Francis Ho writes for Building on target cost contracts

Francis Ho, Partner in our Construction, Engineering & Projects team, unpicks these questions in an article for Building.

Francis explains that complex developments often require a problem-solving culture. Subjecting such projects to a fixed-price arrangement that places many key risks squarely on the contractor can be a recipe for disputes and financial failure.

He explains that a target cost model, a variant of a cost-reimbursable regime, is an alternative but contracting parties considering this route ought to be aware of particular aspects, including in relation to the new JCT standard form. 

Francis goes on to state that:

Target cost agreements offer a sensible compromise. This variant of cost-reimbursement forgoes the notion of an absolute price. Instead, the parties set a target cost and a pain/gain share formula that economically incentivises them to deliver the project at or below this figure. The result is a structure that compels the parties to work co-operatively for the good of the project.

Read the full article in Building here.