AEC definitions
A not-to-exceed amount, or NTE, is the most that will be paid for a defined piece of work unless a higher cap is approved first. It is common on time-and-materials authorizations and purchase orders. It is a ceiling, not a price the contractor is entitled to bill in full.
Definition
If the work costs less, the payer owes the lesser amount, unless the document has been converted to a lump sum. If the work will cost more, the contractor stops and asks. An NTE is not a guaranteed maximum price for a whole project, though they share the idea of a cap. A GMP is a full contract structure with cost rules, fee, and savings. An NTE is usually a limit on one authorization. Spending to the cap on purpose, when the work could be finished for less, violates the cost-based deal underneath it.
In depth
The authorization should say the billing method, usually T&M or cost-plus, and then the NTE. The invoice is the lesser of actual cost and the cap.
Language that says the contractor 'shall be paid the NTE' has turned it into a lump sum. Use that sentence only if you mean it.
Good NTE language requires notice when a stated percent of the cap is spent, and requires written approval to exceed it. Without that, you will argue about whether the extra work was authorized by the fact that it was necessary.
The owner who wants the work to continue raises the NTE in writing. A verbal okay is a poor cap.
An NTE for 'investigate the leak' does not include rebuilding the room. Write the included work in a sentence. Excluded work is outside the cap because it was never authorized, not because the cap was clever.
If the scope grows, raise the NTE or issue a different authorization.
A GMP caps a project under a cost-plus contract with a savings clause and a change mechanism. An NTE caps one assignment. Reporting an NTE balance as if it were GMP contingency confuses the cost report.
A purchase-order NTE limits what a vendor may bill. It does not change the prime contract's GMP.
Hitting a number below the NTE does not waive receipts, tickets, and rates.
The cap limits the total. The contract still limits what counts as cost.
Examples
A T&M authorization for floor opening is NTE $12,000. Tickets total $9,400. The invoice is $9,400.
At $10,000 spent, the contractor notifies the owner that the source is not found. The owner raises the NTE before work continues.
A purchase order for switchgear is NTE the quoted amount. Expediting fees above it need a revised order.
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