NEC4 options A to F: how each main option pays and what it asks of the programme
By Roman Bazelchuk | NEC Accredited Project Manager | APMG Project Planning and Control
Founder, NEC Planning Solutions Ltd
I have planned jobs under Options A, B and C, and each asked something different of the programme. Option A was the most straightforward: the activities were the payment, and the programme showed when each would be paid. Option B was harder, because quantities are difficult to represent on a programme built from activities. Option C carried the most administration, because the target kept moving as compensation events were implemented, and every move had to be tracked. The core clauses were the same each time. What the programme had to carry was not.
NEC4 options A to F are the six main options of the Engineering and Construction Contract: priced contracts (A and B), target contracts (C and D), a cost reimbursable contract (E) and a management contract (F). Each decides how the Contractor is paid, who carries cost risk and what the programme is asked to support.
The Client usually chooses the option before the tender goes out, and the Contractor inherits it. Much of the contract does not change with the choice. Early warnings, the programme requirements, the core list of compensation events and the assessment of their effect on time sit in the core clauses, which every contract includes whichever option is chosen. The main option clauses change the money: the pricing document, what each assessment pays, whose cost is at risk and which records the Project Manager can open.
For the planner, the option changes the programme's job more than its content. On Option A the completion dates on the programme are the cash curve. On Options B and D the quantities measured as complete decide what is paid or what the target becomes. On Options C to F the Contractor forecasts Defined Cost under clause 20.4, and a forecast that cannot be traced to the programme is hard to defend in front of a Project Manager who can open the books.
This guide takes the six options in pairs, following NEC's own grouping by who carries most of the risk: the priced contracts, the target contracts and the cost reimbursable contracts. The two activity schedule options have a fuller comparison of their own in NEC4 Option A vs Option C, and the way a compensation event is priced is set out in the compensation event quotation guide. The question here is narrower: what each option pays, who carries an overrun, and what that asks of the programme.
NEC4 options at a glance
The table sets the six options side by side. Three defined terms carry most of it. The Price for Work Done to Date is what each assessment pays for the work. Defined Cost is the cost the contract recognises: the components in a Schedule of Cost Components on Options A to E, and on Option F the payments due to Subcontractors and the prices for the work the Contractor does itself, less Disallowed Cost on Options C to F. The Fee is the amount the Contractor's tendered fee percentage adds to Defined Cost.
Pricing document | Each assessment pays | Cost risk | |
Option A, priced contract with activity schedule | Activity schedule, with a lump sum for each activity | The Prices of completed activities and completed groups of activities | Contractor, subject to compensation events |
Option B, priced contract with bill of quantities | Bill of quantities, with rates and lump sums | Completed quantities at the bill's rates, plus the completed proportion of each lump sum | Contractor on its rates, Client on the quantities |
Option C, target contract with activity schedule | Activity schedule, whose total of the Prices is the target | Forecast Defined Cost plus the Fee | Shared through the Contractor's share, clause 54 |
Option D, target contract with bill of quantities | Bill of quantities, which sets a target remeasured as work is completed | Forecast Defined Cost plus the Fee | Shared through the Contractor's share, clause 54 |
Option E, cost reimbursable contract | None. The Prices are a forecast of total Defined Cost plus the Fee | Forecast Defined Cost plus the Fee | Client, apart from Disallowed Cost |
Option F, management contract | None for the subcontracted work. The Contract Data prices the work the Contractor does itself | Forecast Defined Cost, mainly subcontract payments, plus the Fee | Client, apart from Disallowed Cost and the Contractor's own priced work |
"Forecast Defined Cost plus the Fee" is shorthand for the contract's longer wording: the Defined Cost the Project Manager forecasts will have been paid by the Contractor before the next assessment date, plus the Fee. It means the same on all four options that use it.
What changes between the NEC4 options, and what stays the same
Every ECC contract is assembled from the same parts: the core clauses, which every contract includes, one main option, one of the dispute resolution options W1 to W3, and the secondary options the Client selects. The core clauses carry most of what a planner works with each week. Early warnings sit in clause 15, the programme in clauses 31 and 32, and the assessment of delay against the Accepted Programme current at the dividing date in clause 63.5. Because that clause is core, it applies to the time effect of compensation events under every option.
