NEC subcontract termination works like termination under the main contract, with the Contractor taking the Project Manager's role and issuing the certificate. The key addition is that under the NEC4 Engineering and Construction Subcontract the Contractor can terminate if its own main contract has been terminated (R23 at 91.9).
So the two contracts are connected, but they don't end automatically together. This page explains how to manage that link, as part of the guide to NEC disputes and termination.
The subcontract table
This is from the NEC4 Engineering and Construction Subcontract, as amended in 2019.
| Terminating Party | Reason | Procedures | Amount due |
|---|---|---|---|
| Contractor | R1 to R15, R18, R22 | P1, P2, P3 | A1, A3 |
| Contractor | R17, R20 | P1, P4 | A1, A2 |
| Contractor | R21 | P1, P4 | A1, A2 |
| Contractor | R23, main contract terminated | P4 | A1, A2, A4 |
| Subcontractor | R1 to R10, R16, R19 | P1, P4 | A1, A2, A4 |
| Subcontractor | R17, R20 | P1, P4 | A1, A2 |
R23 has its own row, and it may be expensive: the Contractor pays a fee on the unfinished subcontract work under A4, whatever caused the main contract to end. A Contractor whose main contract ended through its own default still owes that money.
Differences from the main contract
| Point | NEC4 subcontract | Note |
|---|---|---|
| Who issues the certificate | The Contractor | In the ECC, it's the Project Manager |
| Notifying a default | 3 weeks to put right or stop | 4 weeks in the NEC3 and NEC4 ECC, 3 in the NEC3 ECS |
| Non-payment (R16) | 13 weeks | See the reasons guide |
| Long stop (R18 to R20) | 14 weeks | Stated in the same guide |
| Own-reason termination | Option X11 lets the Contractor terminate, with P1, P2 and A1, A2, A4 | The NEC3 subcontract has an any-reason row |
| Reason for main contract ending | R23 | The NEC3 subcontract table has no R23 |
On an NEC3 subcontract, a Contractor whose main contract has ended usually relies on its any-reason row, which has P1, P2 and A1, A2, A4. Check any amendments to your form.
What happens when the main contract ends
On the main contract, procedure P2 can require the Contractor to pass the benefit of subcontracts to the Client. So at that point there are three possibilities for a subcontract:
- It passes over. The Client (or its new contractor) takes over the benefit, and the Subcontractor carries on.
- It ends. The Contractor terminates under R23 (NEC4) or under the any-reason row (NEC3), and pays the amounts.
- It stops for a time. The Contractor instructs a stop, while everyone decides. A stop instruction can lead to R20 after the stated period.
A Subcontractor told to carry on for a new party should get this in writing, including who pays for past and future work.
A worked example
A fictional main contract is terminated by the Client for R11. All the details are illustrative. The Contractor has an NEC4 M&E subcontract worth £1 million, with £400,000 done. Fee percentage: 12%. The Client decides not to take over this subcontract.
- The Contractor notifies the Subcontractor under R23 and issues a certificate.
- The Subcontractor takes its Equipment and leaves the Working Areas (P4).
- A4 for the Subcontractor: 12% of £600,000, which is £72,000, on top of A1 and A2.
- On a termination for its own default, the Contractor should assume it bears that cost itself.
Keeping the two aligned
- Periods. Think about whether the subcontract periods work with those in the main contract. A subcontract default may need to be resolved faster than the main contract's period. See back-to-back subcontracts.
- Disputes. Both W1 and W2 in the subcontract include rules for bringing a subcontract dispute into a main contract adjudication. Under W2 consent is needed.
- Assignment. Make sure the subcontract allows the benefit to pass to the Client, so P2 can work.
- Non-NEC subcontracts. The acceptance process at clause 26 still applies under the main contract. If you use other forms, check their termination rights carefully.
- Insurance and bonds. Check how they respond at termination, and who gets the benefit.
For Subcontractors
Read the table before signing, particularly the fee percentage and any Z clauses that remove A4. Keep your records of committed cost, since "other Defined Cost reasonably incurred" can be a large item at the end. If your Contractor has failed, consider the protections in insolvency and NEC contracts, and take advice before leaving site. Your rights against the Contractor and any direct arrangement with the Client are different things. The overview of the Engineering and Construction Subcontract gives more background.
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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.