NEC4 Payment and Defined Cost Masterclass · Module 1 · Lesson 2 of 4

Six ways to value work

6 screensAbout 5 minutes

Why it matters

Why did CE007's GBP 81,200 never reach the 1 June payment?

Six main Options, two ways to pay.

GBP 81,200added to the Prices by CE007 on 5 May 2026

GBP 646,020the 1 June payment, built on Defined Cost

Aldermere is Option C. What does each Option pay for?

Source: ECC Option C 11.2(31), 11.2(32). Aldermere Contract Data.

The rule

Options A and B pay for work done

The Contractor carries the cost risk.

Option A: activity schedule

Lump sums on the Activity Schedule. Only completed ones are paid.

Option B: bill of quantities

Bill of Quantities rates for completed quantities, plus completed parts of lump sums.

Defined Cost mainly prices compensation events, on the Short Schedule.

Source: ECC Option A 11.2(23), 11.2(29), 11.2(32). ECC Option B 11.2(30), 11.2(33).

The rule

Options C to F pay Defined Cost forecast to be paid, plus the Fee

The forecast runs to the next assessment date. Cost paid after it waits for a later certificate.

“the total Defined Cost which the Project Manager forecasts will have been paid” (11.2(31))

	The Prices	Share at the end
Option CAldermere	Activity lump sums: the target	Yes
Option D	A bill, remeasured: the target	Yes
Option E	A forecast only	None
Option F	A forecast only	None

Who carries a cost overrun, percent

Option Aactivity schedule

Contractor

Option Bbill of quantities

Contractor

Option CAldermere

50:50

Option Dremeasured target

50:50

Option Ecost reimbursable

Client

Option Fmanagement

Client

0%50%100%

The Contractor carriesThe Client pays

Shares follow the Contract Data, 50% in Aldermere's main range. Under B, quantity risk stays with the Client.

Source: ECC Options C to F 11.2(31). ECC Options C, D and E 11.2(24). ECC Option F 11.2(25). ECC Option D 11.2(35). ECC Options E and F 11.2(34).

See it on the project

Dana must decide where CE007's GBP 81,200 goes at 1 June 2026

Decide as Dana Whitfield, the Project Manager, would, then check.

Aldermere at 1 June 2026, GBP

The targetafter CE007

8,518,385

Price for Work Done to Datewhat the payment follows

2,775,000

04.5 million9 million

Should the 1 June payment include CE007's GBP 81,200?

No. Under Option C the Prices are the target (C 11.2(32)). The breaking out reaches the payment as Defined Cost once Merrow Vale, the Contractor, pays for it (C 11.2(31)).

Suppose a 20.4 forecast passes the target. Should Dana cut the payment?

No. Dana's own forecast of Defined Cost paid sets the payment (C 11.2(31)). The 20.4 forecast tracks the share, which waits for the end.

Source: ECC Option C 11.2(31), 11.2(32), 20.4. Aldermere Contract Data.

Quick check · Six ways to value work

Two questions on what you have just covered

Two side cases.

Quick checkPick an answer to see if you are right and why

1On an Option B job the bill has 200 m of drain at GBP 120 a metre. 260 m is laid, with no change to the Scope. What is paid?

GBP 24,000, the billed quantity at the rate

GBP 31,200, the quantity done at the rate

The Defined Cost of the 260 m, plus the Fee

2On an Option A job, 400 m of rising main is split into four 100 m activities of GBP 45,000. 380 m is laid. What is paid?

GBP 171,000, for 95% of the work laid so far

GBP 135,000, for three completed activities

Nothing until all 400 m is laid

2 questions to answer

Source: ECC Option B 11.2(30), 60.4. ECC Option A 11.2(29).

Recap

Name the main Option before you check a single figure

Next, what counts as Defined Cost.

On Monday at work

Read the main Option in the Contract Data and set it on the Setup tab.
Options A and B: check what is complete. C to F: check the forecast.
Keep Merrow Vale's 20.4 forecast apart from Dana's payment forecast.

In the Toolkit: NEC4 Application for Payment (ECC and ECS, Options A to F) (Excel) Members

Next lesson: What counts as Defined Cost

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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: ECC Options A to F 11.2(29) to 11.2(31). ECC Option C 20.4.

Go deeper (optional)

Under Option A, the size and spread of activities matter

Three practice points for Option A.

What do too few activities do?

The Contractor waits for its money. Off-site work needs its own activity to be paid before delivery. Loading value onto early activities does the reverse and leaves the Client paying ahead of the work.

Option A 11.2(29), 55.4

Can a cash-flow revision be refused?

Clause 55.3 calls for a revision in two cases only: a changed method, or a correction to match the Scope. If only the 55.4 reasons may be used, refusing for another reason is a compensation event. Most re-cuts fail 55.4 anyway.

Option A 55.3, 55.4. Clause 60.1(9)

When is a defective activity complete?

When no notified Defect will delay following work if corrected. A Defect nobody has notified does not stop completion (43.2). The Project Manager assesses (50.1), so that view of the delay prevails. NEC3 also counted Defects that later work would cover.

Option A 11.2(29). Clauses 43.2, 50.1

Source: ECC 43.2, 50.1, 60.1(9). ECC Option A 11.2(29), 55.3, 55.4.

Go deeper (optional)

A new bill rate needs three tests

A new rate can be lower too.

Not caused by a Scope change.
Defined Cost per unit changes.
Rate × final quantity tops 0.5% of the Prices at the Contract Date.

Side case: 400 m³ billed, 1,100 m³ dug at GBP 45. GBP 49,500 tops 0.5% of GBP 3,000,000.

Source: ECC 60.1(1). ECC Options B and D 60.4.