NEC termination payment is built from four items, A1 to A4. A1 is always included, and covers the normal amount due and other costs. The Termination Table then adds removal costs (A2), deducts the Client's extra cost of finishing (A3), or adds a fee on unfinished work (A4), depending on the reason.
The rules are at clause 93 in both NEC3 and NEC4. For the overall process, see NEC disputes and termination.
What each item contains
| Item | Contents | Effect |
|---|---|---|
| A1 | A normal amount due, Defined Cost for Plant and Materials in the Working Areas or that the Client owns and the Contractor must take, other Defined Cost reasonably spent expecting to complete the whole works, retained amounts, less any unpaid advanced payment balance | Mostly adds |
| A2 | A forecast of the Defined Cost to take the Equipment away | Adds |
| A3 | The forecast of the Client's additional cost of completing the whole works | Deducts |
| A4 | The fee percentage on the unworked part: for Options A to D, how far the Contract Date total of the Prices exceeds the Price for Work Done to Date; for Option E, a similar calculation from the first forecast | Adds |
Three scenarios, worked out
A fictional Option A contract with illustrative figures, and with the same work stage in each scenario.
- Contract Date total of the Prices: £5,000,000.
- Price for Work Done to Date: £3,000,000.
- Already paid: £2,700,000.
- Plant and Materials and other committed Defined Cost: £200,000.
- Fee percentage: 10% (from the Contract Data).
- Forecast cost of removing Equipment: £50,000.
- Forecast additional cost to the Client of finishing: £600,000.
| Item | Contractor at fault (A1, A3) | Neither at fault (A1, A2) | Client at fault (A1, A2, A4) |
|---|---|---|---|
| Amount due at this stage | £3,000,000 | £3,000,000 | £3,000,000 |
| Other A1 costs | £200,000 | £200,000 | £200,000 |
| A2 | £50,000 | £50,000 | |
| A3 | −£600,000 | ||
| A4 (10% of £2,000,000) | £200,000 | ||
| Total amount due | £2,600,000 | £3,250,000 | £3,450,000 |
| Less paid | −£2,700,000 | −£2,700,000 | −£2,700,000 |
| Balance | £100,000 due to the Client | £550,000 due to the Contractor | £750,000 due to the Contractor |
The gap between the outer columns here is £850,000. That's why the reason and its validity matter so much. A dispute over whether a Client properly terminated for R11 is really a dispute over this number. Retention, delay damages and other items would further affect a real calculation.
When it is assessed and paid
| Edition | Rule |
|---|---|
| NEC3 ECC | The Project Manager certifies a final payment within 13 weeks of termination, and it's paid within 3 weeks of that certificate (90.4) |
| NEC4 ECC | The final assessment: within 13 weeks of the termination certificate, under clause 53. See the final assessment guide for payment timing and for when it becomes conclusive |
| NEC4 subcontract text | 14 weeks, by the Contractor, under clause 53 |
NEC4: certified payments the Contractor may not get
The NEC4 subcontract text adds a rule at 90.3. If the reason is a Contractor-fault one (R1 to R15, R18 or R22), the paying Party needn't make a certified payment still outstanding at the date of the certificate, unless the conditions say otherwise. The sum still goes into the account. See what changed in NEC4 termination.
Practical points
- A3 and A2 are forecasts. They're assessed when the account is done. A3 is often argued over: keep clear records of the replacement contractor's price, the Scope and the extras.
- Only additional cost counts. A3 is the amount above what the Client would have paid anyway, so compare against the remaining Prices, not the whole cost of finishing.
- Option C and D. The normal amount due reflects how those Options work, and the Contractor's share is calculated as the contract provides. See target cost and share.
- "Reasonably incurred." Expect to justify committed cost, especially orders placed shortly before a termination.
- Delay damages. The damages stop at termination in NEC4 after the 2020 amendment, as noted in our delay damages guide.
- Insolvency. Different rules can apply to set-off and to who can collect the balance. See insolvency and NEC contracts.
Related guides
- NEC Disputes and Termination
- What Changed in NEC4 Termination
- Insolvency and NEC Contracts
- Ending an NEC Subcontract
- Reasons for Termination
- Termination Procedures
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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.