Stuart Kings is technical director at contract management and software company Sypro
The Joint Contracts Tribunal’s (JCT) Target Cost Contract (TCC) 2024 has added to the contract landscape. The target cost model has existed for years, but until now, those preferring the JCT suite did not have this option under that umbrella. The release keeps pace with the other commonly used suite – the New Engineering Contract (NEC) – giving the industry a greater choice of standardised contracts to suit every scheme.
A more transparent model
For contractors especially, one of the biggest frustrations with lump-sum contracts is the imbalance of risk. It’s understandable in today’s market. Price a project at £900,000 with a £100,000 profit built in, and any overrun wipes out the margin. Deliver it under budget and while the contractor keeps the gain, the incentive is often tempered by disputes over valuation.
“It’s not about which contract type is best. It’s about having the mechanisms to deliver value while safeguarding margins and relationships”
As the industry continues to navigate varying pressures – from inflation and employer national insurance changes to the continued skills shortage – it lowers the overall appetite for risk. Indeed, data from Gleeds shows that in the third quarter of this year, there was a continued retreat from high risk, with 57 per cent of contractors reporting a reduction in their appetite for risk during the three-month period.
Target cost contracts change the risk dynamic through a pain/gain mechanism. Cost savings or overruns above or below the target are shared, typically 50/50, between client and contractor. The result isn’t always fairer but is more transparent. Contractors know the rules of engagement from the outset and clients see exactly where their money is going.
That openness extends down the supply chain, with JCT TCC 2024 placing an emphasis on protecting subcontractors. For contractors, confidence in prompt, transparent payment fosters stronger relationships with suppliers and reduces cashflow disputes.
TCC 2024 gives contractors who prefer JCT the confidence to compete for projects where clients demand transparency and collaboration – particularly for tier one and two contractors in higher-value-project sectors. Until now, NEC has dominated here, with its open-book principles making it the go-to choice.
Learnings from NEC
Contractors will rightly question whether JCT’s TCC is as robust as NEC’s long-honed models. NEC’s Option C, for example, has been adopted on high-cost nuclear, infrastructure and healthcare projects for more than 20 years, with definitions of allowable costs tightened in NEC4 based on decades of experience.
Think of NEC as a high-performance car, finely tuned over decades: reliable, predictable and engineered for complex journeys. JCT TCC 2024 is like a newly designed model built on the same principles: it may need some road testing, but it has the same foundational engineering and is designed to meet industry demand.
For contractors, this means opportunity, but also a need to prepare. Understanding cost definitions, training teams in open-book processes, and ensuring robust project controls will be essential if they are to reap the benefits.
Collaboration and reduced conflict
Perhaps the greatest benefit for contractors is cultural. TCC 2024 promotes a more collaborative working environment, encouraging clients to view contractor costs as their own. That empathy can reduce disputes and align both parties behind efficiency savings – and it plays into the construction industry’s overall move to a more collaborative and transparent space.
Contractors will still need the systems and skills to operate in an open-book environment. But for those equipped to do so, the rewards include stronger client relationships, greater trust and access to projects previously out of reach.
It’s unlikely that JCT TCC 2024 will replace NEC overnight. NEC’s maturity and proven track record will remain attractive to many clients. However, it’s not about competition on which contract type is best. It’s about having the mechanisms for under-pressure contractors – and the industry – to deliver value while safeguarding margins and relationships. The addition of JCT TCC 2024 simply adds a further option for contractors, allowing those loyal to JCT the option to compete on transparency within their preferred contract suite.
Between them, JCT and NEC make up a large proportion of contracts – so this addition brings the industry forward towards a more transparent, collaborative sector delivering transformative schemes.
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