NEC Dictionary of Terms

This glossary provides explanations of the meanings of NEC terms as they are used in the NEC Contracts.

NEC Dictionary of Terms
Accepted Programme

The Accepted Programme (in the NEC4 ECC and NEC3 ECC) is identified within the Contract Data or during the project it will be superseded by a later programme – there is a process for submission and this must be accepted by the project manager. The programme is to be practicable and realistic, showing when the contractor intends to carry out each part of the works identifying the resource it intends to use – this tool is invaluable in successfully managing a contract.

Compensation Events

NEC3 and NEC4 contracts are underpinned by a philosophy that the contractor (in the ECC, NEC3 ECC) should not lose out, nor benefit from a windfall, as a result of an event which occurs and is at the client’s risk. Compensation events entitle a contractor to be compensated for any impact the event has on the prices, completion or key dates in the contract.

The cost impact of a compensation event is based upon the effect the event has on the cost of work already done and the forecast cost of work not yet done at the dividing date, which is often when the project manager instructed the change to the scope.


This is when all work that the scope (in the ECC) states is to be completion by the Completion Date, including correcting any notified Defects.


NEC3 and NEC4 contracts are a family of standard contracts, each of which stimulates good management, are flexible and are clear and simple.

NEC3 and NEC4 can be used during the entire project life-cycle; from planning, defining legal relationships and procurement of works, all the way through to project completion, FM or asset maintenance, and beyond. The intended outcome of NEC3 contracts is that time and money performances are improved while increasing standards by encouraging collaborative working in order to achieve shared project objectives. This philosophy promotes a less adversarial approach, decreasing the chance and impact of costly disputes.

Contract Data

This information needs to be completed as part of the necessary contract documents; in the ECC and NEC3 ECC this contains details such as starting date/Completion Date/employer details/defects date and the like. It is in two parts; part one (provided by the employer) and part two (provided by the contractor).

Core Clauses

Most NEC4 contracts have nine core clauses which follow the list below from the ECC:

  1. General terms
  2. The Contractor's main responsibilities
  3. Time
  4. Quality management
  5. Payment
  6. Compensation events
  7. Title
  8. Liability and insurance
  9. Termination

The NEC4 Design Build and Operate Contract (DBO) allows Clients to procure a more integrated whole-life delivery solution. It reflects the increasing demand for contracts extending into the operational phase.

The benefit of the NEC4 DBO contract is that it combines the responsibilities for design, construction, operation and/or maintenance, which can be procured from a single supplier. The DBO contract can therefore include a variety of services during construction and these works are completed.


In the ECC, this is a part of the works which is not as stated in the scope or not in accordance with applicable law or the accepted design. There is a reciprocal obligation on both the supervisor and contractor to notify each other as soon as they are aware of a defect. At an agreed date, the project supervisor will list any uncorrected defects or certify that there are no defects (defects certificate).

Defects Certificate

In the NEC4 ECC and NEC3 ECC the supervisor issues this at or just after the defects date. The certificate is a statement that there are uncorrected defects or that there are no defects, this starts the closing down of the contract.

Defined Cost

A defined term used in the NEC4 ECC, NEC3 ECC and other NEC3 or NEC4 contracts to give the parties a definition of Contractor’s cost for different use in different main Options. They only include the amounts calculated using rates and percentages in the Contract Data and other amounts at open market/ tendered /discounted rates.

Disallowed Cost

These are an element of Defined Cost when using NEC4 ECC and NEC3 ECC Options D to F. The applicability of such cost is decided by the project manager. They are costs which the contractor has incurred but the contractor states are to be disallowed – for example, those costs which the contractor cannot justify via accounts and records.

Early Warning

The contractor and project manager should notify each other, as soon as practicable, of any matter which could affect the cost, completion, progress or quality of the works (in the NEC4 ECC and NEC3 ECC).


The NEC4 Engineering and Construction Contract: the most frequently used contract from the NEC family which has been used on both high profile and every day projects such as infrastructure, buildings, highways and process plants.

This contract should be used for the appointment of a contractor for engineering and construction work, including any level of design responsibility.
ECI, early contractor involvement, is a two-stage procurement process which can take various forms. The first stage involves the development of scope and design, leading to the agreement of price and key project dates. The project is then built and delivered during the second stage.

The NEC4 Engineering and Construction Short Contract: this is an alternative to the ECC designed for use with contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the client and the contractor.


The NEC4 Engineering and Construction Short Subcontract: this can be used as a subcontract to both the ECC and the ECSC. It should be used with contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the contractor and the subcontractor.


