X3: Multiple Currencies

NEC X3 lets the Contractor receive some of its money in a foreign currency, for items or activities named in the Contract Data. It moves the exchange rate risk on those items from the Contractor to the Client, and it is used only with the priced main Options, A and B.

This applies in NEC3 and NEC4. The heading and the limit to Options A and B appear in both the NEC3 ECC and the NEC4 subcontract text, with two clauses, X3.1 and X3.2. It's one of the less common NEC secondary Options on UK work, but useful when a job depends on overseas plant or specialists.

Why it matters

Suppose a Contractor quotes in sterling for specialist plant bought in euros. If sterling weakens between tender and purchase, its margin shrinks. It can price that risk, hedge it or ask for X3. Under X3, it's paid the listed items in the other currency, so the supplier cost and the income match.

The cost-based Options deal with this differently. Under Options C, D and E, the Contract Data gives exchange rates for converting Defined Cost, and X3 isn't used with them.

What the Contract Data needs

Entry	What to write	Why it matters
Items or activities	The specific activity schedule or bill items, not a vague "imported plant"	Only the listed items qualify
Other currency	The currency for each item	Different items can use different currencies
Maximum amount	A cap for each currency	Anything over the cap is paid in the contract currency
Exchange rates	The published source and date for the rates	The rates convert between the contract currency and the others

A worked example

A fictional contract with illustrative figures. A wastewater project under Option A has a contract currency of sterling. The activity schedule includes specialist pumps at £850,000. The Contract Data lists the pump activity for payment in euros, using a stated rate of 1.15 euros to the pound and a maximum of 1,000,000 euros.

1. The pump activity is completed and valued at £850,000.
2. Converted at the stated rate, that is 977,500 euros, which is below the maximum.
3. The Contractor is paid 977,500 euros for this item, whatever the market rate is on the day.
4. A compensation event later adds £50,000 to the activity. At the same rate that would be 57,500 euros, taking the total to 1,035,000 euros. The first 22,500 euros of that uplift fits under the cap, and the rest is paid in sterling.

The cap protects the Client from open-ended exposure to a foreign currency, while the stated rate fixes the conversion.

Practical points

• Match the payment to the actual cost. A Client gains little from paying in another currency if the Contractor's supplier is paid in sterling.
• Think about who holds the risk. X3 doesn't remove exchange rate risk. It transfers it to the Client, who may want its treasury team to plan for it.
• Update the banking process. Assessments and certificates will carry more than one currency, and the payment team needs to know this before the first assessment date.
• Set the cap sensibly. Too tight and compensation events push money into the contract currency. Too loose and the Client carries more risk than it planned.
• Think about X1. If the job also has Option X1, confirm how the indices relate to foreign cost items, so inflation and currency aren't both being priced in for the same item.

Without X3

Without the Option, all payment is in the contract currency. Under a lump sum or remeasured contract, the Contractor absorbs exchange rate changes on anything bought abroad, unless the contract says otherwise or it agrees separate terms. A movement in exchange rates isn't one of the standard compensation events. If you're tendering on those terms, price the exposure or use a hedge, and raise it as a tender query if the sums are big enough.

Related guides

• NEC Secondary Options: X, Y, W and Z Clauses Explained
• X4: Ultimate Holding Company Guarantee
• X5: Sectional Completion
• X6: Bonus for Early Completion
• X1: Price Adjustment for Inflation
• X2: Changes in the Law

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.