Right on target? Demystifying the JCT Target Cost Contract

The launch of the JCT's first Target Cost Contract is a pivotal development for the JCT and the construction industry, designed to foster collaboration and cost efficiency.

Released in mid-2025, this dedicated target cost form is part of the newly completed 2024 suite of JCT contracts. While the NEC suite has long offered target cost options (notably Options C and D), JCT’s move into this territory seeks to provide a familiar alternative for users more comfortable with its design and build framework.

This contract type is particularly suited for larger projects, where traditional fixed-price contracts may not offer the necessary flexibility. By setting a target cost, the contract aims to align the interests of all parties involved, promoting a shared commitment to project success.

What's so different about this JCT?

While the JCT Target Cost Contract is based to a large degree on the JCT's Design and Build Contract, it is distinguished by several distinctive key features:

• Target cost setting: at the heart of this contract is the establishment of a target cost, which serves as a benchmark for project expenses. This encourages all parties to work collaboratively towards achieving or undercutting this target.
• Cost-sharing mechanism: the contract includes a cost-sharing mechanism, where savings or overruns are shared between the client and the contractor. This incentivises efficiency and cost control.
• Collaborative approach: emphasising teamwork, the contract encourages open communication and joint problem-solving, reducing adversarial relationships.
• Flexibility: the contract allows for adjustments to the target cost as the project progresses, accommodating unforeseen changes and complexities.

Why use the new contract?

The JCT Target Cost Contract offers several advantages, which include:

• Cost efficiency: by setting a target cost and sharing savings, the contract promotes financial discipline and cost-effective project delivery.
• Risk management: shared risk encourages all parties to proactively manage potential issues, reducing the likelihood of disputes.
• Enhanced relationships: the collaborative nature of the contract fosters stronger relationships between clients, contractors, and other stakeholders, leading to smoother project execution.

However, before leaping in with both feet, bear in mind that despite its benefits, the JCT Target Cost Contract presents certain challenges:

• Complexity in setting target costs: Accurately determining the target cost can be complex, requiring detailed analysis and forecasting. These also need to be set at the "right" level to make sure there is a true incentive.
• Shared risk: While shared risk can be beneficial, it may also lead to disagreements if not managed effectively.
• Administrative burden: The contract’s collaborative approach necessitates increased communication and documentation, which can be administratively demanding.
• Novelty: this is a new and as yet untested contract. It is important for the parties to properly understand how it is different and how it should be administered, if they are to reap the benefits from it.

Early indications are that the market is intrigued with the new form. At a recent JCT event, industry experts Karen Kirkham and John Riches shared insights into the contract’s market readiness and success. Kirkham highlighted the contract’s relevance, stating, “The JCT Target Cost Contract is well-positioned to meet the industry’s evolving needs.” Riches added, “Our sales success and user familiarity indicate a strong market readiness to embrace this innovative approach.”

What we expect to see next

Going forward, we expect to see the JCT Target Cost Contract being used for larger projects, rather than minor or intermediate works. Its features and benefits are best suited to complex projects where collaboration and flexibility and cost control are paramount.

Overall, the JCT Target Cost Contract represents a significant advancement in construction contracting, potentially offering a more balanced approach to cost management and collaboration, and creating new options for the construction industry.