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Target incentive

The work at Bank station has been an ideal opportunity for client and contractor to demonstrate the value of partnering, and the flexibility of the Engineering & Construction Contract, in particular its partnering option - the activity schedule with target cost.

Under supply chain manager for construction Richard Bliss, London Underground is changing its procurement strategy. Adoption of the E&C contract, development of a preferred contractor scheme, and the use of alliancing are all part of the overall strategy.

Mabey had been working on a cost-plus basis for the emergency works at the station. 'But for the reinstatement, we and London Underground looked at other ways to go forward,' says contracts director Danny Duggan. Alliancing was first choice. Both parties agreed a realistic and fair target cost for the work with an agreed net margin for Mabey. The incentive to beat the target for the LU/Mabey team was a 50:50 share of any savings.

The advantage of target cost is that if there is any significant change in scope of the work, the target shifts. The benefits of working in an alliance are that, even if there are changes, everyone works together to make sure the target moves as little as possible. Which is what happened at Bank.

For instance, demolition work had originally been allowed between 8am and 10am, and 3pm to 8pm. In practice, it was too noisy for passengers in the station, and the City businesses around. 'We could only demolish at weekends, which initially looked like leading to a change in the target cost. But with a bit of judicious negotiation with the demolition contractor, we managed to get the work done, but keep the price within the original target,' says Duggan.

The strategy at Bank looks like being very successful. Duggan was due to take the traffic management scheme out in mid-September, 'but we are four weeks ahead and the work should be done over the August bank holiday'.

On price, he says: ' We are looking at potential shared savings of 5% on a target cost of £970,000.

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