NEC ECC: Use of Secondary Option X18

NEC3 and NEC4 Contracts Secondary X, W and Y options
1

NEC3 ECC Contract - Employer has not included X18 in the contract documentation where part of the works includes a contractor designed element (design and construction of canopy structure).

A bidder is stating X18 must be included otherwise they have unlimited liability and if X18 was inserted they would also look to cap the liability.

Contract Data Part One states under ‘Risks and Insurance’: -

"The minimum limit of indemnity for insurance in respect of loss of or damage to property (except the works, Plant and Materials and Equipment) and liability for bodily injury to or death of a person (not an employee of the Contractor) caused by activity in connection with this Contract for any one event is £10,000,000.00 (ten million pounds).

The minimum limit of indemnity for insurance in respect of death of or bodily injury to employees of the Contractor arising out of and in the course of their employment in connection with this contract for shall comply with statutory requirements."

and under ‘Option Statements’: -

“The Contractor provides these additional insurances - Insurance against faults in design (Professional Indemnity Insurance) Cover/ indemnity is £10,000,000”

The construction estimate for the whole works is approx. £1M. Insurance of the Works required is stated as the “Full Reinstatement Value”.

In effect, if the contractor held £10M insurance and no more, they are complying with the contract. Would this not then be a ‘cap’?

In the example - if the contractor was to hold £10M insurance (and no more) and a claim resulted in say £15M worth of loss/damage (contractor fully liable!), the insurance company would pay out £10M and then, I assume, the Employer would need to take legal action to recover the additional £5m?

Therefore, is X18 needed?

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2

From a bidder’s perspective the answer is ‘Yes’ because otherwise they have liability both up to their excess/deductible when the insurance kicks in (as normal) and, as you point out, above the limit of their insurance.

3

Commentators appear to advise Option X18 being activated/used when the contract is Design & Build. However, many package contractors have virtually no design input at all - except for merely design of fixings and which are standard fixings only and in such a scenario even the fixings are not bespoke. In other words, “design” as such is retained by the employer’s design team and even in the small element deemed to be the package contractor’s design portion there is no real design by the package contractor(s). And for example the package contract may only be for such as £100k with a tiny fraction of that in the fixings which are standard anyway. In such circumstances it is folly to have £10m liability in the package contractor’s subcontract and entirely disproportionate and many would argue inappropriate and rather misplaced but we see it in documentation nevertheless.