NEC ECS: Can I issue a payless notice and subsequently counter charge a Subcontractor if delay damages were removed from the contract?

During signing up a Sub Contractor, my QS removed delay damages. During construction the S/C performed poorly and as a result has placed our contract in delay.

We have issued a ‘pay less’ notice and wish to recover what they have cost us. Are we able to raise a CE/charge the contractor for our loss to “direct costs”, even with the removal of delay damages from their contract with us?

Any application of ‘set off’ must be on the basis of a contractual right, an equitable right in law or as a statutory right in the case of liquidation. As you don’t appear to have any contractual right for late completion (Secondary Option X7 not included) any such common law right of equitable set off would need to be established, so I suggest that you take particular advice on this matter.

Remember that any notice to pay less than the notified sum must not only be given no later than the prescribed period before the final due date, (which at Secondary Option Y2.3 is seven days) and must also state the sum considered due and the basis on which that sum is calculated, which makes establishing your right even more important as this can be challenged.

I agree with the very good advice from Andrew but would add that X7 is simply a means of agreeing a fixed rate for liability for delay that removes the requirement for the Contractor to demonstrate its actual loss.

If the Subcontractor has not achieved their Completion by their Completion Date then they are in breach of their obligations under clause 30.1. This is regardless of whether X7 is used or not.

If X7 is not used then damages would be at large and unliquidated but the Contractor will be required to demonstrate the actual loss suffered.