Aiming for a Bullseye
There are a variety of contracts for a reason. The options are meant to help the contractors and owners find a deal that works best for the situation and the project. A target estimate contract is a great way for the contractor and the owner to share responsibility and risk for the project fairly.
How it Works
Target estimate contracts specify penalties or rewards to a contractor that are dependant on how close the cost of the project is to the contractor’s estimate. If the job comes in under budget, savings are shared by the owner and contractor at a predetermined amount. If the job comes in over budget, the costs are shared in a predetermined amount. The extent to the bonuses and penalties are worked out ahead of time and allows for a clear and easy way to divide up cost sharing or bonuses.
Everybody Wins, Everybody Bends
One of the most appealing things about this type of contract is the often proportional nature of the benefits or penalties. The contractor and owner are incentivised to work together to complete the project efficiently to share in the benefits. This kind of collaboration fosters a teamwork environment. Additionally, specifying the terms of working together ahead of time in this way eliminates or drastically reduces potential fighting or disagreements as the project is completed.
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