Last edited 29 Jun 2016

Delay damages

NEC was first published in 1993 as the New Engineering Contract. It is a suite of construction contracts intended to promote partnering and collaboration between the contractor and client. The third edition, NEC3 was published in 2005.

The term ‘delay damages’ refers to one of the 15 secondary options available as part of NEC3. ‘X7 – Delay damages (liquidated damages)’ can be selected in part 1 of the contract data, and the level of damages payable can be defined. If option X7 is selected, and the contractor does not achieve the completion date then delay damages will be due from the contractor. This is similar to liquidated damages (or liquidated and ascertained damages, sometimes referred to as LAD's) in other forms of contract such as JCT contracts.

NEC guidance recommends that this option is included in most contracts. It is also recommended that the employer maintains a record of how delay damages are calculated in case they are challenged by the contractor. Delay damages are not a penalty, they must be based on a genuine calculation of damages. If they are not genuine, they may be considered a penalty by the courts and so will be unenforceable. Under these circumstances, the client would still be able to pursue a claim for breach of contract.

A contractor wishing to avoid a claim against them for delay damages, may make a delay claim, demonstrating that:

  • A compensation event has occurred.
  • The event caused a delay to the project’s completion.

Compensation events are similar to relevant events and relevant matters referred to in other forms of contract such as JCT contracts. Very broadly, compensation events tend to be those events that impact on the completion date, but are not the contractor’s fault. This might include events that are caused by the client, or neutral events such as exceptionally adverse weather.

A delay claim for a compensation event can only be made by the contractor if the event actually delays completion. This can require careful analysis where there are multiple possible causes of a delay to ascertain the impact of the compensation event itself.

Generally, there are two approaches that can be adopted for this sort of analysis:

  • Prospective: An assessment at the time the event occurs.
  • Retrospective: An assessment after the event has occurred.

Whilst there is no express guidance given in NEC3 as to which of the two methods to use, it is thought that the intention of NEC3 to solve problems as they occur, preferably before completion, makes the prospective approach more favourable. Although there remains a risk that this may result in the contractor being under or over-compensated.

However, courts may prefer the retrospective approach, as it can otherwise be difficult to establish a causal connection between the compensation event and the delay, and it also allows for the benefit of hindsight.

There is provision in clause X7.3 for a delay damages reduction in the event that the employer takes control of a part of the works prior to the completion.

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[edit] Related articles on Designing Buildings Wiki:

[edit] External references

  • RICS Consultations - Delay damages
  • RPC - Delay claims under NEC3