Do Target Cost Contracts Deliver Value for Money?

Ian Heaphy

July 2011

A paper presented to the Society of Construction Law at a meeting in Leeds on 17th May 2011

Ian Heaphy explains how a target cost contract for construction is intended to work and how it can, if well set up, deliver value for money. He also discusses the dangers which lie in wait for parties who do not adequately understand those aspects of the contractual structures which determine a target cost project's success or failure; and how to mitigate these dangers. The paper includes many references to the NEC3 Engineering and Construction Contract (ECC3) and to those of its provisions which are specially relevant to target cost contracts.

Introduction - What is target cost? - Target cost contracts: benefits - Do target cost contracts offer value for money? - Setting the target cost - Elements of a target cost - Tender assessment - Maintenance of the target cost - Cost reimbursement - Gain share/pain share mechanism - Forecasting outturn cost - Conclusions.

Ian Heaphy is a partner with EC Harris.

Text 20 pages.