Limiting Liability Under NEC

An NEC limit of liability comes from Option X18, which is optional: the core clauses set no overall cap on what the Contractor can owe the Client. If X18 is chosen, the Contract Data states the amounts for up to four caps, and a date after which the Contractor stops being liable for matters not notified.

This page is about how to use the Option when you set up a contract. For its clause numbering across editions, see the X18 clause guide. For how it relates to the wider allocation, see NEC risk and liabilities.

What needs deciding

Decision	What to think about
Indirect or consequential loss	The Client's lost rent, production or profit. Contractors normally want this limited tightly
Client's property, per event	Consider the value of the existing assets near the work, and the third-party cover
Defects due to the Contractor's design not listed on the Defects Certificate	Latent design failure. Link it to the professional indemnity level
Total liability	The overall ceiling on most things, whatever the legal basis of the claim, as far as the law allows
End of liability date	When the Contractor is free of matters nobody has notified

What stays outside the total

The total cap doesn't include some amounts the contract says the Contractor has to pay:

• damage to or loss of the Client's property;
• delay damages (where Option X7 is used);
• low performance damages (where Option X17 is used);
• the Contractor's share (on Option C or D).

These are called excluded matters. So don't treat the headline number as the worst case: it isn't.

A worked example

A fictional £20 million treatment works, on Option C with X7, X15 and X18. All figures are illustrative.

Contract Data entry	Amount
Indirect or consequential loss	£1 million
Client's property, any one event	£10 million
Design Defects not on the certificate	£5 million
Total liability, excluding excluded matters	£20 million

A design Defect shows up after the certificate. Correction costs £3 million, and the Client's lost production comes to £2 million. The design cap isn't reached. Of the £2 million lost production, only £1 million is recoverable if it counts as indirect or consequential loss. That classification can be a legal argument, so don't assume you know the outcome. Separately, delay damages paid earlier of £600,000 don't count toward the £20 million.

Checks when drafting

1. Match the caps to the insurance. A design cap of £5 million with professional indemnity of £2 million leaves an uninsured gap.
2. Think about the cap under Option E. Consider how the overall figure relates to a cost-based contract where the final price is unknown.
3. Check that the end of liability date is workable. It's stated in the Contract Data. If it's measured from Completion, the actual date will depend on how the job goes. Set a period that's realistic for latent problems, and take advice on how it sits with the legal limitation period.
4. Read all other caps and indemnities together. A Z clause can create an unlimited liability outside X18. See indemnities under NEC.
5. Check back-to-back. Subcontract caps don't automatically match the main contract. See back-to-back subcontracts.
6. Remember the law. Some liabilities can't be limited by contract, such as for death or personal injury caused by negligence. Take advice on your own wording.

Other ways of limiting liability

• Option X15 changes the design standard to skill and care, which is about whether liability arises at all and not how much.
• Delay damages under X7 set a pre-agreed rate, in place of general damages for late Completion. The stated rate is another form of limit.
• Additional conditions. Bespoke clauses can do more, but check that they sit well with the core.

Common mistakes

• Ticking X18 but leaving entries blank. In the NEC4 subcontract text, a limit applies only if an amount is stated, so a blank means no limit.
• Assuming the cap protects the Client as well. The Option limits the Contractor's liability to the Client. It doesn't cap what the Client may owe.
• Forgetting that a time-limit date helps only for matters not notified before it.

Related guides

• NEC Risk, Liabilities and Insurance
• Force Majeure and NEC
• Risk Allocation by Main Option
• Risk Allowances in Quotations

This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.