The NEC4 Engineering and Construction Contract (ECC) comprises standard clauses presented in several sections. However, to form a complete agreement, a number of other documents are also necessary. This article provides an overview of the different sections, documents and information required to form a complete contract when using the ECC. With the exception of the Dispute Resolution Service Contract (DRSC), all the NEC4 long-form contracts have the same structure.
Sections of the ECC standard form
The standard form of the NEC4 ECC includes the following sections that collectively form the ‘conditions of contract’:
- Core clauses
- Main Option clauses
- Resolving and Avoiding Disputes option
- Secondary Option X Clauses
- Secondary Option Y Clauses
- Schedule of Cost Components
- Short Schedule of Cost Components
- Contract Data
Additional conditions of the contract may be incorporated by including Z clauses (Option Z).
The NEC do not include a Form of Agreement within the contract, but it does provide a template in its User Guides.
Documents required for the core clauses
To give meaning to the core clauses within the context of the project, the following documents are required:
- scope
- site information
Other documents required, depending on contract strategy
In addition to the scope and site information, other documents and information may be required, depending on the client’s contract strategy and the chosen main and secondary options. These documents should be referenced in the contract data or provided in the scope. The other documents, when relevant to the contract, that should also be referenced in contract data are:
- Programme
- A priced activity schedule (Option A and C)
- A priced bill of quantities (Option B and D)
- Information Model Requirements (X10)
- Information execution plan (X10)
- Schedule of Partners including the Key Performance Indicators (X12)
- Incentive Schedule including Key Performance Indicators (X20)
- The Climate Change Plan (X29)
- Performance Table (X29)
The documents and information that should be referenced in the scope are:
- The form of the Ultimate Holding Company Guarantee (Option X4)
- The forms of the Undertakings to the Client and Others (Option X8)
- Information Model Requirements (X10)
- The form of the performance bond (X13)
- The form of the retention bond (X16)
- Climate Change Requirements including the Climate Change Partners (X29)
Core clauses
The core clauses are the foundation for all the NEC4 contracts and apply whichever main and secondary options are chosen. There are nine core clauses which are presented at the front of the contract:
1 General
2 The Contractor’s main responsibilities
3 Time
4 Quality management
5 Payment
6 Compensation events
7 Title
8 Liabilities and insurance
9 Termination
Main option clauses
There are six main options available in the ECC of which one is chosen. The main option clause is combined with the core, secondary options and dispute resolution clause to form the conditions of contract. The main option represents the payment mechanism for the contract and is the principal means by which the risk of cost is allocated between the parties. It is often referred to as the payment option. The six options are:
- Option A: Priced contract with activity Schedule
- Option B: Priced contract with bill of quantities
- Option C: Target contract with activity Schedule
- Option D: Target contract with bill of quantities
- Option E: Cost reimbursable contract
- Option F: Management contract
Schedule of Cost Components/ Short Schedule of Cost Components
The main option chosen determines whether the Schedule of Cost Components (SCC) or the Short Schedule of Cost Components (SSCC) applies to the contract. The SCC applies to the main options C, D and E. The SSCC applies to the main options A and B. The schedules are used to define which of the contractor’s costs are recoverable as Defined Cost when assessing payment and compensation events. Option F does not use the SCC or the SSCC and sets out alternative rules for Defined Cost in the main option clause.
Resolving and Avoiding Disputes option
The NEC4 ECC provides three different options which set out the procedures for resolving and avoiding disputes. The options are:
- Option W1 - Used when adjudication is the method of dispute resolution and the Housing Grants, Construction and Regeneration Act 1996 does not apply
- Option W2 - Used when adjudication is the method of dispute resolution and the Kingdom Housing Grants, Construction and Regeneration Act 1996 applies
- Option W3 - Used when a Dispute Avoidance Board is the method of dispute resolution and the Housing Grants, Construction and Regeneration Act 1996 does not apply
The standard form of the contract states that one of the dispute resolution methods must be selected. However, there is nothing to prevent the parties from agreeing to adopt different procedures, as long as they comply with the statute relevant to the jurisdiction. In Hong Kong, the NEC4 edition of the contract does not include W1, W2, or W3 but incorporates a multi-tiered dispute resolution procedure (W4).
The W options are forms of ADR (Alternative Dispute Resolution) and do not replace the rules governing legal proceedings allowed under the tribunal (e.g., arbitration or court litigation). The tribunal should be stated in contract data part one.
Secondary (X) option clauses
In addition to the main Option, the Parties may include secondary X options in their contract. It is not mandatory to include any of these options, but in practice it is unlikely that none would be used. The secondary options allow for further refinement of contractual risk allocation and the inclusion of other features to incentivise and facilitate good project management. The secondary options are:
- Option X1: Price adjustment for inflation (used only with option A, B, C and D)
- Option X2: Changes in the law
- Option X3: Multiple currencies (used only with option A and B)
- Option X4: Ultimate holding company guarantee
- Option X5: Sectional Completion
- Option X6: Bonus for early Completion
- Option X7: Delay damages
- Option X8: Undertakings to the Client or Others
- Option X9: Transfer of rights
- Option X10: Information modelling
- Option X11: Termination by the Client
- Option X12: Multiparty collaboration (not used with Option X20)
- Option X13: Performance bond
- Option X14: Advanced payment to the contractor
- Option X15: The contractor’s design
- Option X16: Retention (not used with Option F)
- Option X17: Low performance damages
- Option X18: Limitation of liability
- Option X20: Key Performance Indicators (not used with Option X12)
- Option X21: Whole life cost
- Option X22: Early contractor involvement (used only with option C and E)
- Option X29: Climate change
Secondary (Y) Option Clauses
There are three Y Option clauses available in the NEC4 ECC and all of the other NEC4 long-form contracts.
Option Y(UK)1: Project Bank Account
This establishes a dedicated project bank account, facilitating prompt and transparent payments directly to subcontractors.
Option Y(UK)2: The Housing Grants, Construction and Regeneration Act 1996
This ensures the contract complies with UK legislative requirements regarding payment terms, procedures, and rights such as suspension of works for non-payment.
Option Y(UK)3: The Contracts (Rights of Third Parties) Act 1999
This grants rights to third parties not directly involved in the contract, permitting them to enforce specified terms within it.
Contract Data
The contract data is a fundamental part of the documents which make up the NEC4 Engineering and Construction Contract. Contract data contains the contract-specific information required to activate and operate the contract’s mechanisms in the context of the project. contract data is in two parts. Part one is completed by the client and includes data such as the starting date, completion date and the selected main and secondary option. Part two is completed by the contractor and may include details such as the contractor’s design scope, programme, and pricing data. Although not part of the scope, contract data includes references to the documents that comprise the scope, site information, and pricing documents such as the activity schedule or bill of quantities. It also captures weather data, early warning items, and dispute resolution methods. NEC contracts demands that contract data is clear and complete; incomplete or poorly structured entries can create inconsistency and ambiguity increasing the risk of disputes.
Z clauses – additional conditions of contract
Option Z clauses in the NEC4 Engineering and Construction Contract are additional conditions of contract drafted by the parties to address project-specific requirements not covered by the standard clauses. Strictly speaking, Z clauses are intended to be additional conditions, but in practice, they are also used for bespoke amendments. They are not part of the published contract and are used to reflect particular legal, commercial, or operational needs. Z clauses require careful drafting to avoid conflicts with existing NEC provisions or unintended legal consequences. Improper or excessive use of Z clauses can undermine the clarity and collaborative ethos of NEC contracts, thereby increasing the potential for disputes.
Scope
The scope (Works Information under NEC3) sets out the requirements, constraints, and expectations for the work to be carried out. It defines what the contractor is to do and, where applicable, what parts of the works are to be designed by the contractor. The scope, arguably the most important part of the contract documents, is referenced in the contract data and can include technical specifications, drawings, performance criteria, procedures, and design standards. A well-prepared scope enhances clarity, reduces ambiguity, and mitigates the risk of disputes by making the parties’ responsibilities and expectations explicit.
Site information
The site information is prepared by the client with the purpose of providing details about the physical conditions of the site and its surrounding areas that are known to the Client at the time of tender. Site information is the primary document used to assess compensation events for unforeseen physical conditions.
Activity Schedule
The activity schedule is a pricing document used in NEC4 option A and C that breaks down the works into discrete activities, each with an associated price. Its primary purpose is to determine payments to the contractor based on the completion of these activities. The contractor is paid when an activity listed in the schedule is completed, making the schedule a key mechanism for managing cash flow and performance. The activity schedule must align with the scope and be structured in a way that aligns with the programme.
Bill of quantities
The bill of quantities in the NEC4 Engineering and Construction is used under option B and D. Usually prepared by the client, it lists the items of work and their estimated quantities, measured using standard methods such as CESMM4 or SMM7. The contractor prices each item, and these prices form part of the tender. Unlike traditional contracts, in the NEC4 ECC the bill is not automatically used to assess changes or compensation events unless both parties agree. It is particularly suited to projects where the scope is well-defined and the design is largely complete at tender stage.
Programme
The programme is a vital management tool that sets out how and when the contractor intends to carry out the works. It is not merely a schedule of activities but a document that must be regularly updated to reflect progress, changes, and the effects of compensation events. The programme includes key information such as sequences of work, timing, float, critical path, and the use of resources. It serves both as a planning instrument and a contractual record, enabling proactive risk management and planning by both parties. The project manager uses the accepted programme to assess the impact of changes on time, including delays or acceleration. A well-maintained programme is essential for effective contract management and the achievement of project objectives.
Summary
The NEC4 Engineering and Construction Contract is a modular, flexible framework designed to support effective project management and collaboration. It comprises core clauses, main and secondary options, and project-specific documents such as the scope, contract data, and site information. Payment mechanisms depend on the selected main option, using different pricing documents. The contract also includes provisions for dispute resolution and allows bespoke amendments through carefully drafted Z clauses. A clearly defined scope and regularly updated programmes are essential for managing time, risk, and performance, ensuring alignment between contractual obligations and delivery.
David Hunter
Daniel Contract Management Services Ltd
June 2025