The main option clauses change the money. They define the Prices, the Price for Work Done to Date and Defined Cost. They decide which Schedule of Cost Components prices a compensation event where rates or lump sums are not agreed: the Short Schedule on Options A and B, the full Schedule on Options C, D and E. And they add duties that only some options carry: the clause 31.4 link between the activity schedule and the programme on Option A, compensation events for quantity differences and bill corrections on Options B and D (clauses 60.4 to 60.6), forecasts of total Defined Cost on Options C to F (clause 20.4), accounts and records the Project Manager can inspect on the same four (clause 52.4), and the Contractor's share on Options C and D (clause 54).
NEC groups the six by who carries most of the risk: the Contractor on Options A and B, both parties through a shared target on C and D, and the Client on E and F. The rest of this guide follows that order, because the same three families decide what the programme is asked to prove.
Options A and B: the priced contracts
On the two priced options the tender sets the money. The Contractor is paid the Prices, whatever the work costs it to do, and the Price for Work Done to Date carries no separate Fee. The Prices change through compensation events, and on Option B what is paid also follows the quantities actually completed. On these options Defined Cost matters mainly when a compensation event is priced.
Option A: priced contract with activity schedule
Option A is paid by completed activities. The Contractor prices the works as lump sums in an activity schedule, and each assessment pays the Prices of the activities, and groups of activities, that are complete. An activity that is 80 per cent done earns nothing yet, an activity inside a group earns nothing until the whole group is complete, and an activity with notified Defects whose correction will delay following work does not count as complete.
That makes the completion dates on the programme the cash curve, and the contract ties the two together. Clause 31.4 has the Contractor show how each activity on the Activity Schedule relates to the operations on every programme it submits for acceptance, and clauses 55.3 and 55.4 govern when the schedule can be revised and what the Project Manager can refuse. How to structure the schedule so that cash arrives when the costs do is the subject of the guide to NEC4 cashflow and the activity schedule.
The cost risk is the Contractor's, subject to compensation events. A tender priced too low stays priced too low: clause 55.4 lets the Project Manager refuse a revised schedule that changes the total of the Prices.
Option B: priced contract with bill of quantities
Option B replaces the activity schedule with a bill of quantities. The Contractor prices the bill's items as rates and lump sums, and each assessment pays the quantity of work completed for each item at its rate, plus the completed proportion of each lump sum. Work counts as completed only when it has no notified Defects whose correction will delay following work.
The risk splits along the same line. The Contractor carries the risk of its rates: if an item costs more to build than its rate allows, the loss is the Contractor's. The Client carries the risk of the quantities, because the bill is remeasured and the Client pays for the quantities actually completed. NEC's FAQ on remeasuring implemented compensation events makes the related point, citing the NEC4 user guide: where an event is assessed with quantities and rates, the Client remains at risk of the accuracy of the quantities, while an event priced as a lump sum is not remeasured.
The bill brings compensation events of its own. Under clause 60.4 a difference between the final total quantity of an item and the quantity in the bill is a compensation event if it does not come from a change to the Scope, it changes the Defined Cost per unit of quantity, and the item's rate multiplied by the final total quantity is more than 0.5 per cent of the total of the Prices at the Contract Date. Clause 60.5 makes a quantity difference that delays Completion, or the meeting of the Condition stated for a Key Date, a compensation event too. Clause 60.6 covers the Project Manager's instructions correcting mistakes in the bill that depart from the method of measurement's rules for item descriptions or for dividing the work into items, or that arise from an ambiguity or inconsistency. Such a correction can reduce the Prices as well as increase them. Changed Prices take the form of changes to the Bill of Quantities under clause 63.15.
There is no clause 31.4 in Option B. Payment follows measured quantities, so the bill does not need to match the operations on the programme. The two still meet in every compensation event, and most directly in the clause 60.5 events, where the programme is what shows the delay.
