NEC4 Option D is a target contract with a remeasured Bill of Quantities. The Contractor is paid Defined Cost plus the Fee, and the final cost is measured against a Total of the Prices that follows the actual quantities. Under NEC4 the share clauses move to 54.5 onwards and the Bill clauses to 56.1, but the logic stays as it was in NEC3.
This page covers Option D's NEC4 details. If you need the basics, read the general guide to NEC Option D, and the main Options overview shows how it fits with the others.
Running two commercial tracks
NEC4 Option D has two separate calculations going at the same time, and the team needs to know which one a question relates to.
| Cost track | Measure track | |
|---|---|---|
| What it answers | What is the Contractor paid now? | Where is the target heading? |
| Basis | Forecast Defined Cost to the next assessment date, plus the Fee | Completed quantities at rates, plus the completed part of lump sums |
| Evidence | Accounts, payments, subcontract records | Measure records against the Bill |
| Who usually runs it | Cost-focused QS or auditor | Measurement-focused QS |
| When it matters most | Each assessment | Reporting forecasts, then at the share assessments |
One easy-to-miss consequence: the Contractor's forecast of share depends on its measure being up to date. A project reporting on cost alone has no real idea whether it is heading for a saving or an overrun.
Clause finder
| Topic | NEC4 ECC Option D | NEC3 ECC Option D |
|---|---|---|
| Disallowed Cost | 11.2(26) | 11.2(25) |
| Subcontract submission | 26.4 | 26.4 |
| Finalising Defined Cost | 50.9 | No equivalent |
| Records and inspection | 52.2 and 52.3 | 52.2 and 52.3 |
| Share | 54.5 onwards | 53.5 to 53.8 |
| Bill isn't Scope or Site Information | 56.1 | 55.1 |
| Quantity and Bill mistake events | 60.4 to 60.7 | 60.4 to 60.7 |
| Accepted Contractor proposal doesn't reduce the Prices | 63.13 | D63.11 |
| Assessments as changes to the Bill | 63.15 | D63.13 |
Value engineering works differently from Option B
Options B and D both use a Bill, so people often assume they share the same value engineering rule. They don't. In Option B, an accepted Contractor proposal cuts the Prices by the value engineering percentage. In Option D, under 63.13, the Prices aren't reduced at all. The saving shows up because cost falls and the target stays, and it's then split at the share percentages. There is no value engineering percentage to set for Option D, which is why the Contract Data entry mentions Options A and B only.
An illustration with made-up figures. The Contractor proposes a cheaper sheet pile section, saving £60,000 in Defined Cost and Fee. The Prices aren't reduced. With a 50% share in the relevant range, the Contractor gains £30,000 and the Client gains £30,000.
Be careful with a proposal that changes quantities, though. If a proposal reduces a measured quantity, that may shrink the Total of the Prices through remeasurement. Agree how the Bill is to be treated when the event is implemented, so the protection in 63.13 isn't lost by accident.
Compensation events and the 60.4 test
A compensation event changes the Bill under 63.15, in the form of a changed rate, quantity or lump sum, a new priced item, or a new lump sum for work already done. Each of these changes the target. Under 60.4, a change in unit cost only moves the rate if the 0.5% test is met, so most normal quantity changes leave the rate alone. The extra quantity still raises the target at the existing rate. See compensation events under Options B and D for how to apply these clauses.
Checks before you start
- Is there a named method of measurement in the Contract Data? It's required for Options B and D.
- Have the share percentages and ranges been stated, and do they make sense when the target itself is expected to move? The guide to share ranges and percentages helps here.
- Who owns the measure and how often is it agreed?
- Who reviews finalised Defined Cost, and do they know the deadline that applies under 50.9?
- Is the Client's budget report using the latest remeasured total, or an out-of-date Bill total?
If the answer to question 3 is "nobody yet", consider whether NEC4 Option C would suit the job better. There, the target needs no measuring.
Related guides
- NEC Main Options: A to F Explained
- NEC4 Option E: What to Know
- NEC3 Option A: What to Know
- NEC3 Option C: What to Know
- NEC4 Option B: What to Know
- NEC4 Option C: What to Know
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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.