Target cost for construction
Target costs are generally associated with cost-reimbursable contracts. They introduce a mechanism enabling the contractor, and sometimes the consultant team, to share in the benefits of cost savings, but also to bear some of the client's cost when there are cost overruns. Contracting the contractor and the consultant team on a target cost basis can be an effective way of ensuring good collaboration.
The target cost is set early in the project, and then cost savings or overruns are shared based on an agreed formula. The aim is to provide a financial incentive encouraging cost control, rather than to penalise. Bonus and penalty payments are usually capped to prevent over-zealous or adversarial behaviour.
Target costs might be set for the overall project, or for specific elements of the works. Agreeing the target cost requires that the client has sufficient knowledge and experience to be able to accurately estimate the likely cost of the works and to negotiate effectively with the contractor and sometimes the consultant team.
Examples of target cost contracts include the New Engineering Contract (NEC) Engineering and Construction Contracts Option C: Target contract with activity schedule and Option D: Target contract with bill of quantities.
NB: According to NRM2: Detailed measurement for building works, in the context of bills of quantities, the term ‘cost target' means; '...the total expenditure for an element or
work package.'
[edit] Related articles on Designing Buildings
- Bill of quantities.
- Construction contract.
- Contract condition.
- Contract sum.
- Cost overruns.
- Cost-reimbursable contract.
- Disallowed cost.
- Fast-track construction.
- Fixed price contract.
- Force account work.
- Guaranteed maximum price.
- Lump sum contract - pros and cons.
- New Engineering Contract.
- Open-book accounting.
- Procurement route.
- Target contract.
[edit] External references
Featured articles and news
Open industry engagement survey seeks responses
Institutions and the importance of engagement.
National Retrofit Hub unveils new guide
Digital Building Logbooks and Retrofit: An Introduction.
Top 50 firms awarded 52bn of projects in the last year
New engineering data shows.
Enhancing construction site reporting efficiency
Through digitisation and the digital revolution.
Noise in the built environment
BSRIA guide TG 20/2021.
17,000 people suffer conditions as a result of exposure to excessive noise at work.
Turning down the noise: Auditory health
A pervasive risk with far-reaching consequences.
Getting the most out of heat pumps and heating
How heat pumps work and how they work best.
Plumbing and heating for successful retrofit and renovation
Low temperature underfloor systems and heat pumps.
Cost-of-living crisis and home improvement plans
Starting on the right footing and top tips for projects.
Delays on construction projects
Types, mitigation and the acceleration of works.
From Chaucer to Fawlty Towers.
Electrotechnical excellence, now open for entries.
Net zero electricity grids BSRIA guide NZG 5/2024
Outlining the changes needed to transition to net zero.
CIOB Global Student Challenge 2024
Universitas Indonesia wins for second year running.
ECA 2024 Apprentice of the Year Award
Entries open for submission until May 31.