Options C and D: the target contracts
On the two target options the tender sets a target, not a price. Each assessment pays forecast Defined Cost plus the Fee. The difference between the target and the final Price for Work Done to Date is shared under clause 54, at the percentages the Contract Data sets for each share range: the Contractor is paid its share of a saving and pays its share of an excess. The Project Manager makes a preliminary assessment of the share at Completion of the whole of the works and a final one in the final amount due, not month by month.
Both options ask for a transparency the priced options do not. The Contractor prepares forecasts of the total Defined Cost for the whole of the works in consultation with the Project Manager, at the intervals the Contract Data sets, explaining what has changed since the last one (clause 20.4). It keeps the accounts and records clause 52.2 lists, and the Project Manager can inspect them (clause 52.4). And cost the contract disallows is not paid, including cost the Contractor's accounts and records do not justify and cost incurred only because it did not give an early warning the contract required (clause 11.2(26)). Why Defined Cost recovery breaks down on Options C and D covers the records in detail.
Option C: target contract with activity schedule
Option C prices the works in an activity schedule, as Option A does, but the total of the Prices is the target rather than the amount paid. Compensation events change the Prices recorded in the schedule (clause 63.14), so implemented events move the target. In NEC4 clause 31.4 applies to Option A only, and Option C has no facility to revise the activity schedule, so keeping the target tied to the programme is the Contractor's own discipline rather than a contractual duty.
Option D: target contract with bill of quantities
Option D sets the target in a bill of quantities, and that changes how the target behaves. The share on Option D is calculated against the Total of the Prices, which the contract defines from the work actually done: the quantity completed for each item at the bill's rate, plus the completed proportion of each lump sum. The target is remeasured as the job goes. If the ground takes 20 per cent more fill than the bill measured, the target rises with the quantity, and the Client carries that quantity risk as it would on Option B. What the share then measures is how the cost of the work compares with the bill's rates for it.
Clauses 60.4 to 60.6 apply as they do on Option B, and compensation events change the Bill of Quantities under clause 63.15. The planner on Option D keeps two records current at once: the clause 20.4 forecast, which should be built from the programme, and the measurement of completed quantities, which sets the target the share will be assessed against.
Options E and F: the cost reimbursable contracts
Options E and F have no target and no share. Each assessment pays forecast Defined Cost plus the Fee, as on Options C and D, and NEC places both at the end of the range where the Client carries most of the risk. The Contractor's cost risk narrows to three things: Disallowed Cost, its costs outside Defined Cost, which clause 52.1 treats as included in the Fee, and on Option F the work it does itself at its own prices.
Option E: cost reimbursable contract
Option E pays the Contractor its forecast Defined Cost plus the Fee, with nothing to beat and nothing to share. Its Prices are not a tender price at all: the contract defines them as the forecast of the total Defined Cost for the whole of the works plus the Fee. NEC's guide to choosing a contract lists Option E for high uncertainty, maximum flexibility and emergency works.
A compensation event still matters on Option E, but mainly for time. The assessment changes the Prices, and on this option the Prices are a forecast, so a quotation neither caps nor fixes what the Contractor is paid: payment follows Defined Cost whatever the quotation said. What the event changes in substance is the Completion Date and any Key Dates, assessed against the Accepted Programme as on every other option.
The commercial discipline moves to the records and the forecast. On Option E a cost the records do not justify, or a cost incurred only because the Contractor did not give an early warning the contract required it to give, is Disallowed Cost, and so the Contractor's own money. With no target to measure against, the clause 20.4 forecast is how the Client sees where the job is heading. Built from the programme's remaining activities and their resources, it can be explained line by line. Rolled forward from last month's spend, it can only report what has gone.
Option F: management contract
Option F is NEC's management contract. The Contractor manages the Contractor's design, the provision of Site services and the construction and installation of the works, and subcontracts them, except the work the Contract Data says the Contractor will do itself (clause 20.2). Defined Cost is the payments due to Subcontractors for the subcontracted work and the prices for the work the Contractor does itself, less Disallowed Cost, and each assessment pays forecast Defined Cost plus the Fee. NEC describes the financial risk as taken largely by the Client, and lists Option F for construction management, with the Client retaining control.
