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1. This construction policy note (CPN) publishes guidance on the operation of target cost contracts and pain share/gain share mechanisms.
2. Good practice which incentivises both parties of a construction contract to work constructively towards the same ends has the potential to be a particularly strong driver of innovation.
3. This note is intended for all those contracting authority staff involved in the planning and delivery of public works projects.
Outline of guidance
4. The Review of Scottish Public Sector Procurement in Construction observed that the construction industry has a background of confrontational attitudes between client and contractor. It did however, also identify evidence of good practice which incentivises both parties to work constructively towards the same ends. One way in which this was achieved was by the use of so-called “pain share/gain share” arrangements, whereby the “pain” of cost overruns is shared, as is the 'gain' of savings.
5. The guidance, which is attached at Annex A, provides contracting authorities with advice on when and how to use target cost contracts and pain share/gain share mechanisms.
6. Please bring this construction procurement note to the attention of all those staff involved in the procurement or delivery of construction activities.