Prices
Under Option A or C, the lump sum priced against each activity. Under B or D, the priced bill items. Compensation events change them.
ECC Option C 11.2(32)
NEC4 Payment and Defined Cost Masterclass · Module 1 of 12
How the ECC pays
By 1 June 2026 Merrow Vale Civils has paid GBP 1,905,000 of Defined Cost on Aldermere. Dana Whitfield certifies a payment of GBP 646,020. Follow the money to that figure, then see why Option C is not cost-plus.
Independent course material. It is not published or endorsed by NEC. Short quotes from NEC4 (© NEC 2017) and the FIDIC Red Book (© FIDIC 2017) are used for review and comment. Read the full clauses in your own copy of the contract.
Exhibit 1Aldermere's first five assessments
How the amount due climbed, GBP
Amount due at the date beforeThe change, which is the payment
Each payment is the change in the amount due: GBP 646,020 on 1 June 2026.
Source: ECC 50.3, 50.5, 51.1, X16.1. ECC Option C 11.2(31). Aldermere Contract Data.
Key terms
Eight terms that carry every ECC payment
Terms in this module
Tap a term with a dotted underline anywhere in the lesson to see its meaning.
Price for Work Done to Date
The basis of each payment. Under Option C it is the Fee plus the Defined Cost the Project Manager expects to be paid out before the next assessment.
ECC Option C 11.2(31)
amount due
The running total owed at an assessment date: the Price for Work Done to Date plus other sums, less deductions. Each payment is the change since the last.
ECC 50.3
Defined Cost
Under Options C to E, the Contractor's costs that the Schedule of Cost Components allows, minus any Disallowed Cost. Options A and B use the Short Schedule instead.
ECC Option C 11.2(24)
Fee
Defined Cost multiplied by the fee percentage. It covers every cost that is not Defined Cost, such as head office overheads, plus profit.
ECC 11.2(10)
Disallowed Cost
Cost the Project Manager removes from Defined Cost, such as cost not backed by records or caused by a missed early warning. It is left out of the amount due.
ECC Option C 11.2(26)
Schedule of Cost Components
The ECC's list of cost types that count as Defined Cost under Options C to E. Each amount counts once and only if spent to Provide the Works.
ECC Schedule of Cost Components
Activity Schedule
The Contractor's priced list of activities under Options A and C. Each activity has a lump sum. Under Option C their total is the target.
ECC Option C 11.2(21)
Source: ECC 11.2(10), 50.3, 52.1. ECC Option C 11.2(21), 11.2(24), 11.2(26), 11.2(31), 11.2(32). Schedule of Cost Components.
The money map
On Aldermere the payment follows cost, and the target waits for the end
Exhibit 2The money map at 1 June 2026
The total of the PricesGBP 8,518,385
It is the target. It stays out of the payment until the Contractor's share is assessed at Completion.
- Price for Work Done to DateGBP 2,775,000
Defined Cost of GBP 2,500,000, plus the Fee of GBP 275,000.
- Amount dueGBP 2,703,750
A running total, after GBP 71,250 of retention comes off.
- PaymentGBP 646,020
The change since the 4 May amount due of GBP 2,057,730. Due by 22 June.
“Other payments are the change in the amount due since the previous assessment” (51.1)
Source: ECC 11.2(10), 50.3, 51.1, 51.2, X16.1. ECC Option C 11.2(31), 11.2(32), 54.1, 54.3.
The main Options
The main Option decides what the Price for Work Done to Date measures
Exhibit 3The six main Options
Options A and B pay for work. Options C to F pay cost.
Priced contract with activity schedule
- The PricesA lump sum per activity on the Activity Schedule, the Contractor's priced list.Option A 11.2(32)
- Price for Work Done to DateThe Prices of completed activities, and of completed groups of activities.Option A 11.2(29)
- What Defined Cost doesIt prices compensation events with the Short Schedule, a shorter list of cost types.Option A 11.2(23)
Paid for work, not cost. The Contractor keeps any saving and carries any overrun.
