Insights — NEC Contracts NEC Option A vs Option C: what’s the difference?
How the two most widely used NEC main options pay the contractor, who carries the cost risk, and how to choose between them.
In short: under NEC Option A the contractor is paid a fixed price for each completed activity and carries the risk of its own costs. Under Option C the contractor is paid its actual cost plus a fee, and any saving or overrun against an agreed target is shared with the client.
Both are main options of the NEC Engineering and Construction Contract (ECC), and both use an activity schedule that the contractor prices. The difference is what happens to that price once work starts.
Option A: priced contract with activity schedule
The contractor breaks the work into activities and prices each one. The total of those prices is the contract price. The contractor is paid for each activity when it is complete, whatever it actually cost to deliver.
- Cost risk: sits mainly with the contractor. If an activity costs more than priced, the contractor absorbs it, unless the cause is a compensation event.
- Price certainty: high for the client, provided the scope is well defined and change is controlled.
- Administration: lighter. The Project Manager checks that activities are complete, not what they cost.
- Change: compensation events are assessed on their forecast effect on cost and time, and added to the prices.
Option C: target contract with activity schedule
The activity schedule prices become a target. During the works the contractor is paid its actual Defined Cost plus its Fee, less any costs the contract disallows. At the end, the final cost is compared with the target, adjusted for compensation events, and the difference is shared between client and contractor in the proportions set in the contract (the pain/gain share).
- Cost risk: shared. The client benefits from savings but also bears part of any overrun.
- Price certainty: lower at the outset, but the target and share ranges give both parties a reason to keep costs down.
- Administration: heavier. The contract is open-book, so the client’s team must check Defined Cost, timesheets, plant and subcontract costs, and identify Disallowed Cost.
- Change: compensation events adjust the target rather than a fixed price.
Side by side
| Option A | Option C | |
|---|---|---|
| Contractor is paid | The price of each completed activity | Defined Cost plus Fee, then a share of any saving or overrun |
| Who carries cost risk | Mainly the contractor | Shared, through the pain/gain share |
| Best when | Scope and design are well defined | Scope or risk is uncertain, or the contractor joins early |
| Client’s admin effort | Lower | Higher: open-book cost checking |
| Typical use | Buildings and refurbishments with a settled design | Highways, infrastructure and two-stage or early contractor involvement schemes |
Which should you choose?
Choose Option A when the design is mature, the scope is unlikely to change and you want price certainty with a lighter administrative load. Choose Option C when there is real uncertainty in scope, ground conditions or interfaces, when the contractor is involved early to help develop the design, or when you want a collaborative, open-book relationship and have the resources to manage it.
A common pattern on infrastructure is a two-stage approach: the contractor develops the design and target under a first-stage appointment, then the works are let under Option C. Whichever option you use, the client’s amendments (the Z clauses) and the share ranges matter as much as the option itself, so they deserve careful drafting.
How October Projects can help
We act as NEC Project Manager and commercial advisor under both options. Recent examples include the A38 Major Road Network, a two-stage scheme moving to Option C, and the Newbold Comyn and St Nicholas Park leisure centres, delivered under Option A with client amendments.
Deciding on an NEC option? Get in touch, or read more about our contract administration and project management services.
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