NEC Option C explained in figures: the Contractor is paid Defined Cost plus the Fee throughout, then shares the gap between the final cost and the target. This fictional £4,000,000 bridge refurbishment under NEC4 ECC follows the target as it moves and works out the Contractor's share across two ranges. All figures are illustrative.
For the rules, read the guide to Option C or the main Options overview.
The Contract Data
| Share range (final cost as a % of the target) | Contractor's share percentage |
|---|---|
| Less than 90% | 25% |
| From 90% to 100% | 50% |
| From 100% to 110% | 50% |
| Greater than 110% | 25% |
The fee percentage is 8%. These numbers exist for this example alone; they aren't a recommendation, and the guide to share ranges and percentages looks at how to pick your own.
Step 1: the target moves
The tendered Activity Schedule totals £4,000,000. During the job, four compensation events are implemented, each changing the schedule under 63.14.
| Event | Effect on the target |
|---|---|
| Access to one span given late | +£85,000 |
| Extra bearing replacements instructed | +£190,000 |
| Physical conditions: unexpected voids | +£70,000 |
| Client removes a section of parapet work | -£45,000 |
| Final total of the Prices | £4,300,000 |
None of these changes monthly payment. They only change the number used for the share at the end, along with any time effect.
Step 2: monthly payment is on cost
A sample assessment in month 7:
| Item | Amount |
|---|---|
| Defined Cost the Project Manager forecasts will be paid by the next assessment date | £2,160,000 |
| Less cost identified as disallowed (a hired crane kept after it was finished with) | (£18,000) |
| Defined Cost | £2,142,000 |
| Fee at 8% | £171,360 |
| Price for Work Done to Date | £2,313,360 |
The payment certified is the change from the previous certificate. Completed activities aren't counted. The Disallowed Cost takes the Fee with it, so that crane really costs the Contractor £19,440. For what can be removed, read the Disallowed Cost guide.
Step 3: the share at the end
Final Defined Cost plus the Fee comes to £4,859,000. That's 113% of the final target (£4,859,000 divided by £4,300,000), an excess of £559,000.
The excess is cut into increments that fall in each range. The limits of each range are percentages of the final target.
| Range | Increment | Share % | Contractor's share |
|---|---|---|---|
| 100% to 110% (£4,300,000 to £4,730,000) | £430,000 | 50% | £215,000 |
| Above 110% (£4,730,000 to £4,859,000) | £129,000 | 25% | £32,250 |
| Total | £559,000 | £247,250 |
The Contractor pays £247,250 of the excess, and the Client pays the other £311,750. The Client's final outlay is £4,859,000 less £247,250, which is £4,611,750.
The two common errors in this sum
- Applying one percentage to the whole difference. Using 25% on £559,000 because the result landed in the top range gives £139,750, which is wrong. Each slice takes its own percentage.
- Using the tendered target. The ranges are measured against the final total of the Prices. Using £4,000,000 would make this look like a 21.5% overrun and change the answer completely.
When it gets paid
When the whole of the works reaches Completion, a preliminary figure is worked out using forecasts (54.3), and it goes into the next amount due. The figure is finalised in the final amount due (54.4). So the Contractor's cash position improves through the job and takes a correction at the end. It should expect this and forecast it from early on. Target cost and the Contractor's share has more on the timing.
What if the same job had come in under?
Suppose the final cost was £3,870,000, which is exactly 90% of £4,300,000. The saving is £430,000, all in the 90% to 100% range. The Contractor is paid 50% of it, an extra £215,000, and the Client pays £4,085,000 in total. The Client spent less than the final target, and the Contractor earned more than Defined Cost plus Fee. That's how the mechanism is meant to work.
Related guides
- NEC Main Options: A to F Explained
- NEC Option E Worked Example
- NEC4 Option A: What to Know
- NEC4 Option B: What to Know
- NEC Option F: Management Contract
- NEC Option A Worked Example
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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.