Complex developments, which may encompass challenging ground conditions, logistical hurdles or undefined scopes, demand a problem-solving culture. Subjecting such projects to a fixed-price arrangement that places many key risks squarely on the contractor can be a recipe for disputes and financial failure.

A cost-reimbursable regime – where the contractor is paid for the actual cost of the works, plus overheads and profit – would alleviate contractor apprehensions. From a client’s perspective, however, this is generally only suitable for simple, repetitive work or projects where budget is not a primary constraint.

Target cost agreements offer a sensible compromise. This variant of cost-reimbursement forgoes the notion of an absolute price. Instead, the parties set a target cost and a pain/gain share formula that economically incentivises them to deliver the project at or below this figure. The result is a structure that compels the parties to work co-operatively for the good of the project.

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