NEC3 ECS: Under Option A Contract can the client levy both Contra Charges and Liquidated Damages?

We are currently in the process of final accounting an NEC Option A Subcontract.

The client (Subcontractor) has issued us (Sub-subcontractor) with a list of contra charges (some charges are acceptable where we have used their labour however the majority we dispute) and liquidated damages under clauses Z 54 (new clause added with words below) and main x clauses X2, X5 and X7.

“The Subcontractor shall have the right to set off any sums due or becoming due to the Sub-subcontractor under the terms and conditions of this Sub-subcontract any and all amounts owed to it by the Sub-subcontractor whether or not such amounts owed are due under the terms of this Sub-subcontract or any other contract or arrangement between the Subcontractor and the Sub-subcontractor”

My question is, can they levy both sets of charges against us or are they only able to apply for one set of charges i.e. either the contra charges of LD’s - not both? Is there a contract clause that we could use to respond to this?

Usually liquidated damages are an exhaustive remedy for failure to complete the works by the Completion Date and the Subcontractor does have the right to under the Sub-subcontract to deduct these from amounts due. However, Z54 appears to also give the Subcontractor the right to recover other amounts from you.

hi, its not clear from your question if the contra charges are for matters connected with not completing by the Completion Date or for separate matters.

As Neil says, X7 is a pre-agreement for a charge to be applied in the event of “being late”.

I would see X7 as the Subcontractor’s sole remedy for you being late “under the terms and conditions of this Sub-subcontract”.

If the contra charges are for other matters not connected to “being late” then presumably they are covered by compensation events (negatives) for changing your obligations, eg where the Subcontractor has provided labour for your use. If they are for other matters then they would be in addition to X7 damages.

We have not received a single compensation event from the client regarding the aforementioned contra charges. We received a list of contra charges accompanying one of our certifications.

should they have sent us a compensation event for these?

The Contractor can not contractually with hold money unless the contract says that they can, There is no such thing as “contra charges”. If they needed you to fulfil specific obligations along the way they should/could have managed these using Key Dates, and then failure to achieve such a milestone does allow them to charge cost incurred as a result.

They could only have notified a compensation event for any such charges if it fits one of the reasons within 60.1 for being so. The whole idea of NEC contracts is that they are fair and clear to both parties on liability/obligations. It does not allow one party to withhold money from the other whenever they feel. It has to be in accordance with the contract, and if you feel it is not and you can not reason with them, then there is adjudication to go through to try to seek recovery from amounts with held that are not contractually correct.