Priced contract with bill of quantities
- The PricesThe Bill of Quantities: lump sums, and rates times quantities.Option B 11.2(33)
- Price for Work Done to DateCompleted quantities at the bill rates, plus the completed part of each lump sum.Option B 11.2(30)
- What Defined Cost doesAs Option A. It prices compensation events with the Short Schedule.Option B 11.2(23)
Also paid for work, not cost. Quantities are remeasured, so the Client carries the quantity risk.
Target contract with activity schedule: Aldermere
- The PricesActivity lump sums. Their total is the target.Option C 11.2(32)
- Price for Work Done to Date“the total Defined Cost which the Project Manager forecasts will have been paid” (11.2(31)) before the next assessment date. The Fee is added.Option C 11.2(31)
- What Defined Cost doesIt drives payment: the Schedule of Cost Components, less Disallowed Cost.Option C 11.2(24)
With X1, inflation raises the target, not the payment (X1.4).
Target contract with bill of quantities
- The PricesAs Option B. The target, the Total of the Prices, is remeasured at the bill rates.Option D 11.2(33), 11.2(35)
- Price for Work Done to DateAs Option C.Option D 11.2(31)
- What Defined Cost doesAs Option C.Option D 11.2(24)
The share compares the Price for Work Done to Date with the remeasured Total of the Prices (Option D 54.5 to 54.8).
Cost reimbursable contract
- The PricesA forecast of all the Defined Cost, with the Fee added.Option E 11.2(34)
- Price for Work Done to DateAs Option C.Option E 11.2(31)
- What Defined Cost doesAs Option C.Option E 11.2(24)
No target and no share. Side case: disallowing GBP 20,000 of hire at an 8% fee costs the Contractor GBP 21,600.
Management contract
- The PricesAs Option E: forecast Defined Cost plus the Fee.Option F 11.2(34)
- Price for Work Done to DateAs Option C.Option F 11.2(31)
- What Defined Cost doesAmounts due to Subcontractors, plus prices for the Contractor's own work, less Disallowed Cost.Option F 11.2(25)
The Contractor subcontracts all but the work the Contract Data says it does itself (Option F 20.2). Paying a Subcontractor for that work, or for management, is Disallowed Cost (Option F 11.2(27)).
Source: ECC Options A to F 11.2(23) to 11.2(35). ECC Option D 54.5 to 54.8. ECC Option F 20.2. ECC X1.4.
The main Options
Under Option A nothing is paid for an activity until it is complete
Exhibit 4Side case outside the Aldermere story
The GBP 180,000 rising main, split as
Work done
…
Price paid
…
……………
…
Four equal activities are priced at GBP 45,000 each. Front-loaded puts GBP 90,000 on the first 100 m and GBP 30,000 on each of the rest.
Source: ECC Option A 11.2(29), 11.2(32), 55.4.
The main Options
Options B and D remeasure the bill, and a rate needs its own test
Exhibit 5Side case outside the Aldermere story
The bill has 400 m³ of rock at GBP 45, and 1,100 m³ is dug. Remeasurement pays GBP 49,500.
- 1
Did a Scope change cause the extra rock?
If yes:A compensation event under 60.1(1), priced on Defined CostIf no, go on to question 2. - 2
Does the Defined Cost per unit change?
If no:The bill rate standsIf yes, go on to question 3. - 3
Is rate × final quantity “more than 0.5% of the total of the Prices at the Contract Date” (60.4)?
If no:The bill rate standsIf yes, go on to the outcome. - A compensation event: a new rateGBP 49,500 is over 0.5% of the GBP 3,000,000 Prices.
Source: ECC 60.1(1). ECC Option B 11.2(30), 11.2(33), 60.4. ECC Option D 11.2(35), 60.4 to 60.7.
Quick check · The main Options
Two questions on what you have just covered
Quick checkPick an answer to see if you are right and why
2 questions to answer
Source: ECC 66.2. ECC Option C 11.2(31), 11.2(32). ECC Option B 11.2(30), 60.4.
