The Subcontractors Blueprint

Key Risks and Strategies with the JCT 2024 Target Cost Subcontract

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In episode 112 of The Subcontractors Blueprint podcast, host Jacob Austin  provides construction business owners with practical guidance on navigating the JCT 2025 Target Cost Subcontract (TCC). He explains the key differences from fixed price contracts, highlights the importance of accurate pricing, contingency planning, and open book accounting, and addresses challenges such as disallowed costs, payment complexities, and cash flow management. Jacob emphasises negotiation strategies, meticulous record-keeping, and building trust with main contractors to protect margins and ensure profitability. The episode equips subcontractors with actionable insights to manage risk and grow their business under JCT TCCs.

KEY TAKEAWAYS:

  •  Target cost contracts shift risk and reward from a fixed price model to a shared, open book approach.
  •  Subcontractors must be meticulous with pricing, record-keeping, and understanding allowable costs to protect their margins.
  •  Open book requirements increase administrative workload and introduce the risk of disallowed costs if not properly documented.
  •  Pain and gain share mechanisms can impact both cash flow during the project and final profit or loss at completion.
  •  Misunderstandings or mismanagement of target cost contracts can lead to disputes, so clarity and ongoing forecasting are essential.
  •  Success with target cost contracts relies on transparency, realistic risk assessment, and collaborative negotiation of terms.

    • BEST MOMENTS:

    "Target costs aren't inherently good or bad at all. They're just a contract. They're a tool. They're a means to an end."

    "The number one rule is get it right before site. You want a target that is realistic and achievable, not a fantasy lowball number that's going to set you up to fail."

    "Ambiguity today is a potential dispute tomorrow and that's what we want to avoid."

    "Records, records, records. It's not glamorous, but it's got to be done to de-risk your payment and get your hands on your money."

    "Shared risk means if something is genuinely unforeseeable, you're not alone in carrying the can for the cost of it."

    "If you fail to document ten grand’s worth of costs, that could quickly become non-recoverable and come directly out of your profit."

     

    Jacob is on a mission to help the 1 million SME contractors working within the construction industry. If you've taken something of value from this episode, please share the podcast with someone you know, and pass the value on.

     

    HOST BIO: Meet Jacob Austin, a Chartered Quantity Surveyor with a rich background at construction industry giants Balfour Beatty, Kier, and Vistry Group. With extensive involvement in education, health, and residential projects spanning various scales, from £1000s to £100M in concurrent developments, Jacob brings a unique perspective. Having collaborated with numerous small businesses, he's now committed to sharing his expertise to drive their success. Join Jacob on his podcast, where he blends his profound insights and personable approach to offer guidance, industry secrets, and inspirational stories.

    LinkedIn - www.linkedin.com/in/jacob-austin/

    Instagram - www.instagram.com/qs.zone/

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    The Subcontractors BlueprintBy Jacob Austin