Empirical study of the risks and difficulties in implementing guaranteed maximum price and target cost contracts in construction

Wai Ming Chan, Ping Chuen Chan, Tsun Ip Lam, James M.W. Wong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

20 Citations (Scopus)

Abstract

Over the past few decades, both the guaranteed maximum price (GMP) and target cost contracting (TCC) arrangements have been regarded as alternative integrated procurement strategies for clients to mitigate risks, minimize claims, integrate the diverse interests of a complex construction project, and offer incentives to provide value-added services. However, the adoption of GMP/TCC contracts may also generate significant risks and difficulties that merit considerable attention. This paper aims to provide a concise review of the potential pitfalls of the GMP/TCC scheme in general and identifies the key risk factors and potential difficulties associated with GMP/TCC in comparison with other procurement strategies in construction in particular via an empirical survey of clients, contractors, and consultants in Hong Kong. The survey data gleaned from 45 valid replies were analyzed using the mean score ranking technique, Kendall's concordance test, and Spearman's rank correlation test. The survey results indicated that "involvement of inexperienced or claim-conscious contractors in a project procured by a GMP/TCC contract" was considered to be the most significant risk factor; while "design development must keep pace with main contractor's program for tendering the domestic subcontractors' works packages" as the major difficulty in implementing GMP/TCC projects. The research findings derived from this study are particularly essential in assisting the contracting parties to mitigate the detriments brought about by potential risks or difficulties when embarking on GMP/TCC contracts. It has also generated valuable insights into developing effective recommendations for alleviating the barriers to GMP/TCC success for future construction projects.
Original languageEnglish
Pages (from-to)495-507
Number of pages13
JournalJournal of Construction Engineering and Management
Volume136
Issue number5
DOIs
Publication statusPublished - 29 Apr 2010

Keywords

  • Construction management
  • Contracts
  • Costs
  • Difficulties
  • Guaranteed maximum price
  • Hong Kong
  • Pitfalls
  • Pricing
  • Risk management
  • Risks
  • Target cost contracting

ASJC Scopus subject areas

  • Civil and Structural Engineering
  • Building and Construction
  • Industrial relations
  • Strategy and Management

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