The Subcontractors Blueprint

Unlocking Profit: Mastering the JCT Target Cost Subcontract

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In episode 111 of The Subcontractors Blueprint podcast, host Jacob Austin reviews the new JCT Target Cost Subcontract 2024. He explains the fundamentals of target cost contracts, focusing on open book accounting, pain and gain share mechanisms, and contract flexibility. Jacob highlights the importance of detailed cost tracking, confidentiality, and proper management of contract adjustments. He also discusses the increased administrative demands of these contracts. The episode sets the stage for part two, which will cover risks, pricing strategies, and margin protection for subcontractors working under target cost agreements.

KEY TAKEAWAYS:

  •  The episode introduces the new JCT Target Cost Subcontract 2024 and its relevance for subcontractors.
  •  Target cost contracts involve agreeing a target price, with actual costs reimbursed plus a fee, and differences shared between parties.
  •  Pain/gain share mechanisms incentivise efficiency but also limit the potential for extra margin and increase risk if costs overrun.
  •  These contracts require open book accounting, detailed record-keeping, and clear definitions of allowable costs.
  •  The TCC sub is flexible but brings extra administrative workload and complexity, especially in managing cash flow and risk.
  •  Next week’s episode will cover key risks, challenges, and strategies for pricing and protecting your margin under target cost contracts.

    • BEST MOMENTS:

    "It's not the whole hog of cost reimbursement, but it asks the contractor to take a degree of risk in setting a lump sum price that they've then got to come in with a pretty narrow window of hitting in order to make any extra margin on it."

    "The idea is to get everybody aligned and pushing for the same outcome—everybody benefits from finishing cheaper, everybody suffers if it ends up pricier."

    "In effect, you lose 1% of your contract sum for every percent you go over the target."

    "Other common features of target cost contracts include an open book approach and pre-agreed definitions of allowable costs."

    "As the JCT puts it itself, the ethos of a target cost contract is risk sharing in a way that both the employer and the contractor can benefit from their joint efforts for a successful outcome."

     

    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