Anvuur, A M and Kumaraswamy, M K (2010) Promises, pitfalls and shortfalls of the guaranteed maximum price approach: A comparative case study. In: Egbu, C (ed.) Proceedings of 26th Annual ARCOM Conference, 6-8 September 2010, Leeds, UK.
Abstract
The relative merits of the guaranteed maximum price (GMP) mechanism as a contractual incentive in construction have been much contested. This question was investigated using a comparative case study of two building projects in Hong Kong. Data was collected through semi-structured interviews, review of project documentation and communications, and passive observation of project meetings. The findings suggest that the GMP mechanism has low incentive intensity from an instrumental rationality perspective and high incentive intensity from a value-expressive perspective. Further analysis of the findings leads to two main conclusions about the potential value of the GMP mechanism to a client: (a) it can provide some flexibility in responding to short-term market changes and other idiosyncratic factors and (b) it can be a useful instrument for project work group integration. Based on current approaches to GMP projects in Hong Kong, the ultimate compensation for the additional risk transfer to the contractor should come from the applied mark up or fee rather than any expectation or possibility of financial reward for net cost savings.
| Item Type: | Conference Paper (Paper) |
|---|---|
| Uncontrolled Keywords: | contract strategy; guaranteed maximum price; incentivization |
| Index terms: | rationality, case study, Hong Kong, mark-up, interview, project documentation, integration, contract strategy, incentivization, compensation, cost saving |
| Subjects: | decision-making and reasoning, economics, Geography, organizational analysis, price determination, data collection methods, risk assessment, dispute resolution, project planning, contractual arrangements |
| Topics: | Legal Issues, Organizational Design, Cost Management, Project Management, Geographical Context, Research Practice, Risk Management, Procurement |
| Descriptive scope: | 4 PCTE |
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