NEC4 Contract Health Check: Audit Checklist for Contractors

This guide sets out what a contract health check covers, how to score compliance, what audits typically find, and how to build health checks into project routines.

What a Contract Health Check Is

A contract health check is a structured review of how an NEC4 contract is being administered. It compares actual practice against the obligations in the contract and identifies where the project team is falling short.

The concept originates from CECA Bulletin #22 (October 2022) by Glenn Hide of GMH Planning, recommending regular contractual audits to catch compliance failures before they become disputes.

Unlike a financial audit, it examines processes: are notifications on time? Is the programme being accepted? Are records sufficient for payment applications and CE quotations? Are early warnings being given?

It identifies where administration has drifted from contract requirements and quantifies the commercial exposure.

Why Regular Health Checks Matter

NEC4 is a process-driven contract requiring continuous active administration. Clause 10.2 obliges all parties to act in mutual trust and cooperation—a contractual obligation, not aspirational language.

When administration lapses, consequences compound. A missing Accepted Programme means compensation events cannot be assessed under clause 63 (no baseline for time impact), the dividing date assessment has no programme to reference, and the PM may use their own assumptions, leaving the Contractor without control.

A single lapsed obligation cascades through multiple contract mechanisms. Health checks catch these lapses while they can still be corrected.

Poor administration is the leading cause of NEC disputes—roughly half originate from process failures rather than substantive disagreements. CECA Bulletin #22 recommended regular health checks as preventative, structured compliance monitoring.

The Seven Areas to Audit

A comprehensive NEC4 health check covers seven areas. Each maps to specific contract clauses and carries distinct commercial risk if administration is deficient.

1. Programme status (clauses 31 and 32)

The most critical area. Without an Accepted Programme, NEC4 cannot function as intended.

Check:

• Is there a current Accepted Programme?
• When was the programme last submitted for acceptance?
• Has the Project Manager responded within two weeks (clause 31.3)?
• Does the programme show all required information under clause 31.2: start date, access dates, Key Dates, Completion Date, planned Completion, order and timing of operations, float, and time risk allowances?
• Are implemented compensation events shown on the programme?
• Is the programme being resubmitted at the intervals stated in the Contract Data (typically every four weeks)?

If there is no Accepted Programme, treat this as the highest priority finding. Everything else in the health check depends on it.

2. Compensation event administration (clauses 60 to 65)

This area carries the highest direct financial risk. Late notifications result in time-barred claims. Incomplete quotations result in PM assessments.

Check:

• Is there a CE register that tracks every potential event from identification through to implementation?
• Does the register record the date of first awareness for each event?
• Are all Contractor-notified CEs within the eight-week time bar under clause 61.3?
• Has the Project Manager responded to each notification within one week (clause 61.4)?
• Are quotations being submitted within three weeks of instruction (clause 62.3)?
• Is the Project Manager responding to quotations within two weeks (clause 62.6)?
• Are implemented CEs reflected in the programme and the activity schedule or bill of quantities?
• Are any CEs approaching the eight-week deadline without notification?

3. Early warning compliance (clause 15)

Failure to give early warnings has a direct financial consequence under clause 63.7: the CE assessment is reduced to what it would have been had warning been given.

Check:

• Is the Early Warning Register being maintained by the Project Manager (clause 15.2)?
• Are early warning meetings being held regularly?
• Are matters that could increase the total of the Prices, delay Completion or a Key Date, impair the performance of the works in use, or affect achievement of a Client's objective in the Scope being notified as soon as the Contractor becomes aware?
• Is there a gap between site diary entries recording problems and early warning notifications? If so, how large is that gap?

4. Records and cost substantiation (clauses 52 and 11.2(26))

Under the cost-based main options (C, D, E, F), cost not justified by accounts and records is Disallowed Cost under clause 11.2(26). Under all options, compensation event quotations must be supported by evidence. Records are the foundation of both.

Check:

• Are site diaries being completed daily with sufficient detail to support commercial processes?
• Are cost records being maintained contemporaneously and allocated to the correct contract?
• Are labour allocation sheets recording who worked where and for how long?
• Are plant and material records linked to specific activities?
• Can every line item in a payment application be traced to a source record?
• Are records sufficient to justify actual Defined Cost if challenged?

5. Communications compliance (clause 13)

Clause 13.1 requires that communications which the contract requires are in a form that can be read, copied, and recorded, and are communicated to the correct address stated in the Contract Data. A verbal instruction, an email to the wrong person, or a note in meeting minutes does not satisfy clause 13.

Check:

• Are all notifications, instructions, and certificates being issued in writing to the address stated in Contract Data?
• Is the communication system specified in the Scope being used?
• Are there verbal agreements or instructions that have not been formalised in writing?
• Is correspondence logged with date, reference, sender, and recipient?

6. Payment administration (clauses 50 to 53)

Payment under NEC4 follows a strict timetable. The Project Manager assesses the amount due within one week of each assessment date. The Client pays within three weeks of the assessment date. Late payment attracts interest. Incorrect assessment can be challenged.

