Target Cost contracts in brief Target Cost contracts are a form of cost reimbursable contract under which the contractor is paid the “Total Cost” it incurs in carrying out the works plus a fee, subject to a “Target Cost” agreed by the parties at the beginning of the project. Upon completion, the parties ascertain whether savings were made and the project delivered for less than the Target Cost; or whether costs overran and the cost of delivery was above the Target Cost. Any saving or overrun is then allocated according to a predetermined formula commonly known as a “pain/gain share” mechanism. If the costs of the project exceed the Target Cost the excess, or “pain”, is allocated between the employer and the contractor, and if the project comes in under cost then the “gain” is allocated. The philosophy behind such contracts is to actively encourage both parties to work together to manage the costs of the works. Doosan Enpure Limited v Interserve Construction Limited Doosan and Interserve entered into a Joint Venture Agreement (“JVA”) for the purpose of carrying out upgrade works at the Horsley Water Treatment works in Northumberland for Northumbrian Water Limited (“NWL”). The JV parties and NWL entered into a contract based on the NEC3 Option C form (Target contract with activity schedule). The progress of the works was delayed with an increase in cost. The JV parties fell into dispute over whether interim payments under the JVA should be made on an actual cost basis or whether they should reflect the anticipated pain-share likely to result upon completion of the works. The JV parties also disagreed over whether the NEC3 contract with NWL allowed the pain-share mechanism to be applied at an interim payment stage, although in practice it appears that NWL’s Project Manager did not seek to deduct any amount for pain-share from interim payments applied for by the JV parties. TCC proceedings were commenced for various declarations to resolve the impasse between the JV parties and to determine entitlement to sums held in the JV bank account. Those sums had been received from NWL in relation to the most recent interim payment application made by the JV parties. Pain/gain share under the NEC3 Before considering the position under the JVA the court considered whether interim payments under