Defined Cost
Defined Cost is not what you spent: test component, price, then ground
Exhibit 6Test a cost in this order
Costs “not included in the Defined Cost are treated as included in the Fee” (52.1).
- 1
Does a component of the Schedule cover it, spent to Provide the Works?
If no:Never Defined Cost: the Fee covers itIf yes, go on to question 2. - 2
Is the price a Contract Data rate, or an open market or tendered price?
If no:Only the rate or market price countsThe Fee covers any excessIf yes, go on to question 3. - 3
Does a ground of Disallowed Cost apply?
If yes:Disallowed CostIts Fee goes tooIf no, go on to the outcome. - Defined Cost, with the Fee on topNet of discounts, rebates and recoverable tax
Source: ECC 11.2(10), 11.2(15), 52.1. ECC Option C 11.2(24), 11.2(26). Schedule of Cost Components.
Quick check · Defined Cost and payment
Two questions on what you have just covered
Quick checkPick an answer to see if you are right and why
2 questions to answer
Source: ECC 51.1, 51.2, 52.1. Aldermere Contract Data.
On the project
Dana counts cost paid by 1 June, plus what she forecasts before 29 June
Exhibit 7Dana's assessment at 1 June 2026
| Defined Cost paid or forecast | … |
|---|---|
| Fee at 11% | … |
| Price for Work Done to Date | … |
| Less retention | … |
| Amount due | … |
| Less the 4 May amount due | … |
| Payment certified | … |
Retention is 3% of the Price for Work Done to Date above the retention free amount of GBP 400,000. Move either slider.
Source: ECC 50.3, 51.1, 51.2, X16.1. ECC Option C 11.2(31), 20.4. Aldermere Contract Data.
On the project
A cost that no component covers is a Fee item, not Disallowed Cost
Exhibit 8Sort eight lines from Merrow Vale's ledger
Merrow Vale's regional office is at Kelworth, outside the Working Areas. Staff based in the Working Areas count in full. Staff based elsewhere count only for their time there, unless the Contract Data lists them.
Line 1 of 8
…
You placed…
Defined Cost
- Gareth Lyle's salary. The site offices are his normal place of working.
- Kestrel Staffing hours with signed timesheets.
Covered by the Fee
- Rent on the Kelworth office.
- Leila's salary for her days at the Kelworth office.
- Merrow Vale's insurance premiums.
Disallowed Cost
- Kestrel hours for the week of 15 June, with no timesheets.
- The spare 21 tonne excavator, kept after Dana asked for it to go.
Comes off Defined Cost
- Kelworth Readymix's 2% year-end volume rebate on concrete.
Modules 5 to 8 cover the components, and Module 10 each ground of Disallowed Cost.
Source: ECC 11.2(20), 52.1. ECC Option C 11.2(26). Schedule of Cost Components, items 11 and 14.
On the project
Option C is not cost-plus: the final bill turns on the target
Exhibit 9The final account, with and without CE007
Suppose
The target ends at GBP 8,912,000. The final Price for Work Done to Date is GBP 8,640,000. Merrow Vale's share is 50% from 90% to 110% of the target, and 25% beyond.
Delay damages run from the Completion Date, here 25 May 2027, to Completion on 26 May 2027.
Source: ECC 61.3, X7.1. ECC Option C 54.1, 54.2. Aldermere Contract Data.
What to write
Notify every compensation event: this one was worth GBP 68,600
Exhibit 10The 6 March 2026 notice
To: Dana Whitfield, Project Manager, Aldermere Water
From: [your name], Merrow Vale Civils Ltd
Date: 6 March 2026
Compensation event: physical conditions, clause 60.1(12).
What happened: old concrete foundations in the culvert trench under Station Road.
We became aware of it on 3 March 2026.
In the Toolkit: Letter 02
Send it separately (13.7).
Source: ECC 13.7, 60.1(12), 61.3, X7.1. ECC Option C 54.2.
Quick check · On the project
Two questions on what you have just covered
Quick checkPick an answer to see if you are right and why
2 questions to answer
Source: ECC 11.2(10), X16.1. ECC Option C 11.2(31), 20.4.
