NEC X20 is the KPI Option: the Contractor reports against Key Performance Indicators and is paid the amount in the Incentive Schedule when a target is met or beaten. It adds a reward only. The Option has no deduction for missing a target, and the Client can't reduce a stated payment.
It has five clauses, X20.1 to X20.5, in the NEC3 ECC and NEC4 subcontract text, and it can't be used with Option X12, which has its own indicators. It's one of the performance tools among the NEC secondary Options.
How the clauses fit together
| Clause | What it does | Who acts |
|---|---|---|
| X20.1 | Defines KPIs and the Incentive Schedule | Client sets at tender |
| X20.2 | Reports on performance and the forecast final measurement, at Contract Data intervals, running from the start of the job to the Defects Certificate | Contractor |
| X20.3 | Proposes how to improve if a forecast misses the target | Contractor |
| X20.4 | Pays the stated amount when the target is improved on or achieved | Client, through the amount due |
| X20.5 | Adds new KPIs and payments, but no deleting or reducing | Client |
Writing a usable Incentive Schedule
The Option provides the mechanism, but its value comes from the targets. Make each row specific.
| Indicator (fictional) | Measure | Target | Payment |
|---|---|---|---|
| Local labour | Share of workforce hours from named postcodes, measured at Completion | 25% | £40,000 |
| Accident rate | Reportable incidents over the job | Nil | £30,000 |
| Defects at Completion | Number listed by the Supervisor at Completion | 10 or fewer | £25,000 |
| Waste | Share diverted from landfill, from certified records | 95% | £15,000 |
A good indicator has an agreed data source, a clear measurement date and a figure no one can dispute afterwards. Think about whether the payment is big enough to change behaviour, and don't choose something the Contractor can't influence.
A worked example
Using the table above, the Contractor's month 12 report forecasts waste diversion of 91%, below the target. X20.3 applies, so it submits proposals: a new segregation area and a change of haulier. The Project Manager's team reviews them. The Contractor reaches 95.5% at the final measurement, and £15,000 is added to the next amount due.
The local labour target was missed, at 22%. No payment is due on that row, but there's no deduction either. The Client can't later take the £40,000 row away, though X20.5 lets it add a new indicator with a new payment if a new priority appears.
How the money flows
- Payment is due when the target has been achieved, so long-run targets are often paid late in the job. Don't count on them for cash flow.
- KPI payments aren't part of the cost-based total, so they don't feed into the share on Options C and D. Keep them on a separate line in your payment application.
- The core rules on assessment and notices still apply, so if a target has been achieved, include it in your application and show the evidence.
X20 or X12?
X20 suits one Client and one Contractor, with targets between them. X12 suits several contracts linked by shared objectives, with its payments set out in the Schedule of Partners. Using X12 means the indicators belong to that scheme, and you'd leave out X20. Our guide to choosing secondary Options has more on this decision.
What people get wrong
- Treating reports as a formality. A missed report doesn't automatically forfeit the payment, but it's a breach, and it leaves the forecast out of sight.
- Using lagging targets alone. Accident rates and Defect counts only show up after the event. Add one or two measures people can influence during the job.
- Adding penalties. A row that takes money away isn't what X20 says, and it would need a Z clause. Take advice, as that changes the commercial balance.
- Forgetting subcontractors. If a target depends on the supply chain, make sure the incentive reaches the people doing the work.
Related guides
- NEC Secondary Options: X, Y, W and Z Clauses Explained
- X21: Whole Life Cost
- X22: Early Contractor Involvement
- Early Contractor Involvement Under NEC
- X18: Limitation of Liability
- X19: Task Order (NEC3) and Termination by Either Party (NEC4)
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