The publication of the JCT Target Cost Contract 2024 (“TCC 2024”) in June 2025 is the JCT’s first venture into Target Cost contracts, a market which is dominated by NEC ECC Option C. The TCC 2024 provides experienced users of the JCT suite of contracts with a Target Cost variant that will be familiar to them, without the need to adapt to NEC contracts. As a founding member of the JCT’s Young Professional Group, Mark Pantry is perfectly placed to discuss this new contract.
Introduction
The TCC 2024 adapts the JCT Design and Build Contract 2024 (“DB 2024”), keeping many of the key principles around design, workmanship and liability while introducing a significant change to the basis of payment.
As with the DB 2024, the TCC 2024 is a Design and Build contract suitable for more complex projects of medium to high value. Under this form, the Employer identifies its requirements, and in response the Contractor proposes its solution, completing the design and constructing the Works. What differentiates the TCC 2024 from the DB 2024 is the Target Cost mechanism. The mechanism draws on the cost-reimbursement approach used in the JCT Prime Cost Contract 2024 to introduce a Target Cost incentive. If the Contractor beats the Target Cost, it gets a gain share. If the Contractor exceeds the Target Cost, it gets a pain share. The drafters of this contract noted at its launch webinar that they hoped this would enable a balanced risk profile to be adopted by those using the TCC 2024 in the context of an industry where the level of risk placed on contractors under the DB 2024 is frequently high.
How the Target Cost mechanism works in the TCC 2024
The key principles of the Target Cost mechanism in the TCC 2024 are:
- Target Cost: the benchmark for the cost of the Works, agreed between the Employer and the Contractor prior to contract signature, against which actual costs are measured.
- Allowable Cost: the actual, properly incurred project costs as defined in the contract which are paid to the Contractor for the carrying out of the Works.
- Difference Share: the shares agreed between the Employer and the Contractor of the difference between the Allowable Cost plus the Contract Fee when compared against the adjusted Target Cost.
- Contract Fee: the fixed sum or percentage fee agreed between the parties and payable to the Contractor.
Payment under the TCC 2024 is built around a shared risk and reward ratio which is agreed up-front between the parties. By paying the Contractor the Allowable Cost plus the Contract Fee, the Employer avoids paying the Contractor for risk-based contingencies that are likely to have been baked into fixed price contracts. The Contractor gains protection against bearing all the risk for unforeseen cost overruns.
The success of the TCC 2024, like all Target Cost contracts, is dependent on the work done by the parties before the contract is entered into. Setting a realistic Target Cost at the outset is the most important factor in avoiding future disputes under a Target Cost contract. The parties should also give due consideration to the Difference Share and how this incentivises both parties and, when advising on Target Cost contracts, we always recommend that the parties run multiple worked examples to allow an understanding of the commercial implications of certain scenarios.
Contractors used to the fixed price element of the DB 2024 will also need to change their approach to allow transparency of the Allowable Cost and its open book nature. This will likely result in both parties having to spend more on internal resources: for the Contractor, making sure that its records and cost controls are in good order; and for the Employer, giving such records the oversight and interrogation needed to be certain that the Allowable Cost presented is the value of the Works.
Target Cost and adjustments
The Target Cost is the amount agreed between the parties when entering into the TCC 2024 and it can only be adjusted in certain limited circumstances. The most frequently encountered adjustments will likely be Change and encountering Relevant Matters.
As with other JCT contracts, additional work instructed by the Employer or identified as a Change under the TCC 2024 is valued according to defined rules, with the Target Cost adjusted accordingly. Where values are not agreed, work is assessed as measurable work or daywork, with valuations aligned to comparable items in the Target Cost Analysis or, failing that, on a fair basis or by reference to the RICS Definition of Prime Cost. Importantly, an instruction that substantially alters the conditions for executing other work also triggers an adjustment to the Target Cost.
The TCC 2024 addresses loss and expense through the mechanism of Relevant Matters, which largely mirrors the JCT 2024 suite. Entitlement arises where the Contractor notifies as soon as the likely effect of a Relevant Matter becomes reasonably apparent. As with the DB 2024, the Employer is obligated to respond to claims for Relevant Matters within 28 days of receiving the initial information, with further assessments at 14-day intervals thereafter.
Allowable Cost
Central to the TCC 2024 is the definition of Allowable Cost, equivalent to Defined Costs under NEC ECC Option C. These are the reasonably and properly incurred costs of performing contractual obligations. Whether they are reimbursed in full depends on the balance between the Target Cost and the incurred Allowable Cost.
The TCC 2024 sets out how such Allowable Costs are recovered: costs must not be duplicated, must be evidenced by records, and must exclude those arising from post-completion remedial work. Pre-completion costs relating to defects remain allowable, reflecting the incentive-based philosophy of Target Cost contracts. Rates are frozen during periods of Contractor delay, and discounts or credits must be passed back to the Employer. Where lump sum rates are agreed, these are deemed final and binding.
