NEC4 Target Cost (Option C)

NEC4 Option C is a target cost contract with activity schedule. The Contractor is paid their Defined Cost (actual cost as defined by the Schedule of Cost Components) plus a Fee. A target cost is agreed at contract signature, and at the end of the contract the difference between the target and the actual outturn is shared between the Contractor and Client according to a pain-gain share mechanism specified in the Contract Data.

The intent of Option C is alignment: both parties benefit if the work is delivered under target (shared gain), and both bear some burden if it runs over (shared pain). Well-structured target cost contracts create a genuine collaborative dynamic where the Contractor has an incentive to seek efficiencies and the Client has an incentive to keep scope stable. Badly structured ones produce disputes about what constitutes Defined Cost, aggressive claims for target cost adjustment through compensation events, and pain-gain mechanisms that are too generous or too punitive.

For project controls, Option C has specific implications. Cost reporting must distinguish clearly between Defined Cost (which flows to the Contractor directly) and any Disallowed Cost (which does not). The target cost must be adjusted for every implemented compensation event — the target "moves" as the scope changes, and failure to keep the target updated destroys the pain-gain calculation. And the QRA typically needs to produce confidence positions against both the target and the likely outturn, so the Client can assess their true cost exposure rather than relying on the nominal target alone.