Grey areas
Three questions the contract does not fully answer
Exhibit 11Tap each question for a reasoned answer
Each answer says what the clauses settle, then what they leave to practice.
Is the forecast in an Option C payment an advance?
In effect, yes. On 1 June Dana counted GBP 595,000 that Merrow Vale had not yet paid. The 29 June assessment starts again from cost actually paid, so a shortfall makes that payment smaller. Opinion is split on interest. One view treats an over-forecast as a mistake, corrected with interest (51.3). The other says an honest forecast is no mistake. The contract does not decide it.
Option C 11.2(31). Clauses 51.1, 51.3
Can the Project Manager refuse a revised Activity Schedule sent only to help cash flow?
Under Option A, clause 55.3 calls for a revision in two cases only: a changed method of working, or a correction to match the Scope. A re-cut for cash flow is neither. If only the 55.4 reasons may be used, refusing it for another reason is a compensation event (60.1(9)). Most re-cuts fail 55.4 anyway, as loading value onto early activities does not spread the Prices reasonably.
Option A 55.3, 55.4. Clause 60.1(9)
When is an Option A activity with a Defect complete?
When it is “without notified Defects the correction of which will delay following work” (11.2(29)). A cracked chamber cover that holds nothing up leaves it complete. So does a Defect nobody has notified (43.2). The contract does not say whose view of the delay counts. The Project Manager assesses (50.1), so that view prevails in practice.
Option A 11.2(29). Clauses 43.2, 50.1
Source: ECC 43.2, 50.1, 51.1, 51.3, 60.1(9). ECC Option A 11.2(29), 55.3, 55.4. ECC Option C 11.2(31).
Going further
Payment runs on above the target unless a Z clause stops it
Exhibit 12For the experienced reader
Option C 54.1Share after completion
In Doosan Enpure Ltd v Interserve Construction Ltd (2019), the court held the NEC3 share is settled after completion.
Option ZClauses that stop payment
Some Clients add a Z clause that caps payment at the target, or holds back part of a forecast overrun. Unamended NEC4 does neither.
11.2(10)One fee percentage
NEC3 had two fee percentages, for subcontracted and direct work. NEC4 has one.
Option A 11.2(29)Fewer Defects hold back payment
NEC3 also counted Defects that later work would cover. NEC4 counts only notified Defects that delay later work.
Source: ECC 11.2(10). ECC Option A 11.2(29). ECC Option C 11.2(31), 54.1. Option Z. Doosan Enpure v Interserve (2019).
Where the rules live
Payment rules sit in five places, and each main Option adds its own
Exhibit 13Where each payment rule lives
The conditions of contract
Core clauses 50 to 53
Every ECC: the amount due, payment, Defined Cost and the final assessment.
- 50Assessing the amount due
- 51Certificates, payment and interest
- 52Defined Cost
- 53The final assessment
Main Option clauses
Your main Option adds its own clauses and picks the cost schedule.
- Options C to FForecasts 20.4, subcontract pricing 26.4, finalised Defined Cost 50.9, records 52.2 or 52.3, inspection 52.4
- Currency50.7 under C and D, and 50.8 under E and F
- Share54.1 to 54.4 under C, and 54.5 to 54.8 under D (Module 12)
- Option AActivity Schedule revisions, 55.3 and 55.4
- Options B and DBill quantities and bill mistakes, 60.4 to 60.7
- SchedulesSchedule of Cost Components with C, D and E. Short Schedule with A and B. Neither with F.
Secondary Options
Only if chosen. Aldermere has X7 delay damages and X16 retention.
- X1Inflation, with Options A to D only
- X3Other currencies, with A and B only
- X6, X7Bonus for early Completion, and delay damages
- X14, X16Advanced payment, and retention (never F)
- X20Key Performance Indicators
- Y(UK)UK projects only (Module 4)
The documents
Contract Data
Part one comes from the Client and part two from the Contractor.