Two clauses shared with Options C to E carry more weight here, because most of the work is subcontracted. Clause 26.4 has the Contractor submit the pricing information in the proposed subcontract documents for each subcontract, unless the Project Manager has agreed that none is needed, and clause 20.3 has it advise the Project Manager on the practical implications of the design and on subcontracting arrangements.
Two rules are Option F's own. Where a compensation event affects work the Contractor does itself, clause 63.17 has the Project Manager and the Contractor agree the change to its price and to the dates, and the Project Manager decides if they cannot. And payments to a Subcontractor for the Contractor's management are Disallowed Cost, so the management role itself cannot be passed down the chain at the Client's expense.
For the planner, Option F turns the programme into a procurement plan. Each package needs to be designed, tendered, let and mobilised in time for the work that follows it, and the clause 20.4 forecast is largely subcontract commitments and the forecasts behind them. A programme that shows the construction but not the procurement sequence behind each package leaves both the dates and the forecast without a base. Managing subcontractor delay under NEC4 covers what follows when a package slips.
What the programme does under each option
The core programme requirements in clauses 31 and 32 apply under all six options, with clause 31.4 added on Option A, and so does the core assessment of delay in clause 63.5. What differs is what the money depends on.
What depends on the programme | Where the contract makes the link | |
Option A | Payment, because each activity pays when it completes | Clause 31.4 on every programme submitted for acceptance, and revisions under clauses 55.3 and 55.4 |
Option B | Measured progress, and delay from quantity differences | No clause 31.4. Clause 60.5 for quantity differences that delay Completion or the meeting of the Condition stated for a Key Date |
Option C | The cost forecast, and the target through compensation events | Clause 20.4 forecasts and clause 63.14. No clause 31.4 in NEC4 |
Option D | The cost forecast, and the measured quantities that set the target | Clause 20.4 forecasts and the remeasured Total of the Prices |
Option E | The cost forecast, the Client's view of the final cost | Clause 20.4 forecasts |
Option F | Subcontract procurement, and the forecast built from it | Clauses 20.2, 20.4 and 26.4 |
Read down the middle column and the options fall into two groups. On Options A and B the programme decides when money arrives: at activity completions on A, and as work is measured on B. A late activity on Option A is late cash, and the clause 31.4 information is the evidence that the schedule and the plan still describe the same works. On Options C to F the programme decides whether the forecast can be believed. The Contractor is paid forecast Defined Cost plus the Fee, and the Project Manager's view of the final cost, and on Options C and D of the share, comes from forecasts the Contractor prepares with it. This is the Programme-to-Money Bridge, the join between the planner's programme and the quantity surveyor's figures, and each family of options loads it differently.
Compensation events cut across both groups. Under clause 63.5, which applies on every option, delay is assessed against the Accepted Programme current at the dividing date. If, when the Contractor submits its quotation, it has not submitted a programme or alterations the contract requires, or the Project Manager has not accepted its latest programme for a reason stated in the contract, the Project Manager assesses the event itself (clause 64.1), using its own assessment of the programme for the remaining work (clause 64.2). The guide to clause 64 assessments covers the detail. The money then takes the form the option gives it: changes to the activity schedule on Options A and C, changes to the bill on Options B and D, and on Options E and F a change to a forecast.
NEC Planning Solutions runs the monthly programme cycle for contractors on any of the six options, with each clause 32 revision tied to the activity schedule, the bill or the Defined Cost forecast the option relies on, as part of its live project controls and reporting service.
Monthly support starts from £1,400 plus VAT.
Reading the main option at tender
The option usually arrives with the tender documents, but the Contractor decides how to price and plan for it, and the Contract Data holds most of what matters.
On Options A and C, read the activity schedule as a money document before it is priced. Coarse activities delay payment on Option A, and on Option C each activity is a line of the target that compensation events will later change. On Options B and D, read the method of measurement and how the bill divides the work into items, because they decide what counts as a quantity difference or a mistake under clauses 60.4 to 60.6.
