NEC 3 And Target Cost Contracts: Defined Costs, Disallowed Costs And Defects

In this edition of Insight, we examine the role of Defined Costs and Disallowed Costs in the NEC3 Target Cost Contracts and look at the confusion sometimes encountered when dealing with the defects (and the costs associated with rectifying them pre and post completion). As Claire King explains, the provisions are in many ways counter-intuitive and require both the Contractor and Employer to buy into the philosophy behind the Contract in order for it to succeed.

Overview of the NEC3 Target Contracts

Options C and D of the NEC3 suite of Contracts provide for what is known as a target cost contract.¹ This contains a mechanism for sharing risk and rewards known colloquially as a "pain/gain" mechanism.  This fits well with the philosophy behind the NEC suite of contracts more generally which is designed to achieve more of a collaborative approach to contracting than the traditional JCT style contract using "foresighted collaboration" to reduce the risks in the