Subcontractor Management under NEC4: A Practical Guide for Main Contractors

Managing subcontractors under NEC4 is one of the most commercially exposed positions a Tier 1 contractor can occupy. You sit between the Client's contract above and your subcontract below — absorbing risk from both directions. When a subcontractor misses a programme milestone, you miss one on the main contract. When a subcontractor fails to notify a compensation event, the cost may land on you. When a subcontractor's application for payment is disputed, the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) still runs its clock regardless of what is happening upstream.

For the NEC4 framework that governs all of this, start with the NEC4 contract guide.

How NEC4 Defines Subcontractors — and Why It Matters

NEC4 ECC Clause 11.2(17) defines a Subcontractor as "a person or organisation who has a contract with the Contractor to provide a service or to carry out work which is part of this contract." That definition is narrower than it sounds. A supplier providing materials is not a subcontractor in NEC4 terms. A specialist providing a service that forms part of the scope of works is.

Why does it matter? Because NEC4 attaches specific obligations to Subcontractors (with a capital S) that don't apply to ordinary suppliers. The Contractor must submit the proposed subcontract conditions to the Project Manager for acceptance under Clause 26.3 — and the Project Manager can refuse acceptance if the conditions do not comply with the contract, or the Subcontractor is not suitably qualified. That acceptance obligation catches a lot of commercial teams off guard. I've seen contractors on £80M NEC4 packages running subcontract packages for months before anyone noticed the subcontract hadn't been formally submitted for acceptance.

The practical consequence: your subcontract register should capture whether Clause 26.3 acceptance has been obtained for every subcontract package. If it hasn't, you have a compliance exposure and potentially a disallowed cost risk.

Flow-Down Obligations: Which Clauses Must Be Passed Down

NEC4 doesn't automatically require you to back-to-back your subcontracts. But it does create obligations that, if you don't flow down, you absorb commercially.

Clause 26.1 requires the Contractor to submit the name of each proposed subcontractor to the Project Manager for acceptance. Clause 26.3 requires submission of proposed conditions of subcontract. The Project Manager can withhold acceptance on the grounds that the subcontract conditions don't contain conditions that the ECC requires.

The honest answer is that no NEC4 ECS is perfectly back-to-back with the ECC. What matters commercially is that the mechanisms are present and functional: early warnings flow upward, CEs are notifiable, programmes are submitted. If those three things work, you have a manageable supply chain.

The NEC4 ECS: Key Differences from the ECC

The NEC4 Engineering and Construction Subcontract (ECS) mirrors the ECC structure closely but has important differences that commercial teams must understand.

Terminology shift. In the ECS, the Contractor takes on the administrative role that the PM holds in the ECC. This means the Contractor must act as a quasi-PM: accepting programmes, assessing compensation events, issuing instructions.

Timescales. ECS timescales for CE notification and assessment are often shorter than the main contract. You'll typically see 4-week periods in the ECS where the ECC has 8 weeks for notification (Clause 61.3 ECC). This compression matters: a subcontractor who is late notifying under the ECS may lose their entitlement to you, but you still have the ECC clock running to the PM. Gap risk sits with you.

The dividing date. The NEC4 dividing date mechanism for prospective CE assessment applies in both the ECC and ECS. The Contractor-as-PM under the ECS must assess subcontractor CEs on a prospective basis. Teams that forget this — and assess ECS CEs retrospectively — give away entitlement.

Disallowed cost. Under Options C, D, E, and F, subcontractor costs that are disallowed under the ECC are also disallowed in the final account. The subcontract needs to flow this risk down — otherwise it sits with the main contractor. See the NEC4 disallowed cost guide for the full mechanism.

Subcontractor Programmes: When Slippage Becomes Your Problem

This is where subcontractor management gets genuinely painful.

Under NEC4 ECC Clause 31, the Accepted Programme must show the work of Subcontractors. If your subcontractor's programme slips, and that subcontractor's activities sit on the critical path of the main contract programme, you have a delay — and you need to demonstrate that delay against the Accepted Programme if you're going to recover time on a compensation event.

The failure mode I see most often: the main contractor keeps an internal programme that integrates subcontractor activities, but the Accepted Programme submitted to the PM doesn't reflect subcontractor activities at the right level of detail. When a subcontractor slips and the main contractor wants to claim time under a CE, the PM looks at the Accepted Programme and says the slippage isn't evidenced in the baseline. The claim unravels.

The fix. Programme integration needs to happen at submission, not retrospectively. When you submit your Clause 32 updated programme for acceptance, the subcontractor activities relevant to the critical path must appear. "But we track that internally" is not a defence when the PM is assessing your CE under Clause 63 using the Accepted Programme as the baseline.

The NEC4 programme management guide covers the Accepted Programme obligations in full.

Compensation Events from Subcontractors: Assessment and Passthrough

Getting subcontractor CEs into the main contract is one of the most technically demanding aspects of NEC4 subcontract management. It requires two parallel processes running simultaneously.

