Delay damages (NEC)
Introduction
This procedure note provides guidance on the application and use of delay damages under Edition 3 of the NEC Engineering and Construction Contract. Under other forms of contract these are known as Liquidated and Ascertained Damages (LAD's).
Option X7 under the Secondary Options of the contract allows delay damages to be included and a daily rate is entered into the Contract Data. Clause X7 sets out when delay damages apply, what happens if the completion date is postponed after damages have been paid and what happens if the Employer takes over part of the works before completion. If a project includes Sectional Completion (Secondary Option X5) delay damages are calculated for each section and stated in the contract data.
Should delay damages be included?
Delay Damages must be included in every substantial minor (above £5,000 estimated construction value) and major building project commissioned under the council's Capital Building Programme.
Delay Damages should also be included for building projects procured through Framework Contractors (Tiers 1 and 2).
How are delay damages calculated?
If the estimated construction value of the project is below £25,000 and there are no additional client costs, Delay Damages are calculated as 0.5% of the estimated construction value, apportioned equally over the anticipated construction period and rounded-up to the nearest pound. The service provider should confirm with Oxfordshire County Council Corporate Landlord if additional client costs exist on projects in this category.
If the estimated construction value is above £25,000, Delay Damages will be calculated as follows:
Step 1: Calculate total fee percentage
| Ref. | Element | Value | County council role | Consultant's role |
|---|---|---|---|---|
| A | Service provider fees | % | Inserts appropriate % fee rate from county council contract for entire project. | |
| B | Other professional fees | % | Confirm if applies and value. | Inserts % fee rate advised into calculation. |
| C | Total fee percentage | % | Calculates total fee percentage (A+B). |
Step 2: Calculate project value
| Ref. | Element | Value | County council role | Consultant's role |
|---|---|---|---|---|
| D | Estimated contract sum | £ | Inserts estimated contract sum. | |
| E | Fees | £ | Calculates by applying Total fee percentage (C) to Estimated contract sum (D). | |
| F | Project value | £ | Calculates project value (D+E). |
Step 3: Calculate delay damages amount
| Ref. | Element | Value | County council role | Consultant's role |
|---|---|---|---|---|
| G | Contract period | Inserts estimated contract period in weeks. | ||
| H | Interest on capital | £ | Confirms if different interest rate should apply to specific project. | Calculates % interest rate by taking county council advised rate or, if no advised rate, takes current Bank of England Base Rate plus 2%. Then applies % Interest Rate to 80% of Project value (F) and divides by 52. |
| J | Professional costs | £ | Calculates by applying 40% (proportion of fee for construction and completion stages) of consultant's fee rate (A) to estimated contract sum (D) and dividing by contract period (G). | |
| K | Further applicable costs (e.g. temporary accommodation, client management costs) | £ | Confirm if applies and amount | Inserts amount per week into calculation. |
| L | Weekly rate | £ | Calculates weekly rate (H+J+K). | |
| M | Daily rate | £ | Calculates by dividing Weekly rate (L) by 7. Inserts result into contract data. |
This method is based on the Assessment of Liquidated and Ascertained Damages on Building Contracts (2nd Edition, July 1993), prepared by The Society of Chief Quantity Surveyors in Local Government.
When and how to apply delay damages
Once Option X7 is selected, the application of delay damages is mandatory under the NEC Contract. Delay damages must be deducted as they become due as part of the assessment made and certified by the service provider Project Manager (as defined in the contract). Under the terms of the NEC Contract, they are not deducted separately by the council from the amount certified by the consultant.
Since delay damages are amounts to be paid by the contractor, the SP must make appropriate deductions in the first assessment of the amount due that occurs after the completion date, and in subsequent assessments up to the earlier of completion and the date the council takes over the works.
As the deduction of delay damages is mandatory, the SP must ensure that the programme effects of all compensation events are incorporated to provide the correct completion date; to avoid a situation where delay damages might be deducted incorrectly and subsequently need to be repaid. If these circumstances arise, Clause X7 of the contract states that the council must pay interest on the overpaid damages.