Cost and Fee Changes in NEC4

NEC4 Defined Cost is simpler to state than in NEC3: for Options C, D and E it is whatever the Schedule of Cost Components allows, minus any Disallowed Cost. The Fee also drops from two percentages to one, and the percentages for people and Working Areas overheads go.

This page compares the NEC3 and NEC4 ECC. For the concept itself, see what Defined Cost is. For other edition changes, see the NEC4 contracts guide. Check your own Contract Data, as cost terms are often amended.

What changed

Point	NEC3 ECC	NEC4 ECC
Defined Cost, Options C, D, E	Payments due to Subcontractors, plus Schedule components for other work, less Disallowed Cost (11.2(23))	Schedule components less Disallowed Cost, with subcontract payments now a section of the Schedule
Defined Cost, Options A and B	Shorter Schedule of Cost Components, excluding the cost of preparing compensation event quotations (11.2(22))	Short Schedule of Cost Components; that exclusion is removed
Fee	Direct fee percentage and subcontracted fee percentage (11.2(8))	One fee percentage (11.2(10))
Overheads	Percentages for people and Working Areas overheads in the Contract Data	No such percentages
Rates for assessing events, Options A and B	Not used in this form	People Rates in Contract Data part two
Disallowed Cost, Options C, D, E	11.2(25): cost the Project Manager decides falls into the list	11.2(26)
Contractor's share	Clause 53	Clause 54
Subcontract pricing information	Not a set submission	Submitted unless the Project Manager agrees otherwise, 26.4
Finalising cost during the job	No process	50.9

The single fee percentage

NEC3 tenderers priced two figures, and a low subcontracted fee alongside a higher direct fee was a common tender strategy. NEC4 asks for one percentage, applied whether the work is done directly or through a subcontract. If your bid team's pricing model has two inputs, it needs to change.

Here's a fictional illustration with illustrative figures. An Option C contract has Defined Cost of £600,000 for direct work and £400,000 for subcontracted work.

	NEC3 style	NEC4 style
Direct work	£600,000 at 9% = £54,000	£600,000 at 7% = £42,000
Subcontracted work	£400,000 at 4% = £16,000	£400,000 at 7% = £28,000
Total Fee	£70,000	£70,000

A single 7% gives the same total here, but only at this exact mix. If the subcontracted share grows during the job, the Fee earned under the NEC4 approach grows faster than it would have under two percentages. So estimate the likely mix before you settle on the figure. More on this is in the Fee guide.

Overheads

With the people and Working Areas overhead percentages gone from the Contract Data, the commercial question becomes where those costs now sit. Under 52.1, any of the Contractor's costs not included in Defined Cost are treated as covered by the Fee. So read the Schedule of Cost Components carefully before pricing, and don't assume an NEC3 allowance carries over. The Schedule of Cost Components guide goes through the sections.

Disallowed Cost

The familiar list remains: cost not justified by accounts and records, cost that shouldn't have been paid under a subcontract, cost caused only by not following a stated procedure or by a missed early warning that was required, and the listed costs, such as correcting Defects after Completion. NEC3's definition opens with what the Project Manager decides, whereas the NEC4 ECS text defines it simply by the list. The ECS list also adds failing to tell the Contractor about an adjudication or tribunal with a lower-tier supplier. We have only the ECS text for these two points, so check the wording of your own ECC. See Disallowed Cost.

What people get wrong

• Treating subcontract payments as no longer covered. They haven't disappeared: they moved from the definition into the Schedule.
• Using NEC3 overhead percentages in NEC4 quotations. The Contract Data no longer has them, so a quotation built on an old template may include a figure with no basis.
• Quoting the wrong definition number. The ECS and ECC number their definitions differently. For example, the Fee is 11.2(8) in the NEC4 ECS and 11.2(10) in the NEC4 ECC.
• Forgetting records. Options C, D and E still need accounts of payments, proof they were made, and subcontract event records, as well as anything the Scope asks for.

Closing out these costs is covered in final assessment of the amount due.

Related guides

• NEC4 Contracts: A Complete Guide
• Final Assessment of the Amount Due in NEC4
• Dispute Resolution Changes in NEC4
• Proposed Instructions and Quotations in NEC4
• Early Warnings: What Changed in NEC4
• Programme Changes in NEC4

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.