Scribd
Upload
62 views

NEC Contract Option E

NEC Contract Option E is a cost reimbursable contract that allows for flexibility in project scope while placing the highest risk on the Employer, who reimburses the Contractor for all incurred costs. Key clauses include provisions for works information, contractor's design, insurance, payment terms, and compensation events, which help manage costs and risks throughout the project. The contract structure is modular, covering general conditions, obligations, payment terms, performance requirements, risk management, dispute resolution, and miscellaneous provisions.

Uploaded by

karabo ramakgolo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
62 views

NEC Contract Option E

NEC Contract Option E is a cost reimbursable contract that allows for flexibility in project scope while placing the highest risk on the Employer, who reimburses the Contractor for all incurred costs. Key clauses include provisions for works information, contractor's design, insurance, payment terms, and compensation events, which help manage costs and risks throughout the project. The contract structure is modular, covering general conditions, obligations, payment terms, performance requirements, risk management, dispute resolution, and miscellaneous provisions.

Uploaded by

karabo ramakgolo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 7

NEC Contract Option E:

Cost reimbursable contract Option E is a cost reimbursable contract which manages the project
where costs cannot be precisely determined from the outset and the contractor is reimbursed for
the costs of the works completed. This Option places the highest allocation of risk with the
Employer; the Contractor is paid all its costs and expenses in undertaking the works.
Transparency is achieved through the requirement of the contractor to provide detailed records of
all costs incurred to pay the contractor, and it allows the client to closely monitor project
expenditure. Flexibility within this option allows the scope of work to evolve as the project
progresses and allows variations to be amended.

Key Clauses in NEC3/NEC4 Option E (Cost Reimbursable Contract)

1. Clause 11 – The Works Information


o Defines the scope and nature of the work to be done. It outlines the Employer’s
requirements and specifies the work that the Contractor must carry out.
2. Clause 12 – The Contractor’s Design
o Details the Contractor’s responsibilities regarding design. This may be applicable
if the Contractor is required to design part or all of the works.
3. Clause 14 – Contractor’s Key Personnel
o Identifies specific personnel required to perform the work and the requirements to
ensure that these personnel are available as needed.
4. Clause 21 – Insurance
o Specifies the insurance requirements that the Employer and Contractor need to
maintain during the project, including public liability, employer’s liability, etc.
5. Clause 30 – The Price for the Work
o In Option E, this clause establishes the reimbursement arrangement for the
Contractor’s costs. It outlines how the Contractor is paid for the work, including
allowable costs and the method of calculating and reimbursing these costs.
6. Clause 31 – Cost of the Work
o This clause defines the allowable costs that the Contractor may incur, as well as
the method of measuring and tracking costs.
7. Clause 32 – Payments
o Describes the timing and method of payments from the Employer to the
Contractor. It includes the process for submitting applications for payment, the
payment schedule, and any adjustments that may apply to the amounts.
8. Clause 34 – Subcontracting
o Covers the Contractor’s ability to subcontract portions of the work, along with
requirements for obtaining the Employer’s approval.
9. Clause 35 – Compensation Events
o Describes the circumstances under which the Employer must compensate the
Contractor for additional costs or extensions of time. This is critical in a cost-
reimbursable contract, as it helps address changes in scope and unforeseen events.
10. Clause 40 – Early Warning
o Aims to identify potential problems early in the project, encouraging both parties
to cooperate to resolve issues before they escalate. This is particularly important
in a project where costs may vary over time.
11. Clause 50 – Delay Damages
o Specifies the Employer’s right to impose liquidated damages if the project is
delayed. This clause is usually more relevant in fixed-price contracts but can
apply in certain circumstances in cost-reimbursable contracts if agreed.
12. Clause 53 – Completion
o Outlines the definition and the process for completion of the works, including the
notification procedures.
13. Clause 60 – Changes to the Works
o Provides a process for managing changes to the work, which is essential for a
cost-reimbursable contract where scope and costs may evolve over time.
14. Clause 70 – Contractor’s Claims
o Specifies the procedure for the Contractor to claim additional costs due to
unforeseen circumstances or other changes to the works.
15. Clause 80 – Final Account
o In a cost-reimbursable contract, this clause sets out the process for finalizing the
account at the end of the project, which includes agreeing on the total costs
incurred and payments due.
16. Clause 90 – Dispute Resolution
o Describes the methods for resolving disputes between the Employer and
Contractor, including the use of adjudication, mediation, and arbitration.

