Target price agreement

A new form of construction contract in which the client and the contractor agree on a precise scope of work and a target price based directly on the costs involved. To agree the target, the contractor is open about the cost estimates it has made. The contractor earns a fee based on the actual costs eventually incurred. Both parties endeavor to unlock cost-cutting potential, since they share the benefits or charges of both overshoots and undershoots between them, according to a pre-agreed formula.