Evaluating guaranteed maximum price and target cost contracting strategies in Hong Kong construction industry

Abstract

SUMMARY• Guaranteed maximum price (GMP) and target cost contracting (TCC) with a painshare/gain-share arrangement have been adopted to integrate the construction delivery process and motivate service providers to seek continuous improvements in project outcomes. However, there is still a lack of research evidence to evaluate the levels of success and lessons learned from these innovative procurement strategies.• Based on the analysis of a series of in-depth interviews on the perceptions of various relevant experienced industrial practitioners, this paper aims to explore the key attributes of GMP/TCC including the underlying motives, perceived benefits, potential difficulties, critical success factors, key risk factors involved and optimal project conditions for adopting GMP/TCC.• The research findings are useful in assisting key project stakeholders in minimising the detriments brought about by potential difficulties in and maximising the benefits derived from implementing GMP/TCC concepts. The study is also significant in contributing to new knowledge and practical information of GMP/TCC applications and implementation, in both a national and international context.

Risk ranking and analysis in target cost contracts: Empirical evidence from the construction industry

“…The pilot questionnaire was developed based on the risk factors documented in previous research studies by Bernhard (1988), Ahmed et al (1998), Al-Subhi Al-Harbi Kamal (1998), Ahmed et al (1999), Broome and Perry (2002), Haley and Shaw (2002), Rahman and Kumaraswamy (2002), Cheng (2004), Fan and Greenwood (2004), Oztas and Okmen (2004), Sadler (2004), Environment, Transport and Works Bureau (2005), Li et al (2005), Tang (2005), Hong Kong Housing Authority (2006), Shen et al (2006), Ng and Loosemore (2007), Chan et al (2007a), Chan et al (2007b), Yew (2008), together with seven structured interviews with experienced industrial practitioners with abundant hands-on practical experience in those TCC/GMP procurement approaches undertaken by the authors (Chan et al, 2010b). The interviewees suggested that nature of variations, change in scope of work, quality and clarity of tender documents, unforeseen ground conditions, fluctuation of materials price, and approval from regulatory bodies for alternative cost saving designs were the key risk factors associated with TCC/GMP contracts in Hong Kong.…”

An empirical survey of the motives and benefits of adopting guaranteed maximum price and target cost contracts in construction

“…The net cost adjustment of such GMP/TCC variations will be added to (for 'addition' work) or subtracted from (for 'omission' work) the contract GMP or target cost. Chan et al (2007a) further summarised the key characteristics in relation to the GMP/TCC procurement strategy as follows:…”

Preferred risk allocation in target cost contracts in construction

“…Chan et al (2007b) opined that inexperienced clients and contractors may jeopardise the TCC/GMP process. This risk appears to be inevitable in Hong Kong, since the number of TCC/GMP projects completed is rather scarce in the local construction market.…”