UK: The Engineering And Construction Contract (NEC3): A Comparative Analysis – Part 2


In our last Alert, we assessed the philosophy of the NEC Engineering and Construction Contract ("NEC3") against the FIDIC Conditions of Contract for EPC/Turnkey Projects ("FIDIC Silver"), with a view to assessing its suitability for high value, large-scale international projects. We considered the approach and structure of both, their "portability", their approach to risk, and the role of third parties. There is a clear contrast between the two concepts:

  • FIDIC Silver: delivering a "turnkey" solution, where the employer expects the contractor to take full responsibility for delivery of the project.
  • NEC3: a more collaborative approach, with greater levels of contract administration as a consequence.

Now, we look in closer detail at three of the mechanisms which may be of particular relevance to large projects: pricing structure, programming, and testing.

Pricing: how much will it cost?

NEC3 contains six pricing options, which the employer is able to choose from. The six options are:

  1. Option A - Priced contract with activity schedule (lump sum contract)
  2. Option B - Priced contract with bill of quantities (re-measurement)
  3. Option C - Target contract with activity schedule (lump sum based target cost)
  4. Option D - Target contract with bill of quantities (bill of quantities based target cost)
  5. Option E - Cost reimbursable contract
  6. Option F - Management option

NEC3 therefore instantly offers a selection of "off the shelf" clauses/mechanisms to fit a variety of requirements. It is generally considered that Option A will provide the greatest price certainty for the employer, with this certainty reducing gradually as you descend down through the options, with Options E and F providing the least price certainty. Indeed Option A is the most akin to the approach taken by FIDIC Silver.

The optional pricing provisions are drafted to fit the core clauses, and provide a comprehensive pricing mechanism: there is no need to revise other clauses in the contract in order to accommodate a particular approach to pricing.

FIDIC Silver does not contain any tailor-made pricing options, with pricing generally being calculated on a lump sum fixed price basis. If the parties want to provide for a more flexible pricing solution, FIDIC Silver may need substantial amendment. By using NEC3, the employer can select a pricing mechanism to reflect the project requirements. For example, if the employer wishes to incentivise the contractor to make savings, one of the NEC3 target cost contracts may present a more flexible mechanism than seeking to amend FIDIC Silver to make it resemble a target cost contract.

In practice, both the FIDIC Silver and NEC3 pricing provisions are likely to be the subject of substantial amendments when used for a large-scale project.

That said, NEC3 provides the flexibility of at least a framework for alternative pricing mechanisms, making the need for substantial amendments less likely. The target cost options contained within NEC3 at Options C and D, provide for the sharing of savings between the employer and the contractor. The relevant contractual provisions state that the contractor will share in any cost savings, in accordance with the share range, which will be as agreed between the parties and set out in percentage terms within the contract data. The provisions further provide that the contractor will correspondingly share in any cost excess, providing a gain/pain share mechanism.

It is of no surprise that FIDIC Silver provides no such option. Using FIDIC Silver on (for example) a target cost project would require bespoke amendments to a number of its clauses. Indeed, it is more common for FIDIC Silver to be amended in the other direction, from periodic valuations to milestone payments where only completed milestones are paid for and (in the absence of claims) an in-depth consideration of the extent of work done and the pricing of plant and materials is not required.

Although NEC3 is, through the options, flexible in its application, each of the NEC3 options comes with its own issues and considerations. For example, Option A is well suited to projects where the contractor has full design responsibility, whereas Option E is perhaps more appropriate for a project where maximum design flexibility and design development during the works is important. The "off the shelf" pricing mechanisms do, therefore, need some consideration before an option is selected. In the event that an employer is an inexperienced, or particularly "hands off" employer, the array of options may in fact be a drawback.

The early warning mechanism present in NEC3 places an emphasis on the contractor and the project manager giving notice of anything that may increase the costs under the contract. This should, on the face of it, encourage continuous monitoring of the costs being incurred and, one would expect, limit the scope for any nasty surprises at the end of the works. FIDIC Silver does not contain a similar early warning mechanism and users would not expect it to, on the basis of its general pricing philosophy. However, employers can introduce a shared savings mechanism or other incentives by way of the particular conditions, if this is something that is required on a project falling broadly within the scope of a turnkey project.

