NEC X17 sets agreed damages if the finished work falls short of a level the Contract Data gives. The trigger is a Defect included in the Defects Certificate that shows low performance, and the Contractor pays the amount stated for that level.
The Option is one clause, X17.1, in the NEC3 ECC and the NEC4 ECC and subcontract. It works well on process plant, energy or treatment works, and any asset judged by what it delivers rather than how it looks. See the secondary Options overview for how it compares. In term contracts, the same number covers low service damages, which work differently.
How the trigger works
The wording means more than it first seems to.
- The Scope states a requirement. A performance shortfall is only a Defect if the work doesn't meet the Scope, so the two documents need to fit together.
- The shortfall isn't corrected. A Defect the Contractor fixes by the defects date doesn't normally reach the certificate.
- The Defects Certificate lists it. The Supervisor's certificate records Defects that haven't been corrected.
- The Contract Data sets the level and the sum. The Contractor pays the amount stated for the performance achieved.
So X17 is usually a last resort, not a charge the Client can claim on day one. A Contractor has the chance to correct the performance within the normal process. The Defects Certificate guide explains the timing.
Setting performance levels
The Contract Data needs a performance level and a matching sum. Using bands gives a sliding scale. Bands of this sort are for you to design: the Option doesn't dictate a format.
| Treatment works output achieved (illustrative) | Low performance damages |
|---|---|
| 95% to 99.9% of the required flow | £40,000 |
| 90% to 94.9% of the required flow | £120,000 |
| Below 90% of the required flow | £300,000, and the Client's other remedies remain to be considered with advice |
Good levels share some features:
- You can measure them with a defined test.
- The test conditions are agreed, including who supplies what and how the data is logged.
- Each sum reflects the Client's real financial interest, based on what lost output would cost it. Keep a note of how you reached it.
A worked example
A fictional waste plant, with illustrative figures. The Scope requires an output of 20 tonnes an hour. Performance testing shows 18.4 tonnes an hour, or 92%. The Supervisor notifies a Defect.
The Contractor tries adjustments over the defects period and reaches 18.8, or 94%, but no more. At the defects date the Defect remains and appears on the Defects Certificate. Under the band table above, the Contractor pays £120,000.
Now change one fact. The Client asks for the Contractor's help in running the plant, and that restricts access for the final adjustments. The Contractor could argue that its access to correct was limited, and the outcome turns on the records. Keep a log of test dates and of who had control of the plant.
How it fits with other clauses
- Accepting a Defect. A proposal to change the Scope so a Defect doesn't need correcting is a separate route, with a quotation and a price reduction. Consider whether it would be simpler. See the guide to NEC quality management and Defects.
- Option X18. Low performance damages are excluded from the total liability cap in Option X18, so check whether your sums need their own limit, by Z clause if needed.
- Option X15. If the shortfall comes from the Contractor's design and it met the professional standard in Option X15, it may not be liable for that Defect, so read the two together.
- Delay damages. These are separate. A plant can be on time and underperforming, or late and fully performing.
Term contracts: low service damages
In the NEC3 and NEC4 Term Service Contract, X17 is about service levels rather than a finished asset. Payment is linked to a level being missed for a period, and it's taken into account when that period is assessed. If you're working on a Term Service Contract, use the service level table in your form, not the ECC approach above.
Related guides
- NEC Secondary Options: X, Y, W and Z Clauses Explained
- X18: Limitation of Liability
- X19: Task Order (NEC3) and Termination by Either Party (NEC4)
- X20: Key Performance Indicators
- X15: The Contractor's Design
- X16: Retention
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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.