NEC Option D: Target Contract With Bill of Quantities

NEC Option D is a target contract where the target comes from a Bill of Quantities and is remeasured as work is done. The Contractor is paid Defined Cost plus the Fee, and at the end the final cost is compared with the target as finally measured, with the difference shared.

So Option D combines Option B's measurement with Option C's cost-sharing. It is one of the NEC main Options, covered here for NEC4 ECC with NEC3 differences noted.

How the target works under Option D

This is the point to understand. Under Option C, the target is the total of the Activity Schedule, and it moves only through compensation events. Under Option D, the target has two parts that both change over time:

• the completed quantity of each item multiplied by its rate;
• the completed proportion of each lump sum item.

NEC calls this the Total of the Prices, with a capital T, to separate it from the tendered figure. The final value is known only when the measurement is complete.

Here is an illustrative example. A fictional sea wall has a Bill total of £6,000,000 at tender. The rock armour quantity grows, and the remeasured Bill reaches £6,400,000 at Completion, with no compensation events. If final Defined Cost plus the Fee comes to £6,550,000, the share is worked out on an excess of £150,000. Under Option C with the same result, the target would still be £6,000,000, and the excess would be £550,000, unless the extra quantity qualified as a compensation event.

How payment works

Monthly payment is the same as for other cost-based Options. The Project Manager forecasts Defined Cost the Contractor will have paid by the next assessment date, then adds the Fee. Measurement doesn't affect the monthly amount due, which catches out teams who assume that measuring the Bill means they're paid on measure. Both Contractor and Client still need measurement done regularly, because it tells them where the target is heading and therefore what the share is likely to be.

Option D has the same open-book requirements as Option C: records and inspection under 52.2 and 52.3, the forecasts of total Defined Cost, submission of subcontract pricing information under 26.4, and Disallowed Cost at 11.2(26).

Share and quantity clauses

Rule	NEC4 ECC	NEC3 ECC
Share calculation and payment, preliminary and final	54.5 onwards	53.5 to 53.8
Bill information not part of the Scope	56.1	55.1
Quantity differences as compensation events	60.4 and 60.5	60.4 and 60.5
Mistakes in the Bill	60.6 and 60.7	60.6 and 60.7
Compensation events shown as changes to the Bill	63.15	D63.13
Accepted Contractor proposal to change the Client's Scope doesn't reduce the Prices	63.13	D63.11

The 0.5% test under 60.4 applies here as it does in Option B. The difference is what the consequence does: the changed rate moves the target, not the monthly payment. The Bill of Quantities guide and the page on compensation events under Options B and D explain these rules in more detail.

When Option D fits

• The design is measurable, but quantities are uncertain and could swing, so a fixed Activity Schedule total would be a poor target.
• The Client wants cost-sharing and is prepared to carry the quantity risk.
• The team is comfortable measuring and reviewing cost. Option D asks for both.

It fits poorly when the Contractor is doing most of the design, as you can't measure a Bill until the design exists. In that case look at Option C.

What people get wrong

• Double-counting effort without benefit. Running both measurement and cost review takes resource. If quantity uncertainty is minor, Option C is usually simpler.
• Reading the Contractor's incentive wrongly. A larger measured quantity increases the target, so honest measurement matters. Client teams need their own check on it.
• Treating the share as a monthly item. As with Option C, the share is assessed at Completion and in the final amount due. It isn't taken month by month.

The NEC4 details are on the NEC4 Option D page.

Related guides

• NEC Main Options: A to F Explained
• NEC Option E: Cost Reimbursable Contract
• NEC Option F: Management Contract
• NEC Option A Worked Example
• NEC Option B: Priced Contract With Bill of Quantities
• NEC Option C: Target Contract With Activity Schedule

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.