The new Target Cost Contract (TCC) 2024 from the Joint Contracts Tribunal is aiming to spread risk more evenly and encourage deeper collaboration between clients and contractors, its creator has said.
At the event yesterday (10 September), JCT drafting subcommittee vice chair John Riches said TCC 2024 – first published in June – reflects growing concern over the unsustainable risk levels pushed onto contractors in a sector still grappling with insolvencies, inflationary pressures and supply chain fragility.
“The level of risk in the industry is prevalent in terms of the number of bankruptcies, and some people are just taking too much risk,” he said. “We thought we’d try and find a way to balance the risk across the contract.”
TCC 2024 is designed for projects such as hospitals, offices or large housing schemes, typically worth above £5m to £6m.
Drafted for design-and-build procurement, it is also adaptable to two-stage tendering and early contractor involvement, JCT said.
Key subcontractors can be included via a new generic subcontract form offering target cost, lump sum or re-measurable options
The new contract form draws on JCT’s Design & Build and Prime Cost contracts, but replaces the traditional contract sum with a target cost against which allowable costs are measured.
Allowable cost – the contractor’s actual net expenditure – forms the basis for monthly payments, with a contract fee covering overheads and profit.
The gap between target and allowable cost is then shared: if savings are made, both the contractor and the client benefit; if costs rise, both share the pain.
A step-by-step process is built in for adjusting the target cost. “If you don’t follow it [the checklist], you are an idiot,” Riches said.
It would be hard to game the system with the target/allowable cost balancing act, he added. TCC is “like a jelly – if you squeeze it in one place, it’ll pop out somewhere else. If anybody thinks they can fiddle this, they’re going to find out it’s difficult”.
To support adoption of TCC 2024, JCT has launched an online hub with worked examples, videos and, for the first time, a feedback facility.
On its website yesterday, law firm Hill Dickinson described TCC as “a way to incentivise the contractor”, highlighting its pain/gain share mechanism.
Associate Sam Beer said the ethos of risk sharing is “apposite for the current difficult marketplace”, but it requires discipline. “Good project management is essential to allow for the increased visibility and oversight on costs,” he said.
He noted advantages such as efficiency, trust and collaboration, but warned of “greater risk and uncertainty for the employer than under a fixed-price contract because the final cost of the project is unknown”, alongside the cost of administering increased oversight.
Early adopters, Beer suggested, are likely to be clients and contractors already comfortable with target cost models but preferring JCT’s structure to NEC’s version.
Anne-Marie Friel, collaborative contracting and construction expert at Pinsent Masons, warned in July that the new TCC form requires a change in mental attitude from contractors and clients.
“For users who are ready to make the mindset shift needed to work in a different way, the JCT target cost contract has great potential to drive better project outcomes and to encourage collaborative working,” she said.
But merely introducing TCC 2024 “will not be a magic bullet and needs to be approached in full awareness of the other features of successful collaborative contracting”.
While retention provisions remain unchanged and amendments are inevitable, JCT believes the new form will drive better project management.
Riches called it “a heavily incentivised contract. There is a real outcome to be shared at the end of the day. It’s reward for effort.”
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Ben Vogel