Preferred risk allocation in target cost contracts in construction

Abstract

Purpose – The purpose of this paper is to identify the party most preferred to take the risks associated with the target cost contracts and guaranteed maximum price contracts (TCC/GMP) in the Hong Kong context. Design/methodology/approach – An empirical questionnaire survey was conducted with the relevant industrial practitioners to solicit their preferences of risk allocation in TCC/GMP construction projects in Hong Kong. Findings – The survey findings indicated that risks on tender documentation and project design are better borne by clients, while construction related risks are perceived to be taken by contractors. The research findings are consistent with other similar studies on risk allocation in construction projects in general. Practical implications – This paper has developed a preferred risk allocation scheme for the delivery of future TCC/GMP projects, taking Hong Kong as an example. It can serve as a useful guide for decision makers to determine an optimal risk allocation at the planning stage of a TCC/GMP scheme. Originality/value – The paper can benefit both academic researchers and industrial practitioners in generating an equitable risk sharing mechanism for TCC/GMP projects. It provides sufficient empirical evidence, added to the growing body of knowledge and lays a solid foundation for further research such as an international comparison of various risk allocation schemes associated with this kind of contractual arrangement.