X2: Changes in the Law

NEC X2 makes a change in the law a compensation event, so the Client rather than the Contractor carries the risk of the law changing mid-contract. Without Option X2, there is no standard entitlement for it in the core clauses, and the risk stays with the Contractor unless another event applies.

The rule sits at X2.1 in both the NEC3 and NEC4 Engineering and Construction Contract (ECC), and the Option is available across the main forms in the NEC secondary Options family.

The three tests

Test	What to ask	Common trap
Is it a change in the law?	Has a legal requirement itself changed?	A new client policy, a revised industry guidance note or a change of market practice may not count. Take advice where the status is unclear.
Is it the law of the right country?	Is it a law of the Site's own country?	A change abroad that pushes up the cost of imported Plant and Materials isn't within the wording.
Is the timing right?	Did the change occur after the Contract Date?	A law already passed by the Contract Date, but not yet in force, needs careful thought. Look at when the change "occurs" in legal terms.

The date test uses the Contract Date, not the date of the tender. If a law changes between tender and Contract Date, it won't be caught by X2, so tenderers and Clients should deal with known changes during negotiation.

The effect on price and time

Once it qualifies, the event follows the normal compensation event process: notification, quotation, assessment and implementation. The change to the Prices is assessed through its effect on Defined Cost, and any delay to planned Completion moves the Completion Date.

The unusual feature is that it works in both directions. If the change lowers the total Defined Cost, the Prices come down. Most other events don't work this way unless the clause says so, so a Client should watch for favourable changes as well as adverse ones.

A worked example

This is a fictional case with illustrative figures. A contractor is building a depot under Option A. Eight months after the Contract Date, new legislation requires a higher standard of treatment for site water, with immediate effect.

1. The Contractor notifies the event under X2.1, keeping within the clause 61.3 time limit.
2. The Project Manager instructs a quotation.
3. The Contractor prices extra treatment plant and monitoring at £64,000 including Fee, and shows two weeks' effect on the planned sequence with no effect on Completion, because the delayed work has float.
4. The Project Manager accepts. The Prices rise by £64,000 and the Completion Date stays where it is.

NEC3 and NEC4 differences

The substance is the same, with "Employer" becoming "Client". The NEC3 ECC wording expressly lets the Project Manager notify the event and ask for quotations, which matters because a price reduction is one the Contractor has little reason to raise. The NEC4 subcontract text doesn't repeat that sentence, so read how notification works in your own NEC4 ECC. In a subcontract, the date test uses the Subcontract Date, which won't match the main contract's. A law passed between those two dates could be recoverable under one contract and not the other, so check this on a back-to-back subcontract.

Checklist for using X2

• Is X2 listed in Contract Data part one?
• Have any Z clauses changed the test, for example by limiting it to certain types of law?
• What do you have to show? Keep a copy of the legislation, its commencement date and a note of how it changes the work.
• Is it really the law that requires the extra work, or a preferred way of meeting it? The Contractor may have a cheaper way to comply.
• Is the Client benefiting from any change? Record reductions as well as increases.

When the Option is absent, a contractor concerned about legal change has to price the risk or raise it before signing. Our guide to choosing secondary Options covers that decision.

Related guides

• NEC Secondary Options: X, Y, W and Z Clauses Explained
• X3: Multiple Currencies
• X4: Ultimate Holding Company Guarantee
• X5: Sectional Completion
• X1: Price Adjustment for Inflation

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.