target cost contracts 2.docx

1、target cost contracts 2 CONTINUING PROFESSIONAL DEVELOPMENT Maximum Period 3 Hours TARGET COST CONTRACTS By Roger KnowlesCONTENTSNew ApproachStandard Target Cost ContractsReference to Target Cost in the ContractWhen Should the Target Be FixedCalculating the Target CostAdjusting the Target CostFeeGai

2、n Share/Pain ShareTARGET COST CONTRACTSNew ApproachTraditionally contracts for construction work have been placed on the basis of a lump sum being paid to the contractor for carrying out the work. This sum will usually be adjusted for employer changes and all employers risk items provided for in the

3、 contract for such matters as design errors. The culture is for the work to be undertaken by the contractor who submits the lowest price. In recent times this method of procurement has fallen into disrepute in respect of public sector work where best value has been the preferred procurement route wi

4、th lowest price falling by the wayside.It is now commonplace in the public sector where best value applies for procurement systems to provide for payment to the contractor based upon its recorded costs. To ensure that costs are not allowed to get out of hand a target for these costs is fixed at the

5、outset. The target is adjusted to take account of any employer changes and other price risks allocated to the employer under the terms of the contract. To ensure that there are incentives in place so that costs are kept to a minimum it is usual for the target cost to be linked to a gain share /pain

6、share mechanism which is fixed at the outset. The recorded costs are compared with the target cost and any saving shared between the contractor and employer in a pre-agreed manner. In like manner any over expenditure compared with the target is shared.Standard Target Cost Contracts The following con

7、tracts are standard target cost contracts:1. Public Sector Partnering Contracts Option 2 Term Maintenance Option 5 - Authority Design Option 6 - Contractor Design2. ICE Conditions of Contract Target Cost Version3. PPC 2000 Standard Form for Project Partnering This contract provides for a Price Frame

8、work which leaves the parties to devise their own payment mechanism. It is commonplace for a cost reimbursable with target cost to be used. There is provision for including an Agreed Maximum Price in the Form of Commencement Agreement.4. New Engineering Contract Option C - Target Contract With Activ

9、ity Schedule Option D - Target Contract With Bill of Quantities contract Subcontracts 5.1 Public Sector Partnering Contract Option 8 Subcontract Target Cost With Cost Reimbursable 5.2 SPC 2000 Standard Form of Specialist Contract for Use with PPC 2000 Reference to Target Cost in the Contract1. Publi

10、c Sector Partnering ContractOption 2 Term Maintenance provides in clause 23.1 for the calculation of the Target Cost by measuring and valuing the work in accordance with the Schedule of Rates referred to in the Appendix.Options 5 Authority Design and Option 6 Contractor Design; in clause 18.0 it sta

11、tes that the Target Cost is indicated in the Articles of Agreement. There is no method provided as to how the Target is to be calculated.Option 6 Subcontract: In clause 21.0 it stipulates that the Target Cost is stated in the Articles of Agreement. There is no indication as to how the Target is to b

12、e calculated.2. ICE Target Cost VersionThe Target Cost and the Fee are given in the Appendix Part 2 to the Form of Tender. 3. ECC Contract The Target Cost is referred to as the total of Prices which are included in the Data submitted by the Contractor with his tender.4. PPC 2000Partnering Documents

13、referred to in the contract include a Price Framework. The Guide states in section 5.4 that at the date of the Project Partnering Agreement the Price Framework should include the agreed amount payable for the Constructors services, agreed profit, central office overheads and site overheads. This doc

14、ument when agreed will provide a mechanism which will enable these sums to be calculated. It is usual for the Constructors costs to form the basis for the sums to be paid. In the definition section reference is made to an Agreed Maximum Price which is the price payable to the Constructor pursuant to

15、 the Price Framework. There is no specific guidance as to how it is intended to operate and how the Agreed Maximum Price is to be calculated. This will be a matter for the parties to agree before the contract is entered into. It is commonplace however for the parties to agree a Target Price to be in

