Developing a fuzzy risk assessment model for guaranteed maximum price and target cost contracts in construction

Abstract

Purpose – The purpose of this paper is to develop a fuzzy risk assessment model for construction projects procured with target cost contracts (TCC) and guaranteed maximum price (GMP) contracts using factor analysis (FA) and fuzzy synthetic evaluation method, based on an empirical questionnaire survey with relevant industrial practitioners in Hong Kong. Design/methodology/approach – A total of 34 key risk factors (RFs) inherent with TCC/GMP contracts were identified through an extensive literature review and a series of structured interviews. A questionnaire survey was then launched to solicit the opinions of industrial practitioners on risk assessment of such RFs. Findings – The most important 17 principal RFs after the calculation of normalised values were selected for undertaking FA. Five principal risk groups (PRGs) were then generated in descending order of importance as: design risks, pre-contract risks, economic and financial risks, lack of experience in TCC/GMP procurement process and post-contract risks. These survey findings also reveal that design risks may be the major hurdle to the success of TCC/GMP projects in Hong Kong. Originality/value – An overall risk index (ORI) associated with TCC/GMP construction projects and the risk indices of individual PRGs can be generated from the model for reference. An objective and reliable assessment can be achieved. The model provides a solid platform to measure, evaluate and reduce the risk levels of TCC/GMP projects based on objective evidence instead of subjective judgments. The research methodology could be replicated in other countries or regions to produce similar models for international comparisons and the assessment of risk levels for different types of TCC/GMP projects worldwide.