Target Price contracts are often positioned as the “collaborative” alternative to lump sum or reimbursable delivery.

In theory, they align incentives.

In practice, they often expose a deeper problem: we still don’t understand cost drivers at a system level.

Before debating whether Target Price works, we need to be honest about what it assumes.

What a Target Price Model Is Supposed to Do

At its core, a Target Price contract sets:

A baseline cost (the target) A pain/gain sharing mechanism An expectation that owner and contractor will jointly manage risk

If the final cost comes in below target, both parties share the upside.

If it exceeds the target, both share the downside.

On paper, this encourages:

Early collaboration Transparent decision-making Cost discipline without adversarial behaviour

That’s the promise.

The Hidden Assumption No One Talks About

Target Price models quietly assume something critical:

That the target itself is grounded in a realistic, executable system.

Most are not.

Why?

Because many targets are still built on:

Unit-rate estimates Static productivity assumptions Sequential work logic Idealized schedules Unlimited site capacity

In other words, the target is often logically correct but physically impossible.

When the baseline is flawed, the contract doesn’t align incentives — it institutionalizes conflict.

Why Target Prices Fail in Execution

When projects miss target, the root cause is rarely effort or intent.

It’s usually one of three structural blind spots:

1. Resource Reality Is Ignored

Targets are commonly set without modeling:

Actual crew availability Trade stacking limits Access constraints Space, parking, or facility capacity Shared resource contention across contractors

Cost overruns then appear as “performance issues” rather than system constraints.

2. Risk Is Priced, Not Governed

Risk registers are converted into contingencies — and then forgotten.

But risk is not static.

It materializes through:

Throughput limits Schedule compression Deferred decisions Crowding effects

When risks convert into real constraints, the target price has no mechanism to adapt — only to argue.

3. Pain/Gain Is Applied After the Damage Is Done

Most Target Price models focus on outcomes, not leading indicators.

By the time cost variance shows up:

Capacity has already been exceeded Efficiency has already degraded Rework and congestion are already embedded

The contract reacts to failure instead of preventing it.

When a Target Price Does Make Sense

Target Price can work — but only under specific conditions:

✅ The target is built bottom-up from resource demand

Not just quantities, but:

Crew size and composition Shift patterns Access windows Utilization limits

✅ Constraints are treated as design inputs, not surprises

Space, logistics, throughput, and shared services are explicitly governed — not “managed in the field.”

✅ Cost control focuses on flow, not variance

The goal is not to hit the number.

The goal is to maintain balanced supply and demand across the system.

✅ Incentives reward constraint management, not heroics

Teams are rewarded for preventing overload, not absorbing it.

The Real Question Isn’t “Is Target Price Good or Bad?”

The real question is:

Is your target price modeling the system you are actually building — or the one you wish you had?

If the target ignores physical limits, human capacity, and shared resources, then no contract structure will save it.

You’ll still get:

Defensive behaviour Claims framed as “unforeseen” Post-hoc alignment instead of proactive control

Just with better intentions and worse disappointment.

Final Thought

Target Price doesn’t fail because people don’t collaborate.

It fails because the system they’re collaborating within is misunderstood.

Until cost targets are grounded in real capacity, real constraints, and real flow, Target Price is just optimism with a formula.

And optimism is not a control strategy.