NEC risk is shared by a simple rule: the contract lists what each side carries, and the Client's list takes priority where the two overlap. Insurance then backs up those liabilities, and the chosen main Option decides who carries the cost of everything else.
Under the NEC4 Engineering and Construction Contract (ECC), this is in Section 8, Liabilities and insurance. In NEC3 the same section is called Risks and insurance, and it works in a noticeably different way. This guide brings the topics together and links to a page on each. It belongs to our wider guide to NEC contracts.
Three layers of risk
People often talk about "NEC risk" as if it were one thing. It helps to separate three questions.
| Layer | The question | Where the answer is |
|---|---|---|
| Liabilities | Who bears loss, damage and third-party claims? | Clauses 80 to 82 |
| Time and cost change | Does an event change the Prices and the Completion Date? | The compensation events in clause 60 |
| Commercial outturn | Who bears cost going over or under the expected figure? | The main Option, A to F |
A flood could touch all three: damaged works (a liability), lost weeks (possibly a compensation event, depending on the facts), and the extra cost of dealing with it (shaped by the main Option).
The clause map
| Topic | NEC4 ECC | NEC3 ECC |
|---|---|---|
| What the paying side carries | 80.1, Client's liabilities | 80.1, Employer's risks |
| What the Contractor carries | 81.1, a stated list | 81.1, everything else |
| Repairing damage | No matching clause | 82.1 |
| Paying each other back | 82, recovery of costs | 83, indemnity |
| Insurance cover and Insurance Table | 83 | 84 |
| Insurance policies and certificates | 84 | 85 |
| If the Contractor doesn't insure | 85 | 86 |
| Insurance provided by the paying side | 86 | 87 |
As with Section 4, the numbers shift by one between the editions, here from the recovery clause onwards, so check them before reusing an old letter.
Who carries what
The Client's liabilities include unavoidable effects of the works on others, its own people's negligence or fault, faults in design it provides, war and radioactive contamination, parts it has taken over, and anything added in the Contract Data. The Contractor's liabilities include claims arising from Providing the Works, damage to the works, Equipment, Plant and Materials, and injury to its own employees.
The list of Client's liabilities has a commercial twist. An event on it is a compensation event under 60.1(14), so the Contractor is put back in position for time and money, as well as being reimbursed for losses.
How the money moves
NEC4 replaced NEC3's express indemnity with clause 82. Each side pays the cost the other has paid or will pay because of an event the first side is liable for. The right is reduced where the recovering side's own liability contributed. Our page on indemnities under NEC explains the change, and why many amended contracts add wording of their own.
Insurance
The Contractor provides what the Insurance Table lists, except anything the Contract Data says the Client will provide. Minimum amounts come from the Table and the Contract Data. The Contractor submits certificates for acceptance ahead of the starting date and at every renewal. If it doesn't, the Client can arrange cover and charge the Contractor for it. The clauses don't reduce anybody's liability: insurance only helps pay for it. See insurance under NEC.
Risk by main Option
The six main Options share the same liabilities clauses but differ greatly in who bears cost risk. The short version is below, and the choice is best made before tender, while it can still shape the price.
| Main Option | Who mainly carries cost overrun |
|---|---|
| A: priced with activity schedule | The Contractor |
| B: priced with bill of quantities | The Contractor on rates, the Client on quantities |
| C: target with activity schedule | Shared by the share range |
| D: target with bill of quantities | Shared by the share range, with quantities re-measured |
| E: cost reimbursable | The Client, apart from Disallowed Cost |
| F: management contract | The Client on subcontract cost, with the Contractor's own prices and Disallowed Cost as limits |
The full comparison, with a worked event, is on risk allocation by main Option.
Pricing risk inside a compensation event
A compensation event isn't priced purely on what can be proved after the event. The assessment can include allowances for matters with a significant chance of happening that aren't compensation events. This is at 63.8 in NEC4 and 63.6 in NEC3, and it matters on any quotation with real uncertainty. Once a quotation is implemented, it isn't reopened because the forecast proved wrong, so those allowances are the Contractor's protection. See risk allowances in quotations.
