The difference in Option C vs Option E under NEC is the target. Both pay Defined Cost plus the Fee in the same way each month, but Option C compares the final cost against a target and shares the difference, while Option E has no target, so the Client pays whatever the work costs.
So the choice isn't about how the Contractor is paid each month. It is about whether the Contractor has a financial stake in the final cost, and whether the work can be defined well enough to set a fair target. The comparison below uses NEC4 ECC. For all six Options, see the NEC main Options overview.
Side by side
| Option C | Option E | |
|---|---|---|
| Monthly payment | Forecast Defined Cost plus Fee | Forecast Defined Cost plus Fee |
| Disallowed Cost, records and inspection | Yes | Yes |
| Forecasts of total Defined Cost | Yes | Yes |
| Finalising Defined Cost (50.9) | Yes | Yes |
| Activity Schedule | Yes, sets the target | None |
| The Prices | Lump sums on the schedule | Forecast of total Defined Cost plus Fee |
| Share at the end | Yes, clause 54 | None |
| What a compensation event changes | The target and possibly the dates | The forecast and possibly the dates |
| Tender competition | Fee and target | Mainly Fee and people or cost data |
| Who gains from a saving | Both, at the share percentage | Client (the Fee also falls) |
| X1 inflation adjustment | Available | Not available |
| X22 early contractor involvement | Available | Available |
The incentive in numbers
Illustrative figures. The Contractor sees a way of saving £100,000 of Defined Cost on a job with a Fee of 7%. The saving would take some extra planning effort and a design change the Project Manager would need to accept.
| Effect on the Contractor | Option C (50% share, below target) | Option E |
|---|---|---|
| Fee lost on the reduced cost | -£7,000 | -£7,000 |
| Extra share from the reduced final cost (£107,000 x 50%) | +£53,500 | None |
| Net effect | +£46,500 | -£7,000 |
Under Option E a Contractor is, on the money alone, slightly worse off for saving cost. That doesn't make it careless, because reputation and repeat work count for a lot. But it does mean the Client can't rely on the contract's money to drive savings. Under Option E, cost control depends on the Client's team and a well-managed Scope. There is a pain/gain share illustration and an Option E worked example for more detail.
Five questions to help you choose
- Could you write a Scope good enough for tenderers to set an honest target? If the answer is no, because you are still investigating, Option E is the honest answer.
- Will you know more within weeks or months? If so, consider phasing: Option E or a pre-construction stage now, and a target for the main works later.
- How much will the Scope keep changing? Every change under Option C is another change to the target and another potential dispute. Option E avoids that argument, though not the cost.
- Who will drive cost down? If your team can't actively manage cost, a target gives a Contractor an incentive to do it. It doesn't replace your review, but it helps.
- How urgent is the start? For a real emergency, there's rarely time to agree a target. Start on Option E.
Where each goes wrong
- Option C with a bad target. A target set too low from a weak design can leave the Contractor in the pain range from day one. Then the incentive can turn into defensiveness. You can read more about the mechanics at target cost and the Contractor's share.
- Option E with no owner. Forecasts are received and filed, reviews slip, and Disallowed Cost is only raised late. Clause 50.9 helps, but it needs people to run it.
- Both, without records. The contracts share the same open-book requirements. Without records, neither works. The open book guide gives the essentials.
Can you move between them?
A main Option is chosen when the contract is formed, and the contract gives no route to swap. If your project is likely to move from uncertain to defined, you can plan for separate contracts, or look at the staged approach in Option X22. Take advice before changing a live contract by amendment, as the Fee, target, share and other terms would all need agreeing.
Related guides
- NEC Main Options: A to F Explained
- How to Choose an NEC Main Option
- The Activity Schedule
- The Bill of Quantities Under NEC
- Option A vs Option C
- Option A vs Option B
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