NEC contracts explained for subcontractors

NEC is a family of contracts published by the Institution of Civil Engineers. The name comes from its first title, the New Engineering Contract. The current edition is NEC4.

NEC is written in plain present-tense language and runs on procedures: early warnings, compensation events and assessments, each with time limits. It works well for those who keep to its timetable, and it is hard on those who do not.

Under an NEC4 Engineering and Construction Contract, your subcontract will usually be one of two forms.

The Engineering and Construction Subcontract is the full form. The Engineering and Construction Short Subcontract is used for simpler, lower-risk packages.

Many jobs still run on NEC3, the earlier edition. Clause numbers and some rules differ, so check which edition you are signing.

Every NEC contract picks one main option, which determines how you are paid.

Option A is a priced contract with an activity schedule, paying the price of each activity once it is complete. Option B uses a bill of quantities and pays for the quantities completed at your rates.

Option C is a target contract with an activity schedule. It pays Defined Cost plus the Fee, with savings or overruns shared against the target. Option D takes the same target approach using a bill of quantities. Option E is cost reimbursable.

Under Options C, D and E, your cost records decide your payment, so keep them in a form that stands up to audit. See What does Defined Cost mean under NEC4? and What does the Fee mean under NEC4? For Options A and B, see the Price for Work Done to Date.

Secondary options add terms that can affect your money.

Option X1 addresses price adjustment for inflation; see how Option X1 works. Option X7 deals with delay damages, and Option X16 with retention.

Option Y(UK)2 brings payment terms into line with the Housing Grants, Construction and Regeneration Act 1996. See how Option Y(UK)2 works.

Z clauses are the extra conditions your main contractor adds. They are where most of the risk moves to you, so read them first. What an unclear Z clause means in law is a question for your solicitor.

Both sides must give an early warning as soon as they see anything that could raise the cost, delay completion or affect the work.

If you should have warned and did not, a later compensation event can be assessed as if you had. That can cut what you are paid. See How does NEC4 clause 15 work?

A compensation event is an event that gives you more money, more time or both. Clause 60.1 lists them.

Under the main contract, the contractor must notify one within 8 weeks of becoming aware of it. If it does not, it usually loses any change to the price or the completion date. Your subcontract may set shorter periods, so diarise its own.

After that, you send a quotation within 3 weeks of being asked for one. See What is a compensation event under NEC4?, What if I miss the 8 week compensation event deadline? and what a compensation event quotation contains.

NEC pays on assessment dates, not on applications. Your main contractor assesses the amount due at each assessment date, and you can apply before it.

With Option Y(UK)2, payment is due 7 days after the assessment date. The final date for payment is 14 days after that, unless the contract says otherwise. See What is the NEC4 payment timeline? and How does NEC4 clause 50 work?

For how NEC compares with JCT on money, notices and time limits, see JCT or NEC: what the difference means for a subcontractor.

My compensation events are being refused. We challenge refused or undervalued NEC compensation events. See Compensation Event Claim.

I've been underpaid. We value the shortfall and challenge unsupported reductions. See Underpayment Claim.

I don't know what my subcontract commits me to. We explain contract risks before signing and turn signed terms into clear actions. See Pre-Signing Contract Review and Post-Signing Contract Review.