NEC4 Option E pays the Contractor Defined Cost plus the Fee, with no target and no share. The main NEC4 changes are that the Prices are now expressly the forecast of total cost, parts of Defined Cost can be finalised during the job, and there's a single fee percentage.
For the basics, read the general guide to NEC Option E. This page is for those running or tendering a job under the NEC4 Engineering and Construction Contract. It belongs to the NEC main Options section.
What is different in NEC4
| Topic | NEC4 ECC Option E | NEC3 ECC Option E |
|---|---|---|
| The Prices | Forecast total Defined Cost for all the works, plus the Fee | Defined Cost plus the Fee, E11.2(32) |
| Fee | One fee percentage, 11.2(10) | Direct and subcontracted percentages, 11.2(8) |
| Disallowed Cost | 11.2(26) | 11.2(25) |
| Defined Cost | Schedule of Cost Components items, minus Disallowed Cost | Subcontract amounts plus Schedule components for other work, less Disallowed Cost |
| Subcontract submission | Pricing information in proposed documents, 26.4 | Proposed contract data if an NEC contract and instructed, 26.4 |
| Finalising Defined Cost | 50.9 | No equivalent |
| Early contractor involvement | X22, available with Options C and E | Tailored clauses, with NEC guidance |
| Final assessment | Clause 53 | Not in the NEC3 core clauses in this form |
Why the forecast wording matters
The Prices on an Option E job aren't a price at all, but they appear everywhere the contract refers to "the Prices". Early warnings are triggered by matters that could raise the total of the Prices. Compensation event assessments change the forecast. Because Prices now equals forecast, a rising forecast is a commercial signal that should show up on the Early Warning Register if the cause is an early warning matter.
In practice, give the forecast real attention. Ask at each submission what changed, why, and whether it is Scope growth, productivity or a compensation event. If you can't answer, the forecast isn't giving you control.
Using clause 50.9 on a cost reimbursable job
Everything on Option E is paid at cost, so everything needs checking. Clause 50.9 lets the Contractor flag a part of the Defined Cost as finalised, opening a review with stated periods. A late decision results in the Contractor's assessment being treated as correct. So a Client's team has to resource the reviews as they arise, not just plan an end-of-job audit.
A sensible way to set it up is to agree at kick-off:
- how the parts will be divided, for example by subcontract or by four-week period;
- what evidence each part needs, using 52.2 as the baseline, so nobody argues about the records late on;
- who receives the notification and who has authority to reply.
The periods themselves should be taken from your contract. The guide to auditing Defined Cost covers the review itself.
Secondary Options that behave differently
- X1 and X3 can't be used with Option E. They are for Options A to D and A and B respectively.
- X22 can be used only with Options C and E, which makes Option E a route for a whole-project collaborative model. Read the X22 guide before relying on it.
- X16 retention remains available, because the only main Option it is ruled out with is Option F.
- X12 and X20 can't be combined with each other, whichever main Option you use.
A monthly checklist for the Project Manager
- Has the forecast arrived on time, and does it explain what has changed?
- Does the current Price for Work Done to Date match what the records support so far?
- Is anything evidently disallowed: wasted materials, idle resources, or cost from skipping a stated procurement procedure?
- Are subcontract packages going out with their pricing information first?
- Are any 50.9 periods running out this month?
- Have any compensation events gone unassessed, leaving the forecast out of date?
Our page on Option C vs Option E looks at whether a target would serve the job better once the Scope firms up.
Related guides
- NEC Main Options: A to F Explained
- NEC3 Option A: What to Know
- NEC3 Option C: What to Know
- NEC3 Option E: What to Know
- NEC4 Option C: What to Know
- NEC4 Option D: What to Know
See how this works in practice
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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.