Option D is a target cost contract. A contractor tenders rates and lump sums in the bill of quantities prepared by the employer to arrive at the total of the Prices at award of contract (the target). But the contractor is paid for work done at Defined Cost uplifted by a tendered fee percentage. At the end of the contract the total of this is then compared with the target and the two parties share any overrun (the pain) or the underrun (the gain) in a pre agreed proportion. The target is adjusted when compensation events occur and the bill is remeasured to keep the share arrangement equitable. Clearly both Parties are incentivised to come within target to improve the expected financial outturn.
This document is the ECC3 black book with the other main Options A, B, C, E & F deleted and the Option D clauses merged into the core clauses in their appropriate place. It is useful to persons only ever likely to require an Option D type of contract.
The SA National Treasury Standard for Infrastructure Procurement and Delivery Management has, with the exception of the NEC3 Framework Contract (a head contract), endorsed the NEC3 family of contracts for use by organs of state in South Africa to serve their infrastructure needs.
The NEC3 family of contracts support a wide range of procurement strategies which can lead to improved project outcomes and in so doing realise value for money.
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