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
The CIAT principal designer register
Providing assurance and verification of the capability and competence of registered ATs.
Building Safety recommendations and Northern Ireland
The NI roadmap to improving safety in high rise residential.
BSA residential sector competence standards guidance
BSAS 01:2024 Organisational Capability Management System Standard - Competence Assurance.
Specifying rendered external wall insulation for fire safety
How to interrogate the evidence provided to the specifier.
The benefits of writing articles for your organisation
How to create a profile for your organisation and publish for free.
No Falls Week. The importance of safe working at height
What to expect and what is on offer to avoid accidents.
Scottish Government action to reach net-zero targets
Retrofit expert group highlight critical actions needed.
A forward thinking, inclusive global community of members.
From engineered product life-spans, to their extension.
Circular economy in the built environment
A brief description from 2021. Where are we now?
CLC publishes domestic retrofit competency framework
Roadmap of Skills for net zero.
Understanding is key to conservation.
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.