You keep being paid Defined Cost plus Fee, then at Completion you pay your share of the excess. Going over target on Option C isn't a breach and doesn't by itself stop payment, so what decides the final bill is how much of the gap is really yours and how much is compensation events that haven't reached the target yet.
Start with that split, because it is usually the quickest route to reducing the number. This page follows the NEC4 Engineering and Construction Contract (ECC), where the share rules are at clause 54 (53 in NEC3). The parent page is NEC questions answered.
Five actions, starting with the time-barred one
- Check for un-notified events this week. You have eight weeks from becoming aware under clause 61.3, and only compensation events raise the target. Ask site teams what has changed. Review Project Manager instructions in case any should have been notified.
- Get the backlog implemented. See when compensation events haven't reached the target.
- Rerun the forecast honestly. The next Defined Cost forecast you submit under clause 20 goes with an explanation of the change. A jump close to Completion will raise questions.
- Warn early. NEC4 lets you give an early warning about a rise in your own total Defined Cost (15.1). It is optional, and useful: it puts the issue into the early warning meeting where the Client's options can be discussed.
- Propose savings. Under 16.1 you can propose changing the Client's Scope to cut cost. If accepted, 63.13 leaves the Prices alone where the cost falls, so the saving goes to the share. A proposed saving covers this.
What the share would cost: a worked example
A fictional NEC4 Option C contract with illustrative figures and these share ranges: up to 100%, Contractor 50%; 100% to 110%, Contractor 50%; over 110%, Contractor 100%.
| Today's position | After £400,000 of events are implemented | |
|---|---|---|
| Total of the Prices (target) | £5,000,000 | £5,400,000 |
| Forecast final Price for Work Done to Date | £5,700,000 | £5,700,000 |
| Excess | £700,000 | £300,000 |
| In the 100% to 110% range | £500,000 × 50% = £250,000 | £300,000 × 50% = £150,000 |
| Above 110% | £200,000 × 100% = £200,000 | Nil |
| Contractor's share | £450,000 | £150,000 |
In that example, events worth £400,000 cut the share by £300,000, because they also take the excess out of a harsher range. Read your own ranges in Contract Data part two before you decide on priorities. Target cost and share shows the method. Note that both figures include the Fee, so compare like with like.
Things that make it worse
- Letting costs drift to save cash now. Under Option C you pay your share later, in one hit at Completion (54.3 in NEC4), and that can be a sharp adjustment. Provide for it in your accounts as soon as it looks likely.
- Booking costs to compensation events that don't belong there. An event's change to the Prices comes from its forecast effect, not from what you code to it, and the Project Manager can see your ledger.
- Cutting records to save overhead. Disallowed Cost lands entirely on you and adds to the problem.
- Reducing quality to catch up. Correcting Defects after Completion is disallowed. Fixing it before Completion is generally still shared.
What the Project Manager and Client are likely to do
| Expect | Why | Your answer |
|---|---|---|
| Closer inspection of records (52.3) | The Client pays its part of the excess, so it has a direct interest | Offer a walkthrough before it is asked for |
| Tougher look at resources | Idle plant and surplus people can be disallowed | Demobilise what you don't need. A written removal request has real effect |
| Questions on your quotations | A forecast sets the target change for good once implemented (66.3) | Build each from the programme, with assumptions shown |
| Client budget pressure | The contract doesn't cap its cost. See when the budget is exceeded | Share the forecast early, and open up options together |
A contract point people miss
Overspending the target isn't a reason to disallow anything, and the contract has no standard cap on what you are paid in the course of the job. A tighter arrangement may exist through a Z clause, so read yours. There is also a reporting point: an excess that is genuinely yours belongs in your accounts and in your discussions with the Client's team now. The same honesty helps your credibility when you argue the compensation events.
Related guides
- NEC Questions Answered: Real Situations on Site
- Compensation Events Have Not Been Added to the Target
- The Client Wants to Audit Our Books: Do We Have to Agree?
- Are Our Head Office Overheads Recoverable?
- The PM Disallowed Our Costs: How Should We Respond?
- We Do Not Have Records for Our Defined Cost
See how this works in practice
Click through Contract Status with sample contracts: raise the notice, reply to it, and watch both sides of one record.
Take the guided tour Book a demo
Use the NEC deadline calculator, use the free NEC tools or download free NEC templates.
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.