Should the Fee be fixed in ECC target cost contracts?

A question from a client at the recent NEC Users' Group annual Seminar related to the thoughts of changing the variable Fee approach with target cost contracts. These are his further thoughts, a Newsletter article is likely but some opinion in the meantime would be very helpful.....

ECC target cost contracts (main Options C and D) provide a mechanism for charging Fee based on the tendered fee percentage x the cost (Defined Cost). This is a variable Fee approach.

A number of alternative approaches are being adopted by clients to either fix the Fee amount regardless of costs incurred (a lump sum Fee), or to “invert” the fee calculation to base the Fee on the target (Prices) rather than the Defined Cost. In doing so, this is thought to provide benefits of a “double incentive” to the Contractor to optimise or dilute Fee when costs are below or above target, to give the client better cost certainty of the amounts paid in respect of Fee sums, and not to “reward” the Contractor by way of additional fee recovery when costs exceed the target.

Comments, thoughts and soundings on these alternative approaches are welcomed. Are these alternative approaches commonplace throughout the  industry, are they seen as fair and equitable, are there any unintended consequences?

Rob