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Courses Background:

COURSE BACKGROUND
This BRAND NEW 1 DAY COURSE, will look at the effective management of target cost contracts in the infrastructure sector and will be invaluable to those working for Employer’s, Main Contractors and Sub-Contractors in sectors such as rail, underground, water, road, utilities, nuclear, power and process engineering.

Speakers:

 Kevin McKee BSc (Hons), DipArb, FRICS, FInstCES, APA, Accredited Mediator.

Public Course Delegate Rate:

£280 plus VAT

Course Duration:

1 day

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Course Content:

OVERVIEW

Use of target cost contracts
• Sharing of risk
• Early contractor involvement
• Collaboration through aligned objectives

How a target cost contract works
• Setting the target
• Reimbursing the ‘cost’
• The share mechanism
• Creating a guaranteed maximum price

Standard forms of contract
• NEC3/ECC Options C and D
• ICE Target Cost Contract
• IChemE Target Cost Contract (Burgundy Book)
• Comparison of standard forms
• Common amendments to standard forms

Establishing the Target Cost
• Single stage/two stage tendering
• Head office overheads and profit (Fee)
• Allowance for risk
• Value management and opportunities for saving
• Target cost breakdown

Maintaining the Target
• Changes to the target
• Requirements of standard forms
• Need to assess changes promptly
• Avoid leaving agreement until the final account

Payment of Contractor’s ‘Cost’
• What constitutes ‘Cost’
• Incurred costs and accrued costs
• Disallowed costs
• Payment provisions within standard forms

Verifying the Contractor’s Cost
• Open book accounting provisions
• Understanding the Contractor’s accounting systems
• Presentation of Contractor’s applications
• Estimates for work carried out but no paid for
• Creating audit trails
• Method of auditing and verification

Cost Monitoring and Control
• Comparing costs incurred against target allowances
• Importance of target breakdown
• Importance of cost allocation against target breakdown
• Comparing costs against target figures to forecast outturn
• Earned Value Analysis

Payment of share amounts
• Beating the target price (gain share)
• Exceeding the target price (pain share)
• When the share amount is paid

Other incentive mechanisms
• Target cost mechanisms provide incentives around cost
• Consider other financial incentives for:
o Improving performance of the asset
o Achieving defined KPI’s
o Minimising disruption to existing use
o Avoiding delay

Advantages and disadvantages of target cost arrangements
• Allows contractor to be involved early
• Incentivises Contractor to look for efficiencies
• Encourages teamworking approach
• Fixed price not known at the outset
• Client shares the financial risk
• Increased administrative burden


Close Course Content

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