Chan, D W M; Chan, A P C; Lam, P T I and Wong, J M W (2010) Empirical study of the risks and difficulties in implementing guaranteed maximum price and target cost contracts in construction. Journal of Construction Engineering and Management, 136(5), pp. 495-507. ISSN 0733-9364
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.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | construction management; contracts; costs; difficulties; guaranteed maximum price; Hong Kong; pitfalls; pricing; risk management; risks; target cost contracting |
| Index terms: | contracting party, target cost, procurement strategy, Hong Kong, main contractor, pricing, package, design development, empirical study, risk factor, risk management, survey, subcontractor, program, construction project |
| Subjects: | economic analysis, contractual arrangements, practitioner, risk assessment, data collection methods, environmental hazards, design process, Geography, production management, economics, software systems, research methods |
| Topics: | Design Practice, Digital Applications, Business Strategy, Cost Management, Research Practice, Geographical Context, Project Management, Risk Management, Roles and Professions, Procurement, Sustainability |
| Descriptive scope: | 4 PCEA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here