The NEC4 Framework Contract: intended for use in the appointment of supplier(s) to carry out work or provide design or advisory services on an 'as instructed' basis over a set term.

The NEC4 Facilities Management Contract (FMC) is intended to be used for the appointment of a service provider for a period of time to manage and provide a facility management service. 
Main Options

These are the pricing mechanisms that the main NEC3 and NC4 contracts offer to choose from at tender stage. These Options include lumps sum, target cost or cost reimbursable contracts.

NEC3/NEC4 contracts

NEC3 and NEC4 are a family of contracts that facilitates the implementation of sound project management principles and practices as well as defining legal relationships.

It is suitable for procuring a diverse range of works, services and supply, spanning major framework projects through to minor works and purchasing of supplies and goods. The implementation of NEC contracts has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved quality.

Option A

Option A: priced contract with activity schedule which is used with the ECCECSTSC and PSC (for NEC3) and the ECCECSTSC and PSC (for NEC4).

Option B

Option B: priced contract with bill of quantities used with the ECC and ECS for NEC3 and with the ECC and ECS for NEC4.

Option C

Option C: target contract with activity schedule used with the ECCECSTSC and PSC for NEC3 and with the ECCECSTSC and PSC for NEC4.

Option D

Option D: target contract with bill of quantities used with ECC and ECS for NEC3 and with the ECC and ECS for NEC4.

Option E

Option E: cost-reimbursable contract used with the ECCECS and TSC for NEC3 and with the ECCECSTSC and PSC for NEC4.

Option F

Option F: management contract used with the ECC (NEC3 and NEC4).


The NEC4 Supply Contract: this includes supply of high-value goods and associated services such as transformers, generators, rolling stock, cranes, gantries and complex plant. It also includes lower-risk items such as building materials and products, stationery, personal protective equipment and parts.


A defined term in the ECC, this includes the specification and description of works the contractor is to provide; it also might include a series of constraints to which the contractor must adhere to. It will be included either in a place specified by the contract data or later amended by a project manager’s instruction.


Various NEC contracts deal with the provision of services. This includes purchases of professional services such as engineering, architectural, project management and consultancy works. It also covers composite services such as asset management/maintenance, also facilities management (FM) covering things like cleaning, catering, decorating, security, maintenance and data processing.


The NEC4 Supply Short Contract: intended for local and international procurement of goods under a single order or on a batch order basis with contracts which do not require sophisticated management techniques and impose only low risks on both the purchaser and supplier.

Target Contract

This is a type of pricing mechanism that allows the client and the contractor (in the ECC) an approach for sharing risk and opportunity. The client retains the cost and time risk linked to contractual changes, the financial effects of cost overruns can be shared. Target contracts should encourage delivery of a project on time and to budget, allowing a greater emphasis on Contractor’s cost than other arrangements.

Time Risk Allowance

This allowance is made by the contractor (in the ECC) when preparing his programme. These are owned by the contractor and provided to demonstrate that the contractor has made due allowance for risks which are his under the contract.


The NEC4 Term Service Contract: intended to be used for the appointment of a supplier for a period of time to manage and provide a service.


The NEC4 Term Service Short Contract: intended for appointment of a supplier for a period of time to manage and provide a service as alternative to the TSC for contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the client and the contractor.

Working Areas

A defined term in the ECC to describe those areas which are necessary for, and only used to deliver, the required works.

For NEC3 ECC, click here.


Various NEC3 and NEC4 contracts deal with the provision of works. This encompasses contracts for the construction, refurbishment and decommissioning of buildings, structures, process plants and infrastructure – including everything from houses, schools, hospitals and leisure facilities to infrastructure for water, energy, transport, industry and waste.

Early Contractor Involvement (ECI) is a secondary option (X22) available for use with the NEC4 Engineering and Construction Contract (Options C or E). The Parties enter into a single two-stage cost reimbursable contract for a collaborative process to develop the project, including design and planning for construction before advancing to the main construction stage.
ECI is suited to all types of construction projects but projects involving complex construction methodologies are considered to offer most potential benefit. 
A new secondary Option that enables construction clients to engage their suppliers in the global drive towards net-zero greenhouse gas emissions and sustainability. The Option enables clients to state their climate change requirements in the scope and provides a new climate change plan for contractors to set out their strategy for achieving the requirements. 
Z Clause

This is a secondary Option available in a number of NEC3 and NEC4 contracts. These allow for additional conditions of contract to that in the printed form – this could comprise of additions, deletions or omissions. Careful consideration should be given to the need for a Z clause. Care should also be taken to ensure that the clause retains the clarity, style and terminology of the rest of the contract as well as that it does not cause conflict with other clauses.