Key risk factors and risk mitigation measures for target cost contracts in construction - a comparison between the West and the East

Abstract

This article is an extension of a research article published in the July 2010 issue of the Construction Law Journal in which the findings of seven face-to-face structured interviews, conducted in Hong Kong, on the perceptions of key risk factors and risk mitigation measures for Guaranteed Maximum Price (GMP) contracts and Target Cost Contracts (TCC) were reported. Further to this previous research undertaken in Hong Kong, five similar in-depth structured interviews were conducted in the United Kingdom. The interviewees perceived the change in scope of work, quality and clarity of tender documents, selection of competent subcontractors and unforeseen ground conditions as key risk factors encountered in GMP/TCC construction projects. They also considered a basket of measures including: the adjudication of bids in risk assessment; total reflection on potential risks in tender documents; use of risk registers; and development of a proper risk management process, as being effective in risk mitigation. The UK findings were compared and contrasted with those from Hong Kong. It was found that the key risk factors associated with GMP/TCC contracts between the two jurisdictions *Const. L.J. 442 are similar by nature in general. However, differences in perceptions on risk mitigation measures are also observed, which may be due to the disparities in the implementation of GMP/TCC methodology between the two regions.