Target Cost Contracts and The Development of Collaborative Behaviours and Value for Money in The UK Construction Industry

Smith A. and Wood Gerard
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Smith A.: School of the Built Environment, University of Salford, UK
Wood Gerard: School of the Built Environment, University of Salford, UK

Journal of International Business Research and Marketing, 2019, vol. 4, issue 4, 7-15

Abstract: TCCs are seen to be a procurement model capable of achieving value for money through aligning the objectives of the parties to reduce costs. The use of Target Cost Contracts (TCCs) within the UK construction industry has increased dramatically over the past few years. TCCs have been employed successfully on recent large scale projects such as Heathrow Terminal 5, Crossrail Procurement Strategy and the 2012 Olympic Games and Paralympic Games Infrastructure. Due to the success of TCCs over recent years, many clients are now turning to them in a bid to obtain value for money. However, it seems that they do not always drive parties to minimise costs and provide value for money. This research paper investigates the extent to which TCCs promote collaborative behaviours and provide value for money within the UK construction industry. More particularly, the research explores the following: which projects TCCs should be used on and how the maturity of the design when agreeing the target cost can affect value for money; how setting both the target cost and the pain/gain mechanism can affect the incentivisation of the contractor to minimise costs; the extent to which TCCs promote collaboration between the contractor, client and supply chain; and what is required to manage a TCC post-contract to ensure that incentivisation is maintained. It has become apparent from the research that TCCs are complex procurement models which require extensive consideration and management to ensure parties are incentivised to minimise costs. The research reveals that although TCCs can promote collaborative behaviours and provide value for money, there is a prerequisite to doing so: developing and managing the TCC correctly to ensure that the objectives of the parties are aligned.

Keywords: TCCs; Value for Money; Collaboration; Incentivise; Target cost; Pain/gain (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:mgs:jibrme:v:4:y:2019:i:4:p:7-15

DOI: 10.18775/jibrm.1849-8558.2015.44.3001

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