NEC3 Main Options

The NEC3 options A to F set how the Contractor is paid and who carries the cost risk under the NEC3 Engineering and Construction Contract (ECC). A and B are priced contracts, C and D are target contracts, E is cost reimbursable and F is a management contract. A contract takes one main Option only.

This page uses NEC3's own terms and clause numbers, from the April 2013 edition. For the general guide and NEC4 detail, see NEC main Options. For the wider edition, see the NEC4 contracts guide, which also has a section on NEC3.

The six Options compared

Option	Name	What the Contractor is paid	Who carries most of the cost risk
A	Priced contract with activity schedule	Lump sums for completed activities	Contractor
B	Priced contract with bill of quantities	Quantities of completed work at bill rates	Contractor on rates; Employer on quantities
C	Target contract with activity schedule	Defined Cost plus the Fee, then a share against the target	Shared
D	Target contract with bill of quantities	As C, with the target remeasured using a bill	Shared, with the Employer on quantities
E	Cost reimbursable contract	Defined Cost plus the Fee	Employer
F	Management contract	Subcontract payments and own work at stated prices, plus the Fee	Varies with how the subcontracts are let

NEC3 clauses that differ by Option

Subject	Options A, B	Options C, D, E	Option F
Defined Cost definition	11.2(22), using the Shorter Schedule of Cost Components	11.2(23), subcontract payments plus Schedule components for other work, less Disallowed Cost	11.2(24)
Disallowed Cost	Not used	11.2(25)	11.2(26)
Price for Work Done to Date	A: 11.2(27); B: 11.2(28)	11.2(29)	See the Option's own definitions
Contractor's share	Not used	C and D only, clause 53	Not used

Throughout, the Fee is worked out from two figures, the direct fee percentage and the subcontracted fee percentage (11.2(8)). This is the most common money difference from NEC4, which has only one.

How the target share works in NEC3

Here's a fictional Option C job with illustrative figures. The target, set by the total of the Prices, is £5,000,000. The job ends with a Price for Work Done to Date of £4,700,000, a saving of £300,000. The Contract Data has a single illustrative share range, with the Contractor taking 50% of any difference.

• The difference is £300,000 below the target.
• The Contractor's share is 50% of that, so £150,000.
• The Contractor is paid this on top of the cost and Fee, and the Employer keeps the other £150,000 as a saving.

If there had been a £300,000 overrun, the Contractor would have paid its share in the same way. Real contracts usually have several ranges, so run the calculation range by range. The NEC3 Option C guide goes through this in detail.

NEC3 terms to keep straight

• Employer, not Client, in the NEC3 ECC.
• Works Information, not Scope. On Options A and C, the Contractor also shows how activities relate to the programme (31.4).
• Clause 53 is the Contractor's share, in NEC3. In NEC4, the share moved to 54, and 53 is the final assessment.
• Shorter Schedule of Cost Components. NEC4 calls it the Short Schedule.
• Clause 54 covers the activity schedule in Options A and C; in NEC4, the Option A clause is 55.

Choosing or managing an Option on NEC3

If you are on...	Spend your time on...
Option A	A clear activity schedule and strict compensation event records, since the Prices only move through events
Option B	Measurement, the method of measurement and bill mistakes (60.4 to 60.6)
Option C	Cost records, Disallowed Cost and the target's movement
Option D	All the C items, plus remeasurement of the target
Option E	Forecasts and cost control, since no target disciplines the outturn
Option F	Subcontract management and the Contractor's own work items

What people get wrong

• Reading an NEC4 summary for an NEC3 job. Numbers and the Fee differ, so a summary written for NEC4 could mislead you.
• Thinking an Option A contractor needn't keep cost records. Compensation events are still priced on the effect on Defined Cost.
• Treating Option D as just another Option B. It has target and share mechanics that Option B doesn't.

Related guides

• NEC4 Contracts: A Complete Guide
• Moving From NEC3 to NEC4
• The NEC3 Risk Register
• NEC3 Risk Reduction Meetings
• What Is NEC3?
• NEC3 Contracts Explained

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.