Date: 201508
Local time of day: 0601-1200
Location: ZZZ.TRACON, US
Flight conditions: VMC
Light: Dawn
Aircraft: B787 Dreamliner Undifferentiated or Other Model
Operator: Air Carrier
Operating under: Part 121
Flight plan: IFR
Mission: Passenger
Flight phase: Climb
Airspace: Class B ZZZ
ATC / advisory: TRACON ZZZ
Reporter organization: Air Carrier
Reporter function: Captain; Pilot Flying
Reporter qualification: Flight Crew Air Transport Pilot (ATP)
Human factors: Human-Machine Interface; Situational Awareness; Confusion; Communication Breakdown
Second reporter function: Pilot Not Flying; First Officer
Anomaly: Deviation - Altitude Overshoot; Deviation / Discrepancy - Procedural Clearance
Detector: Person Air Traffic Control
When detected: In-flight
Result: Air Traffic Control Issued Advisory / Alert; Flight Crew Became Reoriented; Flight Crew FLC Overrode Automation; Flight Crew Returned To Clearance
Contributing factors: Human Factors
Primary problem: Human Factors

Narrative: Flight departed ZZZ RWY XYR shortly after XA:00 UTC flying the RNAV departure. I had briefed the F/O (First Officer) I intended to manually fly the departure for proficiency using the HUD.As the F/O retracted the flaps and began the after takeoff checklist; we were handed off to departure. After checking in; the controller stated; Radar contact; climb via the SID; except maintain 16;000 ft. As we climbed thru 3;000 ft; I pointed to the MCP altitude window; and waited for the F/O to complete writing down the climb clearance. He then set 16;000 ft in the MCP window; which I verbalized. I then asked him if that was a climb direct clearance. He quickly replied; that is correct; referring to his notes and said; the controller used the words; except maintain 16;000 ft.  He then deleted the 5000 ft restriction in the FMC and verified we would be above 13;000 ft restriction before ZZZZZ since we were cleared to 16;000 ft.Leaving 4;000 ft for 16;000 ft; I saw traffic 2000 ft above us; at our 10:30 position and 5 miles on my NAV display. It was moving quickly to our 9 o'clock position and passing clear of us to our left. At that moment I thought it was odd that the controller had not pointed out the traffic. At approximately 5;500 ft; after the traffic was no longer on my NAV display; the controller informed us; you were supposed to maintain 5;000 ft on the SID. I manually stopped our climb; disconnected the auto throttles and began to descend back to 5;000 ft as the controller then cleared us to climb and maintain 16;000 ft. I watched; then verified as the F/O set 16;000 ft in the MCP altitude window.I engaged the autopilot; re-engaged the autothrottles; selected and verified VNAV SPD and LNAV; as we began climbing again.We were the handed off to the next controller as we continued our climb.


Second narrative: During climb out on the departure at 3000 feet and Captain flying and a high workload environment; our instructions were; 'RADAR CONTACT; CLIMB VIA THE SID; EXCEPT MAINTAIN 16;000 FEET'. With autopilot off; the flying Captain and I quickly discussed our clearance. We both agreed that 16;000 feet was our unrestricted altitude limit. I placed 16;000 feet into the altitude window with Captain advising to select CLB (Climb) DIRECT. We both agreed and I pushed the altitude knob twice to delete the 5;000 feet and 13;000 foot restrictions as required by the SID. At 5;800 feet we were queried by the controller that we had climbed above our initial restriction of 5;000 feet. I then asked to climb to 16;000 feet and request granted. Controller then had no further comment and we switched to next controller and resumed uneventful flight. Traffic was very light at the time and no RA encountered. Unfortunately; I had misinterpreted the clearance and without clarification entered incorrect information into the FMC. The controllers words of 'Except Maintain 16;000 feet'; triggered my response of an entered error.


Synopsis: While executing a standard instrument departure; the flight crew failed to level of at an assigned intermediate altitude. After being advised of their error by air traffic control; the climb was resumed uneventfully.