NEC ECC: Delay Damages - Subcontractors - Is it a Defined Cost?

We are undertaking works for an Employer under an NEC3 ECC incorporating Main Option C.

We employed a supply chain partner under an NEC3 PSC Option A Contract to undertake design work included in our scope of the main contract.

We will be deducting Delay Damages from the Professional Service from the Completion Date for each day until Completion is achieved. Will this result in a reduction to Defined Cost under our Main Contract with the Employer or as Delay damages deducted from a Professional Services account are not referred to in clause 11.2 (23) as an item that should be deducted when determining Defined Cost, does this mean this would form part of the amount due to a Subcontractor i.e. Defined Cost.

Furthermore if a professional services’ works are critical does it follow that an Employer, in effect, over or double recovers costs where it recovers the subcontract damages through Defined Cost and also recovers delay damages under the main contract?

You are correct, the supply chain partner under a PSC is a Subcontractor as far as the ECC is concerned which means that under clause 11.2(23) you are paid “the amount of payments due to Subcontractors … without taking account of …” None of the exceptions apply therefore you only recover what you pay them. You’ve deducted delay damages from them and you pass this reduction onto the Employer - it’s a cost reimbursable contract so why should you profit from the situation?

Remember that under Option C, it isn’t just the Employer who will benefit from the reduced Defined Cost + Fee - you will also!