NEC ECC - what are the correct procedures for the Employer to claim under Clause X18 from the Contractor

How does the Employer claim for consequential loss and damage to property under Clause X18 NEC3.

  1. Our thoughts are
  • via, PM notification, PMA & CE or
  • claim direct from certificate, like Delay Damages
  1. It seems unfair on the Contractor to deduct a potentially large sum from the certificate with no prior formal procedure.

  2. How is VAT dealt with on a deduction?

Secondary Option X18 doesn’t actually contain any procedures as such and essentially provides liability limits for the events detailed, with the corresponding amounts entered in Contract Data Part 1.

Loss or damage to (any) property (except the works) is one of the insurances stated in the Insurance Table. It is provided by the Contractor, unless otherwise stated in Contract Data Part 1 as being provided by the Employer.

Secondary Option X18 specifically relates to ‘Employer’s property’ and provides for the maximum limit of indemnity for any one event. I assume, for the purposes of this response, that ‘property’ includes ‘Employer’s property’.

The ‘property’ insurance is required to be taken out in joint names of the Parties, with Contract Data Part 1 stating the minimum limit of indemnity for such a policy.

As the matter would likely be the subject of an insurance claim, provided the amount claimed exceeds the insurance deductible (excess). then the Employer is entitled to make such a claim under the policy. Whether they are required to notify you would depend upon the terms of the policy.

An amount paid out under an insurance policy is treated as compensation for the purposes of VAT and so VAT is not applied.

That would leave the deductible amount, however, which the Employer would likely seek to recover as an indemnity claim. The Employer could ‘set off’ such an amount against a ‘notified sum’ due for payment, although would need to issue a valid notice to pay less than the notified sum within the ‘prescribed period’ to be compliant with the Construction Act and Y(UK)2.

If the Employer is acting sensibly, you would expect them to maintain dialogue with the Contractor, either through face to face communication or correspondence, to make the Contractor aware of what action is being taken, not least to maintain relationships on the project.