Jurisdiction(s):
United Kingdom

Key definition

Cost reimbursable definition

What does Cost reimbursable mean? Cost reimbursable describes a pricing mechanism under which the employer/client repays the contractor’s actual, allowable costs and also pays an agreed fee or profit (often called “cost plus”). It is a descriptive term rather than one defined in legislation or case law, and is used across construction, engineering and complex services procurement in the UK and Ireland. Key features typically include: - Open‑book accounting with audit rights. - A clear definition of allowable/defined costs and stated exclusions. - A fee structure (percentage or fixed fee) for overhead and profit. - Optional caps or targets, such as target cost with pain/gain share or a guaranteed...

Target cost construction contracts: risk allocation, pain/gain sharing, use cases, target setting/adjustment, administration, case law, and standard forms (JCT 2024; NEC Options C/D; IChemE; ICC)

Published by a LexisNexis Construction expert

Practice notes

What is a target cost contract?

A target cost contract is a form of cost-reimbursable agreement where the contractor is reimbursed the ‘actual cost’ (as typically set out in the specific contract) it incurs in delivering the works, but this is capped by a target cost agreed by the parties at the outset of the scheme and set at the start of the project. The target cost reflects the contractor’s anticipated cost of completing the project, made up of:

the basic cost of the physical works (derived from a Bill of quantities, schedule of rates or Activity schedule), together with any necessary temporary works, sub-contractor charges and preliminary costs across the job
overheads and profit
a contingency covering the contractor’s risks under the contract

On completion, the parties apply a formula/mechanism to determine whether there were savings and the job finished below the target cost, or whether there was an overrun and delivery exceeded the target, by reference to the agreed mechanism or formula. The contractor will then either share any saving with the employer or pay a share of the overspend. In this way, both parties share the risk associated with the undertaking. A target cost approach can be beneficial because it...

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Web page updated on 21/05/2026

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