Empirical Study of the Risks and Difficulties in Implementing Guaranteed Maximum Price and Target Cost Contracts in Construction
Publication: Journal of Construction Engineering and Management
Volume 136, Issue 5
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.
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Acknowledgments
The writers wish to express their heartfelt gratitude to all the individuals who have kindly participated in the empirical questionnaire survey undertaken between May and June of 2007 in Hong Kong and for offering their valuable opinions and necessary project information to make this study possible. Financial support from the Department of Building and Real Estate of The Hong Kong Polytechnic University to this research initiative (HK PolyU BRE Departmental General Research Grants Allocation 2006/07 with Project Account Code No. UNSPECIFIEDBRE-G-U252) is also gratefully acknowledged. The work described in this paper was further supported by another grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (RGC Project No. UNSPECIFIEDPolyU 5107/07E). This paper forms part of a RGC funded research project entitled “Evaluating the Key Risk Factors and Risk Sharing Mechanisms for Target Cost Contracting (TCC) Schemes in Construction” with several objectives sharing a common background of study and research methodology. Contributions from Dr. James Wong to the initial draft of this paper are greatly appreciated while he was still employed in The Hong Kong Polytechnic University. Additionally, the helpful comments and valuable suggestions from both the editor and the three anonymous reviewers are respectfully acknowledged in that they helped to improve the overall quality of this paper.
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Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 136 • Issue 5 • May 2010
Pages: 495 - 507
Copyright
© 2010 ASCE.
History
Received: Jun 27, 2008
Accepted: Sep 14, 2009
Published online: Apr 15, 2010
Published in print: May 2010
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