Emerging cost contract
Emerging cost (Time and Materials (T&M)) contracts are most commonly used for rail infrastructure projects.
They are essentially cost reimbursable management contracts for a programme of works and services where the management contractor is paid direct costs identified in an 'estimate of project costs'. They provide for sophisticated management services along with sub-contracting the construction of the works.
However, whilst there may be target costs and schedules of rates for individual items of the programme of works, with associated incentives and penalties, there is no overall target cost. This means that the final value of the contract may not be known until the contract is complete. This can be useful where setting an overall target cost would restrict the client’s ability to vary the scope of works.
This does mean that the client is accepting many of the financial risks for the project, and must have the expertise and appropriate controls to manage those risks.
Emerging cost contracts do provide for value engineering and for the right to terminate if the cost estimate reaches an agreed percentage above the original estimate.
Emerging cost contracts are often applied over a defined period of time. The longer this period of time, the more consideration the contractor is likely to give to long-term performance issues in design and workmanship.
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