The JCT Target Cost Contract 2024 (TCC 2024): A shift in focus

The JCT have introduced a new contract family with the JCT 2024 edition, which for the first time is based on a target cost model which emphasises collaboration, transparency, and shared financial risk. The Target Cost Contract 2024 (TCC 2024) is based on the JCT Design and Build Contract 2024 (DB 2024) ,and (as with the design and build contract) is suitable for larger projects where the Contractor is not only carrying out the works but is also carrying out and/or completing the design. The TCC 2024 provides a different pricing mechanism to give both employers and contractors a financial incentive to collaborate and achieve cost efficiencies on a project.

The JCT state in the introduction to the TCC 2024 that

“the ethos of this form is risk sharing”

and that in the current difficult market place it is hoped that

“the parties can both benefit from their joint efforts in ensuring the project has a successful financial outcome”.

A familiar concept – NEC

The concept of a target cost model is not new and users of the New Engineering Contract (NEC) will be familiar with Options C and D within the NEC suite of contracts which provide for a target cost option. Inevitably, comparisons will be drawn with NEC the longstanding standard-bearer for target cost procurement in the UK. Option C is rigorous in its procedural demands: early warning notices, compensation events, real-time programme updates, and a live, enforceable schedule. It is designed for projects where active cost management and operational responsiveness are paramount, often in infrastructure, public realm or complex civil engineering.

By contrast, the TCC 2024 is structurally simpler. However, whilst users of the TCC 2024 will be familiar with the structure of the document as it is based on JCT DB 2024, the pricing and payment provisions are very different to the fixed price approach which is used on DB 2024.

The new payment regime

TCC 2024 provides for a Target Cost which is set out in Article 2 instead of the Contract Sum which is found in other JCT contracts. The Target Cost is established through the Employer’s Requirements, Contractor’s Proposals and the Target Cost Analysis and it is recommended that both the Employer’s Requirements and Target Cost Analysis are as prescriptive and detailed as possible. The Target Cost can be adjusted in accordance with the contract in the same way as the Contract Sum can be adjusted in other JCT contracts.

It is agreed that the Contractor will be paid the “Allowable Cost” together with a “Contract Fee” and “any sum payable in respect of the “Difference Share”.

The Allowable Cost is defined and documented in detail in the contract and can be costs incurred by the Contractor which can be set out as lump sums, or in rates or maximum amounts and includes sub-contractor costs, staff costs and management and design costs. Allowable Cost will be based on open book accounting which is something both parties will have to allow for and allocate adequate time and resources.

The Contract Fee is generally to cover the Contractor’s overhead and profit element to the extent this is not covered in the Allowable Cost and can either be a fixed sum or a percentage.

The Difference Share and Calculating the difference Share

The “Difference Share” is stated by the JCT to be the “straightforward difference” between the actual cost of the Works (Allowable Cost plus Contract Fee) and the Adjusted Target Cost. Whatever the difference (positive or negative) it is shared between the Employer and the Contractor in agreed percentages or as pre agreed fixed sums which have been included in the contract at the Contract Particulars. The parties must decide whether the difference is calculated at each interim payment stage or if is calculated for the final payment only at the end of the contract.

An new option to consider

The aim of TC2024 is simple: to align incentives, manage change transparently, and discourage disputes by creating a shared commercial stake in the project outcome which should ensure maximum cooperation and collaboration throughout the project. Parties should recognise however that the pricing mechanisms are different and will need work to include realistic figures and to achieve these goals and to work through the various mechanisms properly.

For decades, JCT contracts have underpinned much of the UK’s private development sector. Their appeal has been their clarity, their widespread familiarity, and a legal culture that prioritises enforceability over fluidity. But as the industry responds to new procurement pressures a more collaborative approach is becoming more widely used

The Target Cost Contract’s introduction reflects this shift with the inclusion of open-book accounting, a structured pain/gain share mechanism, and proactive risk management whilst still reading like a JCT contract (with recognisable procedures and standard definitions) which may be helpful to users.

Practical Considerations

Of course, as with any contract form, implementation and careful management is key. The pain/gain share mechanism must be carefully calibrated. Defined costs must be clearly scoped. Audit rights, change control and reporting obligations require active management. Without this, the contract risks delivering the worst of both worlds: additional complexity without real collaboration or reward.

Crucially, the success of a target cost approach will depend on cultural alignment between parties. Transparency must be facilitated by trust, process and mutual commercial interest. The JCT TCC 2024 form offers the legal vehicle, but its effectiveness will depend on work and the collaborative attitude of the parties.

But it will not deliver this on its own. The contractual shift must be matched by a behavioural one.