16、cluded in the Price Framework as the Agreed Maximum Price. The Agreed Maximum Price is stated in the Commencement Agreement. 5. SPC 2000 Standard Form of Specialist Contract for Use with PPC 2000Payment will be in accordance with the Specialist Payment Terms to be agreed by the parties. The parties

17、may agree that a Target Cost will form the basis of the Specialist Payment Terms When Should the Target Be FixedThere is no hard and fast rule as to when the target should be fixed. The following provide examples:1. Some clients opt to introduce an element of competition into the process. It is ther

18、efore common for contractors to be requested to indicate the Target Cost as part of the tender submission. This is regarded by many as being contrary to the spirit of partnering as it can lead to a lowest price selection policy.2. A variation on this method is for the contractor to be requested to s

19、ubmit with the tender the amount to be included in the Target Cost for overheads and profit.3. On most partnering contracts it is customary for the Target Price to be fixed after tenders have been received but before the contract is signed. Some contracts such as the PPC 2000 include a provision for

20、 the Target Cost referred to as the Agreed Maximum Price to be included in the Pre Possession Agreement.4. On most contracts it is usual for a value engineering process to be undertaken. It can take the form of a fairly major exercise during the early design stage and be ongoing during the remainder

21、 of the design and construction phase. If the Target Cost is fixed before the first major value engineering exercise has been undertaken it is less challenging for the contractor to achieve a cost for the project within the Target Cost. The reason being that during the first major value engineering

22、phase a significant amount of cost may be taken out which would benefit the contractor if the Target Cost has already been fixed.Calculating the Target Cost There are several methods of calculating the Target Cost and include the following:1. Measured quantities multiplied by unit rates2. Cost per u

23、nit eg bed space3. Employing an elemental cost analysis technique4. Floor area multiplied by cost per square metre Often a building block approach is employed comprising:1. Unit cost2. Sum included for risk3. Overheads 4. ProfitUnit CostsThe unit costs may be calculated using a schedule of rates for

24、 work which is inclusive of labour, materials and plant. Measured quantities for the work are then applied to the rates to arrive at the unit costs. Where the target is fixed at a stage when little design work has been undertaken a more basic approach is often used by employing the floor area of the

25、 building and applying a rate per square metre for the labour, plant and materials. It is sometimes convenient to calculate the areas of the various elements such as cladding and roofs of the building and apply a separate rate per square metre for each element in respect of the cost of labour, plant

26、 and materials to provide a total cost for each element. These costs should always be inclusive of what are often referred to as site preliminaries such as the cost of site accommodation.Where a large part of the work is to be designed and constructed by subcontractors the unit costs are often built

27、 up using quotations received from the subcontractors who will be undertaking the work. Risk Allowance The contract should be very clear as to how the risks are to be shared between the parties. This is often achieved by using a risk register. In building up the target price a sum should be included

28、 in respect of the risks which are to be borne by the contractor. For example it is usual in times of relatively low inflation for the target price to include for inflation. On many contracts the contractor is required to include in the target price the estimated cost of any ground conditions which

29、may be encountered whether they are foreseeable or otherwise. A financial provision should be included in the target price for this type of risk. Where the extent to which ground conditions are anticipated to be unfavourable is unknown before work commences it is better for a provisional sum to be i

30、ncluded in the target price which can be adjusted at a later date to take account of the contractors actual costs. It should however always be made clear at the outset as to which of the parties bears the risk.Head Office OverheadsThe head office overheads are usually provided for separately in the

31、build-up of the target price. It needs to be made clear at the outset which costs are included under this heading and which are site costs. For example quantity surveyors may be site based and included in the unit costs whereas the commercial director and chief quantity surveyor may be head office b

32、ased and form part of the head office overheads. It is usual for the head office overhead element to be calculated by the addition of a percent to the total of the unit costsProfitThe profit is the reward paid to the contractor for satisfactorily completing the work. It is usually calculated by adding a percentage to the total of the unit costs, risk and overheads. Normally profit is the major element of the Fee.Adjusting the Target CostThe contract will usually provide details as to how the Target Cost is to be a