NEC Option A is a priced contract: the Contractor breaks the work into activities, puts a lump sum against each, and is paid that lump sum when the activity is finished. If an activity costs more than the Contractor priced, the Contractor carries the difference unless a compensation event applies.
It is one of the six NEC main Options and the one closest to what most people mean by a fixed price. This page describes NEC4 ECC and notes where NEC3 differs.
How Option A works
- The Contractor writes the Activity Schedule. Unlike a Bill, which the Client's team usually prepares, this is the Contractor's own breakdown. The total of its lump sums is the tendered price.
- The schedule is tied to the programme. Clause 31.4 has the Contractor show how each activity relates to the operations on each programme it submits.
- Payment is by completed activity. The Price for Work Done to Date adds up finished activities and finished groups of activities. An activity that is 90% done earns nothing yet.
- A small Defect doesn't stop an activity counting. Under NEC4, an activity still counts as completed unless a notified Defect, once corrected, would delay following work.
- Compensation events change the schedule. Under 63.14 the changed Prices are shown as changes to the Activity Schedule.
The Activity Schedule guide goes into how to structure the schedule so that cash flow and the programme both work. There is also an Option A worked example with figures.
Where the risk sits
| Risk | Who carries it under Option A |
|---|---|
| Productivity, labour and material costs | Contractor (inflation can be shifted to the Client using Option X1) |
| Quantities needed to deliver the Scope | Contractor. There is no remeasurement |
| Errors in the Contractor's own pricing | Contractor. Information in the Activity Schedule isn't part of the Scope (55.1) |
| Compensation events | Client, through a change to the Prices assessed on forecast and actual Defined Cost |
| A change to the Scope the Contractor proposes and the Project Manager accepts | Shared by the value engineering percentage, 50% unless the Contract Data says otherwise (63.12) |
Compensation events are assessed using the Short Schedule of Cost Components and the People Rates. Those rates apply even though ordinary payment takes no notice of what the work really cost, so the Contractor doesn't open its books for monthly payment. It does have to support its quotations.
When to use Option A
Option A tends to fit when:
- the Scope is complete enough to price with confidence, or the Contractor is designing to a clear performance brief;
- the Client values cost certainty and is prepared to pay a price that includes the Contractor's risk allowance;
- ground and interface risks are low or clearly allocated;
- the Client doesn't have the staff to review Defined Cost month after month.
It is a poor fit when the Scope is still moving. Each change becomes a compensation event, each one needs a quotation, and the certainty you bought gets used up. If you are unsure, the comparison of Option A and Option C sets out the trade-off, and how to choose a main Option covers the wider decision.
What people get wrong
- Front-loading too aggressively. A Contractor can weight early activities to help its cash flow, but a schedule that looks unbalanced will draw questions at tender, and 55.4 makes poor distribution of changed Prices a reason for not accepting a revision.
- Activities too large. If one activity runs for three months, the Contractor waits three months to be paid for it. Split long activities, or group smaller ones with care.
- Letting the schedule drift from the programme. If the Contractor changes its method so that activities no longer match the Accepted Programme, it submits a revised schedule under 55.3. Skipping this makes every later payment and compensation event harder to agree.
- Thinking a quotation only needs the tender price. The Activity Schedule isn't the basis for a compensation event. The assessment looks at the effect on Defined Cost, not the rates implied by the lump sums, unless both sides agree to use rates and lump sums instead. For more, see compensation events under Option A.
NEC3 and NEC4
The structure is the same, but the numbers and some details differ. NEC3 uses the Shorter Schedule of Cost Components and places the Activity Schedule rules at 54.1 to 54.3. It has no value engineering percentage: under NEC3 A63.10, a change to the Works Information that reduces Defined Cost reduces the Prices. For the detail by edition, see NEC4 Option A and NEC3 Option A.
Related guides
- NEC Main Options: A to F Explained
- NEC Option B: Priced Contract With Bill of Quantities
- NEC Option C: Target Contract With Activity Schedule
- NEC Option D: Target Contract With Bill of Quantities
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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.