NEC Contract Options: Main Options A to F Explained

NEC contract options are the six payment routes in the Engineering and Construction Contract (ECC), lettered A to F. You choose exactly one for each contract, and that choice decides how the Contractor is paid, how compensation events change the price, and who carries the risk of the work costing more than expected.

The core clauses stay the same whichever Option you pick. The main Option adds its own clauses and changes a handful of definitions, most importantly the Prices, and also the Price for Work Done to Date. This guide covers all six under NEC4 ECC and notes where NEC3 differs. For how the Options sit within the wider contract, see the complete guide to NEC contracts.

The six main Options at a glance

Option	Name	Basis of payment	Who carries most cost risk
A	Priced contract with activity schedule	Lump sum for each completed activity	Contractor
B	Priced contract with bill of quantities	Measured quantities at Bill rates	Contractor on rates; Client on quantities
C	Target contract with activity schedule	Defined Cost plus Fee, then a share against a target	Shared
D	Target contract with bill of quantities	Defined Cost plus Fee, then a share against a remeasured target	Shared; Client on quantities
E	Cost reimbursable contract	Defined Cost plus Fee	Client
F	Management contract	Subcontract payments and the Contractor's own priced work, plus Fee	Client

The risk column is a generalisation. In every Option the Client still carries the matters listed as compensation events, and the Contractor still answers for its own Defects and for Disallowed Cost where that applies. What moves between Options is who pays when the work simply costs more than was planned.

Three families, not six separate contracts

It helps to group the letters by how the money works.

Priced contracts: A and B

The Contractor is paid the tendered price, whatever the work actually costs. Compensation events are priced using the Short Schedule of Cost Components, but ordinary payment takes no interest in the Contractor's accounts. Under Option A you pay for finished activities. Under Option B you pay for measured work.

Target contracts: C and D

The Contractor is paid as it goes on a cost basis: Defined Cost plus the Fee. The tendered price acts only as a target. When the work is finished, the difference between the target and the final cost is split at the percentages in the Contract Data. A saving is shared; so is an overrun.

Cost-based contracts: E and F

Payment follows cost with no target to compare it against. Under Option E the Contractor does the work, and under Option F it mainly manages subcontractors who do it. The Client takes the cost risk and needs to manage it actively, through forecasts, records and audits.

Option by Option

Option A

Option A, the priced contract with activity schedule, pays a lump sum as each activity on the schedule is finished, with no part payment for an activity in progress. NEC4 Option A added the value engineering percentage and People Rates, while NEC3 Option A has different clause numbers that you may still meet on live jobs. If you want to see the mechanics with figures, the Option A worked example follows a fictional job through several assessments.

Option B

Option B, the priced contract with bill of quantities, pays completed quantities at the rates, so the Client takes the risk of quantities growing or shrinking. It relies on a complete design and a stated method of measurement. NEC4 Option B sets out what changed in that edition, including the rule on correcting mistakes in the Bill.

Option C

Option C, the target contract with activity schedule, is widely discussed because it gives both sides a reason to bring cost down. NEC4 Option C moved the share to a new clause and added a process for finalising Defined Cost, and NEC3 Option C covers the older numbering and the separate fee percentages. The Option C worked example shows a target moving and a share calculated across two ranges.

Option D

Option D, the target contract with bill of quantities, works like Option C except the target is remeasured, so it moves with actual quantities. NEC4 Option D explains the edition's specific points.

Option E

Option E, the cost reimbursable contract, suits work that can't yet be defined. NEC4 Option E and NEC3 Option E set out the differences by edition, and the Option E worked example walks through two assessments, a Disallowed Cost deduction and a compensation event.

Option F

Option F, the NEC management contract, has the Contractor manage design and construction, subcontracting almost everything. It exists in the ECC but not in the Engineering and Construction Subcontract, which stops at Option E.

What the main Option changes in practice

Topic	A	B	C	D	E	F
Pricing document	Activity Schedule	Bill of Quantities	Activity Schedule	Bill of Quantities	None	None
Open book records needed for payment	No	No	Yes	Yes	Yes	Yes
Cost forecasts to the Project Manager	No	No	Yes	Yes	Yes	Yes
Disallowed Cost applies	No	No	Yes	Yes	Yes	Yes
Share of saving or overrun	No	No	Yes	Yes	No	No
Quantity differences can be compensation events	No	Yes	No	Yes	No	No
Compensation events change	Activity Schedule	Bill	Target (Activity Schedule)	Target (Bill)	Forecast of the Prices	Forecast of the Prices

Two practical consequences stand out. First, the administration load rises sharply from A and B to C, D, E and F, because someone has to check cost as well as progress. Second, compensation events never disappear. Under Options E and F they don't change what you are paid in the month, since cost is paid anyway, but they still move the Completion Date and the forecast of the Prices. The compensation event guides cover this for Option A, Option C and Option E.

Pricing documents and the target

Options A and C both use an activity schedule, which the Contractor builds and which must tie to the programme. The Activity Schedule guide explains how to set one up and use it. Options B and D use a Bill, and the Bill of Quantities guide explains its status under the contract and how mistakes are corrected.

The target Options add a layer of their own. Target cost and the Contractor's share explains the mechanism and when it is calculated. Pain/gain share explained works through a simple illustration, including what an overrun does to the Fee. Setting share ranges and percentages covers the decision that goes into the Contract Data before tender.

Choosing a main Option

The main question is how well the work is defined at tender, followed by how much risk the Client wants the Contractor to price and how much effort the Client can put into managing cost. How to choose an NEC main Option turns that into a decision guide with questions to ask. These comparisons cover the choices people weigh most often:

Option A vs Option C: a fixed price or a shared target, the most common debate.
Option A vs Option B: who should carry quantity risk, and who prices the work's make-up.
Option C vs Option E: whether the work is defined well enough for a target to mean anything.

Whichever you choose, the Option affects how you use the secondary Options. X1 can only go with Options A to D, X3 only with A and B, X16 retention can't be used with Option F, and X22 early contractor involvement goes only with Options C and E.

Beyond the ECC

Other NEC contracts offer fewer main Options, and the same letter doesn't always mean the same thing.

The PSC main Options are A, C and E under NEC4. NEC3 used a time-based Option E and added Option G.
The TSC main Options are A, C and E, built around a Price List and not an activity schedule or a Bill.
Option G was the NEC3 PSC's term contract. It isn't in the ECC at all, and NEC4 dropped it.

What people get wrong

Treating Option A as risk-free for the Client. The price is fixed only until compensation events change it. A poorly defined Scope produces many of them.
Treating Option C as "cost plus with a bonus". The Contractor's share of an overrun can eat through the Fee and beyond. See how that plays out in the pain/gain guide.
Choosing Option E and then not resourcing it. Cost-based Options need people able to review records. Without that, the contract's protections exist only on paper.
Assuming NEC3 and NEC4 share clause numbers. Several don't. The share is at clause 53 in NEC3 and clause 54 in NEC4, while clause 53 in NEC4 is the final assessment.
Using the wrong word for the same thing. The NEC3 Employer and Works Information became the NEC4 Client and Scope, and the rules for the Fee changed too.

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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.

NEC Main Options: A to F Explained