- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 02 Sep 2020
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.
 Related articles on Designing Buildings Wiki
- 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.
 External references
Featured articles and news
Air rights for developing above existing properties.
New national seismic hazard maps for the UK.
Six technologies guiding O&M into the future.
Homes carved from sandstone cliffs in England.
A review of the HES pilot project.
Organisation alerts membership to findings of IHBC research.
Four outstanding professionals recognised.
Sustainable flooring from super strong grass.
Organisation presents reactions from industry leaders.
New infrastructure bank to be based in the North of England.
Fairer, faster, greener. A summary of the key points.
Strategies to help provide safer working conditions.
Protecting flora, fauna and the other natural features of Scotland.