Lawyers cautious on new JCT pain-sharing contract

Legal commentators have expressed caution about uptake of a new Joint Contracts Tribunal (JCT) contract family that is designed to share risk.

The Target Cost Contract (TCC) 2024 was released in late June and is designed for larger jobs, where detailed provisions are needed.

Rather than a fixed price, it incorporates what JCT describes as a “pain/gain operation” where a share based on the difference between a target cost and allowable cost is produced during a project rather than a fixed cost agreed at the start.

The share is based on pre-agreed percentages. JCT said: “This provides an incentive for both parties to ensure a beneficial financial outcome of the project.

“This is designed to ensure maximum cooperation and collaboration throughout the project.”

The TCC family includes:

• Target Cost Contract 2024
• Target Cost Sub-Contract Agreement 2024
• Target Cost Sub-Contract Conditions 2024
• Target Cost Contract Guide 2024
• Target Cost Sub-Contract Guide 2024

Lawyers have reacted with a mix of views on the TCC’s provisions.

Pinsent Masons partner Mike Allen appeared sceptical about how popular the new contract family will be.

“JCT have said that there is a market demand for this. That remains to be seen. Many commercial real estate funders and developers are wedded to lump-sum, design-and-build with full risk transfer.

“A move to a more collaborative model of contracting with shared risks may not be a road they are willing to travel unless demand/supply for contractor resource forces their hand,” he said.

Meanwhile Tim Willis, a senior associate in Irwin Mitchell’s construction team, warned that operating the new contract would not be easy – and it is not simply a case of moving classic design-and-build schedules onto a new form.

“Target contracts are resource intensive and managing allowable cost is a significant burden on both parties, but the benefits can be significant in motivating collaboration and innovation from the construction team.

“Whether TCC 2024 has all the mechanisms needed for managing risk is also an open question. The lack of a construction programme and the absence of early warning procedures and a commercial penalty for failing to operate them, such as disallowing costs that could have been avoided, as in the NEC4 ECC Option C and D contracts, may lead to greater risk of cost overrun.”

He added: “Sharing the pain is not as good as avoiding the pain. Management of risk will need careful thought.”

Elsewhere, Walker Morris partner Jules Harbage welcomed the TCC as a step towards “more collaborative, cost-conscious contracting”.

“If you’re looking for more transparent pricing and alternatives to fixed-price models within the construction industry, this could be a good option,” he said.

“Now is the time for employers and contractors to get familiar with the payment mechanics of this new form, run the numbers, and assess whether this model fits their project strategy.“