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Title: Empirical study of the risks and difficulties in implementing guaranteed maximum price and target cost contracts in construction
Authors: Chan, DWM 
Chan, APC 
Lam, TIP 
Wong, JMW
Keywords: Guaranteed maximum price
Target cost contracting
Hong Kong
Issue Date: May-2010
Publisher: American Society of Civil Engineers (ASCE)
Source: Journal of construction engineering and management, May 2010, v. 136, no. 5, p. 495-507 How to cite?
Journal: Journal of construction engineering and management 
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.
ISSN: 0733-9364
DOI: 10.1061/(ASCE)CO.1943-7862.0000153
Rights: Journal of Construction Engineering and Management © 2010 ASCE. The published version in ASCE's Engineering Database at:
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