These are the key clauses typically relevant for an NEC Contract Option E. Each project may
have variations depending on the specific project requirements and legal environment, so it is
important to consult the contract itself and seek legal or professional advice for project-specific
interpretation.

General Structure of an NEC3/NEC4 Option E (Cost Reimbursable Contract)

The NEC contract typically follows a clear, modular structure, with various sections and clauses.
Here’s a breakdown of how the clauses are typically structured:

1. General Conditions of Contract

These are the foundational clauses that govern the overall framework of the contract.

 Clause 1: General Terms


This clause usually contains the definitions and general provisions that apply throughout
the contract, including the title of the contract, the scope, and the roles of the Employer
and Contractor.

2. The Parties’ Obligations and Rights

These clauses define the mutual responsibilities and rights of the Employer and Contractor.
 Clause 10: Employer's and Contractor’s Obligations
Outlines the general obligations of both parties, including the responsibility of the
Employer to provide the necessary information, and the Contractor’s responsibility to
perform the works.
 Clause 11: Works Information
Describes the scope and technical details of the work the Contractor must undertake.
 Clause 12: Contractor’s Design (if applicable)
Specifies the Contractor’s responsibilities if part of the project involves design.

3. Payment Terms and Financial Arrangements

These clauses cover how payments will be made to the Contractor, including cost
reimbursement.

 Clause 30: The Price for the Work


Details the method for reimbursing costs and defines how the costs will be assessed.
 Clause 31: Cost of the Work
Specifies the costs that will be reimbursed, how to track them, and the documentation
required.
 Clause 32: Payments
Defines how payments are processed, including interim payments, how often invoices are
submitted, and the payment schedule.
 Clause 34: Subcontracting
Explains when and how the Contractor can subcontract work, including any permissions
required from the Employer.

4. Time and Performance Requirements

This section deals with the completion of the project and related timelines.
 Clause 40: Early Warning
Outlines how the parties must identify and respond to potential problems that could affect
project timelines or costs.
 Clause 60: Changes to the Works
Defines the procedure for managing variations or changes to the scope of work and how
these will be reflected in cost and time.
 Clause 70: Delay Damages
Specifies any potential penalties for delays in completing the work, if applicable (though
in a cost-reimbursable contract this may be less relevant unless otherwise specified).
 Clause 80: Final Account
Describes the process for finalizing costs at the end of the project, including how costs
are confirmed and settled.

5. Risk Management and Compensation Events

These clauses define how the contract addresses unexpected risks or changes that may require
adjustments to cost and time.

 Clause 35: Compensation Events


Outlines events that may result in a change to the contract sum or schedule, such as
unforeseen circumstances, variations, or other factors that impact cost or time.

6. Dispute Resolution and Contract Termination

 Clause 90: Dispute Resolution


Specifies how disputes between the Employer and Contractor should be resolved,
typically via adjudication or arbitration.
 Clause 99: Termination
Describes the conditions under which either party may terminate the contract, and the
consequences of termination.

7. Miscellaneous Provisions

Other clauses that don’t necessarily fit into the above categories but are necessary for
completeness.

 Clause 20: Contractor’s Key Personnel


If applicable, outlines the roles of key personnel required for the performance of the
contract, and what happens if they are replaced.
 Clause 50: Completion
Details the process for certifying completion of the works and any tests or inspections
required.
 Clause 21: Insurance
Describes the types of insurance that both parties must maintain throughout the contract,
including coverage for damage, injury, and loss.
 Clause 53: Warranty/Guarantee
If applicable, the clauses that cover warranties or guarantees provided by the Contractor
for the works.

Additional Documents

While not strictly clauses, the following supporting documents are often part of the contract:

 Works Information (WI)


This is a key document outlining the detailed scope of the work to be performed. It may
include technical specifications, drawings, and any additional requirements from the
Employer.
 Site Information
Information about the site conditions, which could affect costs, timelines, or
performance. This should be thoroughly reviewed to assess risks.
 Price Schedule or Cost Breakdown
For Option E, a breakdown of how costs will be calculated and reimbursed is essential.

You might also like