On Options C and D, read the share ranges and the Contractor's share percentages, and on Options C to F the intervals for the clause 20.4 forecasts: a monthly forecast needs a programme updated monthly behind it. On Option F, read what the Contract Data says the Contractor will do itself, because everything else will be subcontracted and belongs in the programme as a procurement sequence.
PLANNER'S TAKEAWAY Before the first programme goes in, code each activity to the part of the pricing document it belongs to: the activity schedule line on A and C, the bill items on B and D, the forecast's cost heading on E, the subcontract package on F. Measurement, forecasts and compensation event quotations come from the programme instead of being rebuilt. |
The author's view
Contractors tend to treat the main option as a commercial matter, settled at tender and handed to the quantity surveyors. My view is that it is also the first planning decision on the job, because it decides what the programme has to prove each month. On Option A it proves the cash. On Options B and D it should agree with what the measurement says was built. On Options C to F it is the evidence behind a forecast the Client relies on to know what the job will cost.
The cost reimbursable options are where I think this is most often underestimated. Option E looks like the safest contract a contractor can sign, and on cost it largely is. But a contract with no target puts all its weight on records and forecasts, and Disallowed Cost is where a contractor loses money when either is weak. A forecast nobody can trace to the programme is not really a forecast. It is last month's spend with a date on it.
The habit that serves every option is the same: keep the programme and the money describing the same job, cycle by cycle, whether or not the contract compels it. The option only decides when a gap between them costs money: every month on Option A, at the share on Options C and D, through Disallowed Cost on E and F, and on every option at the next compensation event.
NEC4 options: frequently asked questions
What are the six main options in NEC4?
Option A is a priced contract with activity schedule and Option B a priced contract with bill of quantities. Options C and D are target contracts, with an activity schedule and a bill of quantities respectively. Option E is a cost reimbursable contract and Option F a management contract. Every contract under the NEC4 ECC uses one of them alongside the core clauses, which are the same under all six.
What is NEC Option E?
Option E is the NEC4 cost reimbursable contract. The Contractor is paid the Defined Cost the Project Manager forecasts it will have paid before the next assessment date, plus the Fee, with no target and no share, so the Client carries most of the cost risk. The Contractor's main exposure is Disallowed Cost, such as cost its records do not justify, and costs outside Defined Cost, which the Fee covers.
What is the difference between NEC Option B and Option D?
Both use a bill of quantities. Option B is a priced contract: each assessment pays completed quantities at the bill's rates, with the rate risk on the Contractor and the quantity risk on the Client. Option D is a target contract: the Contractor is paid forecast Defined Cost plus the Fee, and the bill sets a target, remeasured as work is completed, against which any overrun or saving is shared.
What is NEC Option F?
Option F is the NEC4 management contract. The Contractor manages its design, the provision of Site services and the construction and installation of the works, and subcontracts them, apart from any work the Contract Data says it will do itself. It is paid forecast Defined Cost, mainly the payments due to Subcontractors, plus the Fee. NEC describes the financial risk as taken largely by the Client.
Does the main option change how compensation events are assessed?
The time side rests on a core clause: under every option, delay is assessed against the Accepted Programme current at the dividing date (clause 63.5). The money varies by option. Without agreed rates or lump sums, A and B price an event from the Short Schedule of Cost Components and C, D and E from the full Schedule, and the result changes the activity schedule, the bill or a forecast.
About the author
Roman Bazelchuk is the Founder of NEC Planning Solutions Ltd, a UK project planning and controls consultancy supporting contractors with NEC programme compliance, compensation event assessments and live project controls. He is an NEC Accredited Project Manager and holds the APMG Project Planning and Control qualification, with a BEng in Mechanical Engineering and postgraduate training in Planning and Control.
NEC Planning Solutions provides contract-aware planning support through a QA-governed delivery model, helping project teams keep programmes accepted, current and commercially useful from tender through to live delivery.
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