The subcontract CE process. Under the ECS, the subcontractor notifies you of a CE. You assess it as the Contractor-PM. If it's a valid CE, you issue an instruction to submit a quotation. The subcontractor submits within the ECS timescale. You respond within the ECS period for reply. The CE is implemented. The cost flows into your Defined Cost.

The main contract CE process. Simultaneously, or as soon as you've identified that the subcontractor CE corresponds to a main contract CE, you notify the PM under ECC Clause 61.3. The NEC4 eight-week time bar applies from the date you became aware of the event — not the date the subcontractor notified you, and not the date you finished assessing their quotation.

Back-to-Back Obligations

True back-to-back entitlement is an ideal rarely achieved in practice. The commercially realistic position is this: identify the gaps in back-to-back coverage at contract formation, price them as risk, and manage them actively during the project. Common gaps:

• CE categories that appear in the ECC but not the ECS (typically Z-clause additions that aren't reflected in the subcontract)
• Different assessment bases for the same event (ECC uses Defined Cost; ECS uses Schedule of Cost Components)
• Timescale gaps where the subcontractor has longer to notify than you have on the main contract
• Subcontractor performance obligations that don't fully align with main contract quality standards

Document these gaps in a subcontract risk register at award stage. Don't discover them at final account.

Early Warnings: Subcontractor to Main Contract Flow

Under ECC Clause 15, you're obliged to give early warnings to the Project Manager for any matter that could affect cost, time, or quality. Your subcontractors have a parallel obligation to you under the ECS.

The problem is that the early warning obligation runs from the date someone became aware of a risk — and on site, that person is usually the subcontractor's site team, who may not understand (or may not care) that they need to raise a formal notice.

A practical flow that works. Include early warning as a standing agenda item on your weekly subcontractor progress meetings. Any site risk identified by the subcontractor — even informally — should be assessed against whether it warrants an EWN. If it does, it should go upward to your EWN register for the main contract within 48 hours.

The commercial protection this provides is real. Under ECC Clause 63.7, if the Project Manager can demonstrate that an experienced contractor would have given an early warning and you didn't, the CE assessment is reduced by the amount that could have been avoided. The subcontractor's failure becomes your financial exposure.

See the NEC4 early warnings guide for the full mechanism and timing rules.

Subcontractor Payment under NEC4: HGCRA Obligations

This is the area that catches the most teams out, because it operates on a different legal basis from the NEC4 mechanisms above. The Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009) creates mandatory payment rights that override any contract conditions — including NEC4 and NEC4 ECS.

The key HGCRA obligations:

1. Payment notices. Within 5 days of the due date for payment, you must issue a Payment Notice showing the sum due and the basis of calculation. If you don't, the subcontractor can issue a Default Payment Notice and the notified sum becomes payable.
2. Pay less notices. If you want to pay less than the notified sum, you must issue a Pay Less Notice no later than the prescribed period before the final date for payment (typically 7 days under the Scheme for Construction Contracts). Miss this deadline and you must pay the notified sum in full, regardless of any counterclaim.
3. Timing doesn't wait for upstream resolution. Even if the Client has not yet assessed a CE on the main contract, you must still pay your subcontractor in accordance with the HGCRA timetable. The "pay when paid" clause is void under Section 113 HGCRA, except in cases of genuine upstream insolvency.

Practical implication. You will sometimes find yourself paying a subcontractor for work you haven't yet recovered from the Client. That's not a legal problem — it's a cash flow problem, and it's the risk of sitting in the middle. What you must never do is issue a Pay Less Notice based on a dispute with the Client rather than a dispute with the subcontractor.

For the full payment mechanism under NEC4, the NEC4 payment guide covers due dates, assessment periods, and the interaction with the NEC4 payment certificate process.

Reference Table: Subcontract Management Obligations

Common Mistakes in Subcontractor Management

1. Not obtaining Clause 26.3 acceptance before starting subcontract work. Starting work without it gives the PM grounds to challenge subcontractor costs under the disallowed cost provisions. The answer is to start the acceptance process at tender stage, not after award.

2. Treating the ECS time bar as a mirror of the ECC time bar. Your subcontract may set shorter notification periods. Read your Contract Data. A 4-week ECS notification period combined with a 3-week assessment process means you can be agreeing a subcontractor CE at week 7 — with one week left on the ECC clock to notify the PM.

3. Passing through subcontractor quotations to the PM without reconciling the cost basis. Under Options C, D, E, F, the PM will check whether the subcontractor cost is valid Defined Cost. A subcontractor's quotation using day-rate labour and plant that isn't on the Schedule of Cost Components will be challenged. Reconcile before submission.

4. Missing Pay Less Notices because the commercial team is focused on the main contract. On a large NEC4 package with 20+ subcontractors, it's easy for a Pay Less Notice deadline to slip while the commercial team is focused on a major CE assessment for the Client. Build subcontract payment deadlines into the commercial diary alongside main contract obligations.

5. No subcontract CE register. Every subcontractor CE should be tracked against: the date of awareness, the ECS notification sent, the main contract CE it corresponds to (if any), the ECS quotation submitted and accepted, and the amount included in the next Defined Cost assessment.