The level of interaction between the employer and contractor on pricing and payment required by NEC3 often raises an important general point in connection with its use on large fixed price projects. How do you reconcile this level of pro-active project management with the turnkey "just tell me when it's complete and ready for operation please" approach to EPC projects, and on large process and power plants? In truth, very few large projects respect this contracting philosophy in its purest sense; every employer will manage and monitor the performance of a contractor. But nevertheless there is a real need for an employer and contractor to reflect on whether NEC3, and its level of interaction, will suit their EPC, turnkey project, in the same way that FIDIC Silver might do.

As mentioned above, FIDIC Silver is often amended on large-scale projects, including those for wind and/or power plants, to incorporate a payment by milestone mechanism. This allows the parties to break the contract price down into smaller sums, with payment triggered by, for example, the completion of certain types of work, delivery/incorporation of certain equipment, or the passing of certain tests. For employers wishing to utilise a milestone approach, NEC3 presents its own similar solution. Although it does not use the term "milestones", Option A works on the basis that the price for work done up to a certain date is the total of the prices for particular 'completed activities' as set out in the corresponding activity schedule. NEC3 may therefore be an equally useful starting point for an employer wanting to utilise a pricing mechanism that ties in with a pre-agreed set of activities/milestones.

Programme: how long will it take?

The programme is an important tool for any large construction project: this is what will set out the contractor's intended route to project completion. Both FIDIC Silver and NEC3 require the contractor to produce a programme for the project. However, it is fair to say that NEC3 places greater importance on the programme as a "fluid" day-to-day management tool.

FIDIC Silver requires the contractor to provide a programme within 28 days of the commencement date, and to revise this programme if it becomes inconsistent with actual progress. There is also a mechanism for the employer to require the contractor to submit and follow revised proposals if the employer thinks that progress has fallen behind the programme.

NEC3 introduces a concept of the "Accepted Programme", which is intended to be detailed, fully integrated and comprehensive, produced by the contractor and approved by the project manager. NEC3 allows for the agreed programme to be identified in the contract data, or submitted by the contractor to the project manager for approval.

So far, so similar. In NEC3, however, the importance of the programme is emphasised in several ways throughout the contractual provisions; indeed, if there is not an accepted programme in place, it can become difficult to operate many of the related provisions. The programme is intended to be utilised on a day to day basis and is hence very detailed. The contract prescribes an extensive list of information which must be shown on the programme – including provision for "float" and "time risk allowances" which might not typically be included on a programme prepared under FIDIC Silver. The contractor is also required to submit revised programmes at regular intervals. Although FIDIC Silver does set out a reasonably detailed list of what needs to be included in a programme, employers will often amend these provisions to place more prescriptive programming obligations on the contractor, so that the programme shows a live critical path for the project.

In NEC3, the importance of the programme is underlined by the fact that the employer can withhold 25% from all payments due to the contractor until the first programme is submitted. There is no equivalent provision in FIDIC Silver.

The programme is also of importance in relation to the compensation event provisions in NEC3. Indeed, a failure by the employer to comply with the accepted programme gives rise to a compensation event itself. The accepted programme is used as the baseline against which any claims by the contractor are assessed. It is therefore essential to keep the programme updated so that these assessments are not made on the basis of out of date information. When providing quotations for compensation events which affect the programme, the contractor is required to submit a revised programme. If he does not, or if there is no accepted programme yet in place, the compensation event will be assessed by the project manager rather than on the basis of the contractor's quotation.

Programming is vital to the good management of any large project. This will be true regardless of whether a project is carried out under NEC3 or FIDIC Silver. NEC3's dedication to the accepted programme can be helpful in this regard, but it requires the contractor and project manager to fully enter into the spirit of the provisions and to make sure that the programme is agreed, used and updated as required. The NEC3 approach might also need a change of mind set in terms of the investment in resources needed to keep the programme "alive", as well as to overcome many employers' reluctance to buy into and accept a contractor's programme, for fear of how that might increase its obligations to do things by a particular date, and more generally, make it easier for the contractor to establish entitlements to extension of time.

