NEC contracts come in six main options that define the payment mechanism. Which option applies determines how you get paid, how risk is shared, and how cost is managed. The wrong option for your business model can severely impact cashflow.
The main option is the most fundamental commercial choice in an NEC contract. It defines how the Contractor is paid, who bears the financial risk of cost overruns, and how the contract sum is established and adjusted. There are six main options — A through F — and which one applies is stated in Contract Data Part 1. Subcontractors often receive subcontracts on whichever option the main contractor considers appropriate for the package, which may differ from the main contract option above.
Options A and B are priced contracts where the Contractor bears cost risk — you price the work and are paid that price regardless of actual cost. Option A uses an Activity Schedule (lump sum activities) and Option B uses a Bill of Quantities (re-measurable). These options are the most common in the UK construction market. Options C and D are target cost contracts — the Contractor is paid actual Defined Cost plus a Fee, and any saving or overrun against the target is shared between the parties. Option E is a pure cost reimbursable contract with no target, and Option F is a management contract where the Contractor manages packages but does not self-deliver the physical works.
For subcontractors, the most important question is: what is the payment mechanism and who bears cost risk? Under Options A and B, your price is largely fixed (subject to CEs). Under Options C and D, you may need to provide open-book cost data and participate in a pain/gain calculation. Under Option E, all your costs must be demonstrable and auditable. Understanding which option applies — and what obligations flow to you — is essential before you submit a price.
| Option | Payment Mechanism | Risk Allocation | Best For |
|---|---|---|---|
| Option A | Lump sum by Activity Schedule | Contractor bears cost overrun risk | Well-defined scope, building/fit-out |
| Option B | Re-measurement by Bill of Quantities | Contractor bears rate risk; Client bears quantity risk | Civil works, uncertain quantities |
| Option C | Defined Cost + Fee; target with Activity Schedule | Pain/gain shared per Contract Data split | Complex projects, incentivised delivery |
| Option D | Defined Cost + Fee; target with Bill of Quantities | Pain/gain shared; dual-track measurement and cost accounting | Large infrastructure, framework programmes |
| Option E | Defined Cost + Fee; no target | Client bears all cost risk | Emergency works, early start, high uncertainty |
| Option F | Management fee + pass-through of subcontract costs | Client bears subcontract cost risk; Contractor bears management risk | Major programmes, professional management |
Options A and B are the most common for subcontracts. Option A (Activity Schedule) gives price certainty but requires careful activity breakdown for cashflow. Option B (Bill of Quantities) allows re-measurement but exposes you to rate risk. The best option depends on scope certainty and your risk appetite.
Option A pays a lump sum per completed activity (Activity Schedule). Option B pays re-measured quantities at tendered rates (Bill of Quantities). Under Option A, the Contractor bears both rate and quantity risk. Under Option B, the Client bears quantity risk but the Contractor still bears rate risk.
Yes. The compensation event mechanism under clause 60.1 applies equally across all six main options (A–F). Scope changes, access failures, and other defined events are recoverable regardless of which payment mechanism governs the contract.
Option A is a lump sum contract where the Contractor prices a list of activities. The Activity Schedule breaks the contract price down into discrete work items — each activity has a price, and you are...
Option B is a re-measurable contract — the work is priced against a Bill of Quantities (BoQ) with rates and prices, and the contract sum is adjusted based on the actual quantities of work executed. If...
Option C is a target cost contract. You are paid your Defined Cost (actual cost) plus a Fee. A target price is set (based on an Activity Schedule), and at the end of the project, actual Defined Cost i...
Option D combines the target cost mechanism of Option C with a Bill of Quantities for interim valuation. The BoQ is used to value actual work done during the project, and the target price is also BoQ-...
Option E is a pure cost reimbursable contract — the Client pays the Contractor's actual Defined Cost plus a Fee. There is no target, no Activity Schedule, and no BoQ. The Contractor is paid for what t...
Option F is a management contract — the Contractor manages the delivery of the project but sub-lets most (or all) of the physical work to subcontractors. The Contractor is paid their management fee pl...
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