Limiting exposure
The core clauses contain no overall cap on the Contractor's liability. Option X18 adds them, if selected, and Option X15 changes the standard for design. Our page on limiting liability under NEC explains how to set them. Other Options that shift risk include X1 (inflation), X2 (changes in the law), X7 (delay damages) and X17 (low performance damages).
Events nobody saw coming
NEC doesn't use the phrase "force majeure". It gets a similar result with the prevention event at 60.1(19), read with 19.1 and the termination reason R21. Its effect is more generous to the Contractor than many might expect. The comparison is on force majeure and NEC.
A worked illustration
A fictional Option A college building, with illustrative figures. A fire starts in a store, causing £90,000 of damage to partly built works. The cause is careless hot working by the Contractor's subcontractor. Nothing in the Contract Data adds to the lists.
- Liability. Loss of or damage to the works is the Contractor's liability, and a fault of the Client isn't involved.
- Compensation event. None, as the event isn't on the Client's list.
- Insurance. The works policy in joint names should respond, subject to its terms and excess.
- Who funds the gap. The excess and any uninsured loss sit with the Contractor.
- Early warning. The effect on the programme and the Client still needs managing, so a warning and a meeting are sensible.
Change one fact: if the fire had been started by the Client's own maintenance team, the first answer changes, as that would be a fault of someone employed by the Client. It would then be a compensation event, and the costs would move across.
What to check at tender and at the start of the job
- Read the lists as amended. Additional liabilities in the Contract Data and Z clauses often rewrite the balance. Our guide to Z clauses covers what to look for.
- Compare the Insurance Table with your actual policies. Have your broker check joint names, levels and exclusions, including cover to the end of the required period.
- Look at the Client's insurance entries. If the Client provides works cover, ask for the certificates.
- Don't mix the lists with compensation events. An event may be a liability and not an entitlement to time, or the reverse. Check each list separately.
- Keep the Early Warning Register working. Risks that could lead to a loss belong in it. The Early Warning Register guide explains the process.
Other NEC forms
The same thinking applies across the NEC family, but the detail doesn't transfer automatically. The NEC4 Engineering and Construction Subcontract uses the ECC's numbers, and its lists add the Contractor alongside the Client on the paying side. The Professional Service Contract has its own liability and insurance terms, with professional indemnity at the centre, so don't cite the clause numbers on this page for a consultant's appointment. If you manage several forms on one project, keep a short table of who carries what on each, because a gap between the main contract and a subcontract is exactly where uninsured losses tend to land. Our guide to choosing an NEC contract explains how the forms differ.
The guides in this section
- Client's liabilities goes through the list in clause 80.1, item by item.
- Contractor's liabilities covers the clause 81.1 list, and how it changed from NEC3.
- Insurance under NEC sets out the Insurance Table, certificates and what happens if nobody insures.
- Indemnities under NEC compares the NEC3 indemnity with recovery of costs in NEC4.
- Risk allocation by main Option compares Options A to F in one table.
- Risk allowances in quotations shows how to price uncertainty in a compensation event.
- Limiting liability under NEC explains how to use Option X18 and its caps.
- Force majeure and NEC looks at how the contract treats extreme events.
All guides in this section
- Client's Liabilities
- Contractor's Liabilities
- Insurance Under NEC
- Indemnities Under NEC
- Risk Allocation by Main Option
- Risk Allowances in Quotations
- Limiting Liability Under NEC
- Force Majeure and NEC
Related guides
- NEC Contracts Explained: The Complete Guide
- NEC4 Contracts: A Complete Guide
- NEC Contract Types: Which Form Do You Need?
- NEC Compensation Events: The Complete Guide
- NEC Early Warnings: The Complete Guide
- The NEC Programme: A Complete Guide
Free NEC tools, quizzes and downloads
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- Clause finder and clause index
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- Who does what, by when
- Contract picker and main Option picker
- Glossary and abbreviations
- NEC quizzes and role-play scenarios
- Free NEC templates and clause sheets
- Worked examples and all guides, A to Z
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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.