Quick Answer: What Is A Target Price Contract?

How does a target cost contract work?

Target Price Contracts are based on a cost reimbursable mechanism in which the contractor is reimbursed his costs (on an actual cost basis) subject to the application at the end of the project of a formula which allows the contractor to share any savings made and to contribute towards overspend.

What is unit rate contract?

Unit Price Contract. Under a unit price contract, a contractor is paid for the actual quantity of each line item performed as measured in the field during construction. Each unit price includes all labor, material, equipment, overhead, and profit attributable to that scope of work.

What is a defined cost?

Defined cost. Very broadly, the defined cost includes payments due to subcontractors and the cost of components for other works (such as plant, equipment, people and so on), minus the disallowed cost. The contract stipulates that only amounts incurred to provide the works are recoverable as cost components.

What are the types of cost reimbursable contracts?

Cost-reimbursement contracts come in several different forms:

  • Cost Contracts. Only the actual costs of completing the contract are covered; the contractor receives no additional fee.
  • Cost-Sharing Contracts.
  • Cost-Plus-Fixed-Fee (CPFF) Contracts.
  • Cost-Plus-Incentive-Fee (CPIF) Contracts.
  • Cost-Plus-Award-Fee (CPAF) Contracts.