- Part oneSection 5: the currency, the assessment interval and the interest rate. Also share ranges, exchange rates and any payment period other than three weeks.
- Part twoFee percentage, activity schedule or bill, tendered total (A to D) and cost component data
Scope
How each application looks, extra records and procurement rules.
- 50.2The form of the application
- Options C to FRecords beyond the contract's own list: 52.2, or 52.3 under F
- Options C to FProcurement procedures that Disallowed Cost relies on: 11.2(26), or 11.2(27) under F
Payment Options with limits: X1 only with A to D, X3 only with A and B, and X16 never with F.
Source: ECC 50 to 53. ECC Options C to F 20.4, 26.4, 50.9, 52.4. ECC Options C and D 50.7. ECC Options E and F 50.8. ECC Options C, D and E 11.2(26), 52.2. ECC Option F 11.2(27), 52.3. ECC Option C 54.1 to 54.4. ECC Option D 54.5 to 54.8. ECC Option A 55.3, 55.4. ECC Options B and D 60.4 to 60.7. Schedule of Options. Contract Data.
Watch out
Six payment mistakes to avoid
Exhibit 14Common mistakes
The Project Manager assesses the amount due.
ECC 50.1Only the Project Manager's forecast sets payment.
Option C 20.4It was never Defined Cost.
ECC 52.1GBP 1 off Aldermere's target costs GBP 0.50 of share.
ECC 61.3. Option C 54.1Big ones pay late, loaded ones early.
Option A 11.2(29)Never X16 with F, or X3 with C to F.
Schedule of OptionsSource: ECC 50.1, 52.1, 61.3. ECC Option A 11.2(29). ECC Option C 20.4, 54.1. Schedule of Options.
Summary
Every rule in this module, and where the contract keeps it
Exhibit 15The rules at a glance
| Topic | What the contract says |
|---|---|
| The money map | The Price for Work Done to Date, plus or minus other sums, is the amount due. Each later payment is the change.Clauses 50.3, 51.1 |
| Options A and B | Paid for completed activities or quantities. Defined Cost prices compensation events.Option A 11.2(29), Option B 11.2(30) |
| Options C to F | The Fee plus Defined Cost forecast to be paid before the next assessment date.Options C to F 11.2(31) |
| Bill rates | Under Options B and D the bill is remeasured at its rates. A new rate needs all three tests, and can be lower.Options B and D 60.4 |
| Defined Cost | A listed component, at a Contract Data rate or a market or tendered price.Option C 11.2(24). Clause 52.1 |
| The Fee | One percentage on Defined Cost. It covers profit and every cost that is not Defined Cost.Clauses 11.2(10), 52.1 |
| Disallowed Cost | A closed list of grounds. A cost no component covers was never Defined Cost.Option C 11.2(26) |
| The share | It turns on the target. A late notice cannot move the Prices, unless the event stems from something the Project Manager or Supervisor did.Option C 54.1. Clause 61.3 |
Source: ECC 11.2(10), 50.3, 51.1, 52.1, 61.3. ECC Option A 11.2(29). ECC Option B 11.2(30), 60.4. ECC Options C to F 11.2(31). ECC Option C 11.2(24), 11.2(26), 54.1. ECC Option D 60.4.
Check your understanding
Five questions
Quiz
Source: see each answer.
Module 1 complete
You can now show why Option C pays cost but is not cost-plus
Your quiz scoreNot taken yet
You can now
- Trace any ECC payment from the Prices to the amount due.
- Say how each main Option values work done.
- Find where each payment rule lives.
- Sort a cost into Defined Cost, the Fee or Disallowed Cost.
Independent course material. It is not published or endorsed by NEC. Clause references are to the NEC4 Engineering and Construction Contract, June 2017 with amendments January 2023. The project and the people are invented. Short quotes from NEC4 (© NEC 2017) and the FIDIC Red Book (© FIDIC 2017) are used for review and comment. Read the full clauses in your own copy of the contract.
Source: NEC4 Engineering and Construction Contract, June 2017 with amendments January 2023.