Check:

• Are payment applications being submitted before each assessment date?
• Is the Project Manager certifying payment within one week of the assessment date?
• Is the Client paying within three weeks of the assessment date?
• Are assessment amounts consistent with the Prices, implemented CEs, and (for Options C/D/E/F) Defined Cost?
• Are Defined Cost forecasts being submitted as required under clause 20.4?

7. Subcontractor alignment (ECS mirror obligations)

NEC4 ECS subcontracts have a tighter timetable: the CE notification time bar is seven weeks, not eight. If the subcontractor falls behind, the Contractor may be unable to recover costs upward.

Check:

• Are subcontract CE processes aligned with the main contract timescales?
• Is there a mechanism to cascade main contract early warnings to subcontractors?
• Are subcontractor programmes aligned with the main contract Accepted Programme?
• Are subcontractor payment terms compliant with the Construction Act?

Scoring the Health Check

Each of the seven areas can be scored using a simple RAG (Red, Amber, Green) framework. This creates a single-page dashboard that summarises compliance across the entire contract.

A project with three or more Red areas should be treated as high commercial risk. The health check has identified systemic administration failures that, left uncorrected, will result in financial losses at final account.

What Health Checks Typically Find

Certain findings appear on the majority of NEC4 health checks. Recognising these common patterns helps project teams focus corrective action where it will have the most impact.

No Accepted Programme. This is the single most common finding and the most damaging. Without an Accepted Programme, the basis for assessing compensation events under clauses 62 and 63 is compromised. The Project Manager may assess CEs using their own assumptions about planned timing, method, and float. CECA Bulletin #22 identified programme compliance as the area most frequently in default across audited NEC4 projects.

CE notification backlog. A cluster of potential compensation events identified retrospectively, often during monthly cost value reconciliation (CVR) rather than contemporaneously. By the time the commercial team reviews site records, events are already weeks into the eight-week window. On some projects, the health check reveals events that have already been time-barred without anyone realising.

Early warnings not issued. Teams treat early warnings as administrative overhead rather than as a contractual obligation and a commercial protection. The consequence under clause 63.7 is direct: the PM can reduce a CE assessment by the amount that could have been saved had early warning been given. On a single compensation event, this reduction can exceed six figures.

Verbal instructions not formalised. Site teams receive instructions from the Project Manager or Supervisor verbally and proceed without written confirmation. The instruction may change the Scope (triggering a CE under clause 60.1(1)), but without formal notification compliant with clause 13, the CE cannot be substantiated. The work is done, the cost is incurred, and the entitlement is unrecoverable.

Records insufficient for Disallowed Cost defence. Under Options C, D, E, and F, cost that cannot be justified by accounts and records is Disallowed. Health checks frequently find that labour allocation sheets are incomplete, plant records lack daily utilisation detail, and material costs are not allocated to specific activities. At payment assessment, the Project Manager is within their rights to disallow any cost that cannot be substantiated.

PM response periods exceeded without follow-up. The Project Manager has defined response periods throughout the contract: one week to respond to a CE notification (clause 61.4), two weeks to respond to a quotation (clause 62.6), two weeks to respond to a programme submission (clause 31.3). When the PM exceeds these periods, the consequences vary. For CE notifications, the consequence is deemed acceptance (clause 61.4). For quotations, the consequence is also deemed acceptance (clause 62.6). For programmes, there is no deemed acceptance mechanism. Many Contractors fail to track these periods and miss deemed acceptance opportunities.

Worked Example: a Health Check on a £30 Million Highways Scheme

A Tier 1 contractor is 14 months into a 24-month NEC4 Option C highways scheme. The commercial director requests a contract health check following a difficult progress meeting where the Project Manager raised concerns about programme compliance and cost substantiation.

The corrective action plan prioritised three items: (1) address the PM's reasons for programme rejection and achieve acceptance within two weeks, (2) notify the eight pending CEs immediately, and (3) close the record gaps for the three months of missing allocation sheets. The two verbal scope changes were formalised in writing the same day.

How Often to Conduct Health Checks

CECA Bulletin #22 recommends that contractual health checks are conducted at regular intervals rather than as a one-off exercise. The frequency depends on project value and complexity:

• Monthly: Projects over £10 million or with complex CE profiles. A 30-minute desktop review using the RAG scoring framework is sufficient for monthly checks.
• Quarterly: Projects between £2 million and £10 million. A more detailed review that includes sampling of CE files, programme submissions, and cost records.
• At key milestones: Before Completion, before the defects correction period ends, and before final account preparation begins. These milestone reviews should be comprehensive.

The monthly desktop review is the minimum standard. It takes 30 minutes and can prevent losses that take months to recover through adjudication, if they can be recovered at all.

Building Health Checks Into Project Routines

The most effective health checks are embedded in existing project rhythms, not bolted on as additional administration.

The purpose is not to create more paperwork. It is to ensure that the paperwork the contract already requires is actually being completed. The NEC4 processes exist for a reason. Each notification, each programme submission, each cost record protects the Contractor's commercial position. A health check simply verifies that protection is in place.

Quick Reference: NEC4 Contract Health Check Checklist