A Target Price is an established price budgetary target, agreed upon between Owner and Contractror. The Contractor is expected to hit the Target Price during the performance of a Cost Plus Agreement. In a Cost Plus with a Target Price Agreement, the contractor is paid actual costs plus a fee. A Target Price is set initially in the contract and the Contractor shares with the Owner either the savings or the overrun. The Target Price may be modified by Change Orders as the project progresses.
Contractor Risks: The Owner misunderstands the meaning of Target Price and instead interprets it as a GMP Agreement.
Owner Risks: The Target Price is not a Guaranteed Maximum Price. It reflects a degree of uncertainty about the project scope, which is in turn reflected in the project pricing.