Employers are given protections through audit and inspection rights, with Contractors required to maintain records in prescribed formats. Unlike NEC4 Option C, however, there is no mechanism to finalise Defined Costs at interim stages, which could otherwise provide greater certainty.
In terms of categories of Allowable Cost, subcontract work is allowable where payments are due under the subcontract, but exclusions apply to losses arising from Contractor default or insured risks, which may lead to disputes over responsibility.
Direct workforce costs are allowable where labour is directly employed and engaged on the Works, whether on site or in workshops. Contractors should anticipate evidential requirements, particularly for off-site activity, and should agree record formats with the Employer at the outset.
Materials and goods costs are recoverable, subject to compliance with rules on proof of payment and timing of reimbursement. Costs of plant, services and consumables provided by the Contractor are allowable, but the scope of eligible items must be checked carefully to ensure coverage. Finally, sundry costs such as statutory charges, utilities and office expenses are recoverable where expressly included.
The Contract Fee
Separate from Allowable Cost is the Contract Fee, specified as either a fixed sum or a percentage in the Contract Particulars. This fee is deemed to cover all other costs and expenses payable to the Contractor which are not identified as Allowable Cost. Where a fixed Contract Fee is agreed, the TCC 2024 permits upward adjustment of the Contract Fee where the Target Cost increases beyond a defined percentage threshold, ensuring the Contractor is not penalised by disproportionate cost growth.
Difference Sharing
The Difference Share mechanism set out in the TCC 2024, whereby the Employer and Contractor share any variance between the adjusted Target Cost and the actual cost of the Works (being Allowable Costs plus the Contract Fee), acts as a pain/gain mechanism. If actual costs exceed the Target Cost, the Contractor’s recovery is reduced; if savings are achieved, the Contractor shares in the gain.
The incentive structure depends on setting the Target Cost at an appropriate level. It must be realistic to avoid inevitable overspend, yet not so generous as to remove incentive. Striking this balance of risk and reward is at the heart of the TCC 2024’s commercial effectiveness.
Practical tips
The TCC 2024, like all Target Cost contracts, will inevitably demand a higher level of administration than traditional lump sum design and build forms, particularly in relation to the keeping and verification of cost records. To avoid disputes, parties must ensure that appropriate systems, resources and training are in place from the outset so that the contract is administered as intended. Failure to do so risks gaps in records, inconsistent practices and ultimately disagreements about what constitutes the Allowable Cost.
A recurring problem in other Target Cost contracts has been the practice of certifying interim payments “on account” and revisiting them later when the Target Cost approaches. While this may appear expedient, it merely defers conflict. Disputes commonly arise because records are incomplete, requirements are unclear, or formats change mid-project. The better course is to establish clarity at the outset, encourage audits and inspections from the beginning, and agree in advance the form and standard of records to be provided.
The growth of remote working adds further complexity, raising questions about whether time spent off-site qualifies as Allowable Cost. Such flexible working should be considered and agreed between the parties prior to entering into the contract to avoid legitimate resources being excluded from recovery.
Comparison with NEC ECC Option C
Until the publication of the TCC 2024, the principal standard form Target Cost contract in the UK has been the NEC ECC Option C. The NEC’s underlying mechanisms are in many respects closely aligned with those now introduced under the TCC 2024. While the terminology differs, with the NEC referring to Defined Cost and Disallowed Costs and the TCC 2024 referring to Allowable Cost, the substantive effect is broadly similar. The TCC’s detailed criteria for Allowable Cost effectively incorporates the exclusionary principles captured under NEC Disallowed Costs.
For most users, the decision between NEC Option C and the TCC 2024 is therefore unlikely to hinge on the mechanics of the Target Cost model itself. Instead, it will likely reflect broader preferences. NEC places greater emphasis on proactive risk management, forecasting, and administration of compensation events, often demanding higher resource input. By contrast, the TCC 2024 offers a Target Cost framework within JCT’s more familiar drafting and procedures, potentially making it more accessible for lower value or less complex projects.
The NEC form is inherently flexible in allocating design risk but the TCC 2024 is fundamentally a design and build contract into which a Target Cost mechanism has been integrated. NEC has also evolved through recent amendments, addressing issues such as remote working costs and periodic audits of Defined Costs, neither of which are fully present in the TCC 2024.
Conclusion
The JCT Target Cost Contract 2024 is a welcome addition to the JCT suite and fills a longstanding gap. By offering a structured Target Cost model within the familiar JCT framework, it provides clients and their contractors with an alternative to NEC without requiring them to depart from the ever-popular JCT’s principles.
The success of any project using the TCC 2024 will depend not only on the drafting but also on the behaviours of those who use it. Parties should be encouraged to set realistic targets, share costs transparently and foster collaboration.