Testing: how will I find out if it works?

If FIDIC Silver has one clear advantage over NEC3, it is that it contains express provisions relating to commissioning and testing, both at and following completion. FIDIC Silver sets out a comprehensive testing procedure to ensure that, when the contractor hands over works to the employer, these demonstrably comply with the employer's requirements. Contractors used to operating under the FIDIC Silver regime will be familiar with these concepts and will be adept at providing for this when considering things like programming and milestones for payment.

NEC3 does not, as a base draft, incorporate any detailed testing mechanisms, with clauses 40 to 45 broadly covering "tests" and defects. This should not, however, be seen as a clear deficiency of NEC3 as it was not drafted in an attempt to match the detailed provisions that can already be found in the FIDIC Silver and other forms. Rather, NEC3 leaves these details to be addressed on a project-by-project basis and recorded in the works information. There is, of course, nothing to stop the parties from amending the base contact to include such a mechanism, nor from developing the pricing option selected to introduce a testing criteria. Of course, if such changes are made to NEC3, the remainder of the clauses will need to be revisited to take into account the testing regime. A key advantage of FIDIC Silver is that the entire contract has been prepared to accommodate the testing regime and any resulting considerations are already incorporated into relevant corresponding clauses.

FIDIC Silver also deals with the particulars of performance testing to be carried out by the employer, generally after completion: namely testing which is carried out by the employer, in something of a role reversal from the testing ordinarily carried out by the contractor prior to completion. That said, it is quite common (in the event that tests after completion are required) for the FIDIC Silver standard provisions to be significantly amended.

Determining whether testing is fundamental may hinge on the specifics of the particular project. For example, when acting on projects for power or other process plant, we invariably encounter very detailed and important testing mechanisms. In relation to wind projects in particular, this regime can be complex where the contract needs to allow for testing of turbines either individually or as strings/sections. The advantage of using the FIDIC Silver over NEC3 here is that the structure of the testing mechanism is already in place, albeit that some amendment may be required.

However, employers should not necessarily be put off by NEC3's apparent lack of a standard testing/commissioning structure. NEC3 has been utilised on some large-scale projects, for example it was used by BAA to deliver the £4.2 billion Heathrow Terminal 5 project. It can be assumed that detailed, bespoke, testing provisions will be included on large-scale projects of this nature. However, this demonstrates that the NEC3 testing regime does not, of itself, need to be a bar to its use on complex, high-value, integrated projects.


To recap, we have looked at a number of criteria in assessing NEC3 against the more traditional FIDIC Silver book. Here is a brief comparative summary of the points we have looked at in Part 2 of this client alert series:



FIDIC Silver




Pricing Structure


Lump sum price basis


Flexible – 6 different prices options with no amendments required




Reasonably extensive provisions


Extensive provisions including ability to withhold payment if programme is not submitted

Testing (Generally)

Reasonably extensive testing provisions included


Limited testing provisions, with detail to be included in works information


Testing (Performance Testing)


Provisions included to deal with this


Provisions do not deal with performance testing to be carried out by employer; if any kind of testing is to be carried out, detail must be included in works information 


Our two alerts have demonstrated that there is no obvious, one-size-fits-all, answer to the question of which contract is more suitable for a project. Inevitably this will depend on the requirements of the project and the approach of the employer. It is also important to bear in mind that there will be no true "off the shelf" solution for any project as any standard form is likely to be adapted and tailored to the particularities of the project.

What is important is to select a standard form that matches the philosophy of the project, and to be sure that the parties intend to operate the contract in a manner that reflects the drafters' intentions.

For large international projects, FIDIC is, at present, still seen as being in the driving seat. However, as mentioned above, NEC3 is becoming more common and certain players in the market seem to be embracing its philosophy. Whatever the parties' particular preference, there is no reason why NEC3 cannot be used as the basis for any given large-scale project. That said, years of use, understanding and familiarity give FIDIC a substantial advantage, particularly outside the UK; whether NEC3 can overtake FIDIC as the "go-to" form of contract for large international projects is open to debate. Watch this space...

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions