Secondary X Options is a key part of the NEC4 flexibility. The options allow the parties to tailor their contract to suit project-specific needs and allocation of risk. They introduce additional procedures or obligations, covering areas such as collaboration, early completion, key performance indicators and whole-life costs. This article, provides a summary of the secondary X options that are available under the NEC4 Engineering and Construction Contract.
Secondary Option X1: Price Adjustment for Inflation
Option X1 allows the risk of inflation to be managed using a defined index to adjust prices. The inclusion of X1 shifts most of the risk of inflation from the contractor to the client. It helps with managing the risk of inflation in long-term contracts or those in volatile economic environments. X1 is not compatible with the cost reimbursable contracts (Options E and F), because these contracts inherently adjust what the contractor is paid based on actual cost incurred.
Secondary Option X2: Changes in the law
Under Option X2 a change in the law of the country of the site occurs after the date the parties entered into the contract is treated as a compensation event. The ‘law’ in this context refers broadly to acts of parliament (statutes) and delegated legislation (statutory instruments).
Secondary Option X3: Multiple Currencies
Option X3 is typically used in international projects where parts of the supply chain or subcontracting involve foreign currencies, allowing payment in multiple currencies. Used only with Option A or B, the activities or bill items which are to be paid in a currency other than the currency of the contract, must be stated in contract data. The exchange rates, stated in the contract data, are fixed meaning the contractor takes the risk of any future currency fluctuation unless the contract explicitly allows adjustment.
Option X4: Ultimate Holding Company Guarantee
If the client requires the contractor to obtain a guarantee from its ultimate holding company, Option X4 should be chosen. The guarantee, called a parent company guarantee under NEC3, is provided to the client by the date stated in the contract data.
Secondary Option X5: Sectional Completion
Option X5 allows for the division of the works into sections, with separate completion dates. This option is applied when the client needs different parts of the works completed in phases. The parts of the works that are to completed in sections should be described in the contract data, along with their respective completion dates. The use of sectional completion assists in managing the delivery of key project milestones, especially where parts of the works are required early (e.g. for access by follow-on contractors or commissioning activities).
Secondary Option X6: Bonus for Early Completion
This option provides a mechanism for the client to incentivise early completion by offering a bonus to the contractor for completing the whole of the works before the completion date. This option is used when the client highly values early completion and is prepared to pay a bonus if the contractor delivers ahead of schedule. When considering X6 the client should consider how feasible early completion is and whether the contractor has a realistic chance and capacity to achieve it without compromising quality.
Secondary Option X7: Delay Damages
Option X7 allows for the pre-agreement of delay damages payable by the contractor for failure to meet the completion date. These damages are said to be liquidated and are generally intended to reflect a genuine pre-estimate of the client’s loss arising from late completion of the works. The rate of damages must be specified in the contract data and are deducted from the price for work done to date by the project manager when assessing the amount due. Delay damages cease to apply once the works are complete or have been taken over. Option X7 may be used in conjunction with X5: Sectional Completion.
Secondary Option X8: Undertakings to the Client and Others
This option is used if the contractor is required to give legal undertakings (or procure them from a subcontractor or supplier) in favour of the client or third parties. Such undertakings are more commonly known as collateral warranties. Third parties may include funders, future asset owners, or tenants.
Secondary Option X9: Transfer of Rights
Option X9 is used to allow the client to transfer the benefit of the contract or specific rights under it to another party. In other contracts these provisions are typically covered under the heading of ‘Intellectual Property Rights’ or IPR. The option gives the client the ability to transfer rights, but not obligations. This ensures the contractor remains liable to the original client under the existing terms unless otherwise agreed. The transferee gains rights but does not assume client responsibilities under the contract.
Secondary Option X10: Information Modelling
X10 introduces contract terms on the use of information modelling (Building Information Modelling, or BIM). It adds additional liabilities to the parties and requires specific insurances to be provided. This option structures digital information exchange and use across the project.
Secondary Option X11: Termination by the Client
Option X11 allows the client to terminate for its convenience i.e., without any default or breach by the contractor. It enables flexibility for the client in where continuation is no longer feasible. Termination under X11 triggers the procedures and amounts due for payment stated in the option clause which differ from termination for contractor default in core clause nine and the termination table. Option X11 shifts the commercial risk for termination onto the client. It provides a structured exit route but at a cost, which the client accepts when exercising this right.
Secondary Option X12: Multiparty Collaboration
Option X12 is designed to promote and support collaborative working among multiple parties involved in a project. It encourages alignment of the client’s key objectives with the contractor and its subcontractors. A schedule of partners identifies the objectives, targets and payment incentives (KPIs). Option X12 does not create binding obligations outside those in the bi-party main contract.
Secondary Option X13: Performance Bond
If Option X13 is included in the contract, the contractor is required to obtain a client-favoured performance bond. The purpose of the bond is to serves as a financial guarantee against the contractor’s failure to comply with its obligations under the contract. The bond provides the client with recourse to recover costs or losses in the event of default.
Secondary Option X14: Advance Payment to the Contractor
Option X14 makes provision for the client to make an advance payment to the contractor before work begins or in the early stages of the contract. This is helps with the contractor’s initial cash flow or mobilisation requirements. The advance payment is repaid by the contractor by deducting agreed amounts from subsequent interim payments. The re-payment profile is specified in the contract data and typically stated as a percentage of the amount due or a fixed amount.
Secondary Option X15: The Contractor’s Design
Option X15 introduces a limited liability regime for design work performed by the contractor. The clause sets a reasonable skill and care standard (rather than strict liability) for the contractor design. The use of Option X15 aligns with professional indemnity insurance principles, which typically require negligence to be proven before a claim is valid. Option X15 also make provision for the parties to agree a financial cap on the contractor’s liability for defects in its design.
Secondary Option X16: Retention
Option X16 allows the client to withhold a proportion of payments due to the contractor as a form of financial security. A portion of the retained monies is repaid on completion of the whole of the works with the balance is released when the defects certificate is issued. Retention is more associated with traditional forms of construction contract and is intended to protect the client against the risk of non-performance or defects that may arise after completion. This option includes a retention free amount to be stated and provides an alternative to retention by way of a retention bond.
Secondary Option X17: Low Performance Damages
Option X17 impose pre-defined damages payable by the contractor if the completed works do not meet one or more stated performance levels of the completed works. This option helps with performance sensitive projects, such as infrastructure, energy, or utilities, where operational output is critical. It enables a remedy for the client to address underperformance of the works in operation without needing to reject the works entirely.
Option X18: Limitation of liability
X18 allows certain financial and time caps to be placed on the contractor’s liabilities. This option provides for a general cap on the contractor’s total liability. A lower cap on liability for indirect or consequential loss can be specified as well as a specific cap on the contractor’s liability to the client for damage to property (other than the works). Certain liabilities are excluded from the general cap including loss of or damage to the client’s property.
Option X20: Key Performance Indicators
The objective of Option X20 is to incentivise the contractor to meet or exceed agreed performance targets. The Key Performance Indicators (KPIs) along with its target and bonus payments for achieving or exceeding the target are stated in the incentive schedule. Option X20 operates to reward the contractor for meeting or exceeding the KPIs but does not act as a penalty if a target is not met.
Secondary Option X21: Whole Life Cost
Option X21 aims to encourage the contractor to propose changes that cut whole life cost. This includes capital, maintenance, operation, and disposal costs. The contractor may propose changes to reduce whole life costs. A proposal includes a quotation with a forecast of the cost reduction, changes to the prices and completion date. Changes to scope, time and money under Option X21 are not managed as compensation events.
Secondary Option X22: Early Contractor Involvement (ECI)
Under secondary option X22 the parties enter into a single contract with two stages. Stage one involves scope development, detailed design and agreement on price and programme. Stage two is the construction phase, with completion of any remaining detailed design. X22 allows the contractor and its suppliers to offer expertise during early project development, to reduce risk and improve certainty during the construction phase. It is typically used for complex or higher value projects. Option X22 is drafted for use only with the Option C and E.
Secondary Option X29: Climate Change
Option X29 is intended to help clients meet climate change targets by requiring the contractor to contribute to climate related outcomes. It incorporates specific obligations and measures aligned with sustainability goals. This option uses a performance table setting targets such as carbon reduction, waste reduction and energy efficiency. The performance table allows for additional payments for meeting or exceeding the targets and reductions in payment for failure to meet targets.
Summary
The secondary options in the NEC4 ECC provide valuable flexibility, enabling parties to manage risk, incentivise performance, and support strategic objectives such as collaboration, sustainability, and whole-life value, tailored to specific needs of the client and the project.
If you need any advice in developing a procurement or contract strategy for your project please get in touch by phone or email.
David Hunter
Daniel Contract Management Services Ltd
June 2025