause 53). If unaltered, the share is not initially assessed until Completion. The amount due prior to Completion would be PWDD (Defined Cost + Fee) less delay damages. This would be capped at the forecast final total of the Prices. The amount due at Completion would be PWDD (Defined Cost + Fee) less Subcontractor’s share less delay damages. This would be capped at the forecast final total of the Prices.

Due to your departure from standard NEC, the exact answer will depend upon the actual wording of the subcontract

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