A research framework for exploring risk allocation mechanisms for target cost contracts in construction

To achieve better value for money in construction procurement, a wider application of more innovative integrated procurement approaches is often recommended by policy-makers, such as Guaranteed Maximum Price (GMP) and Target Cost Contracting (TCC) contractual arrangements. The merits of these procurement strategies lie in their incentives for the contractor to become efficient and to achieve cost savings, as well as to allocate risks on an agreed basis between the employer and the contractor. The GMP arrangement, based on a target cost concept, has become increasingly popular in Hong Kong over recent years. Overseas experience derived from both the United Kingdom and Australia have shown that these procurement strategies can accrue many perceived benefits to both employers and contractors, provided that the risk factors are adequately identified, analyzed, shared and managed. A study is in progress on the Key Risk Factors and Risk Sharing Mechanisms for GMP/TCC procurement methods in Hong Kong, the United Kingdom and Australia. The research findings of this study are expected to help the decision-makers to generate clearer insights into equitable risk allocation amongst different contracting parties, especially between the employers and contractors at an early stage of project delivery and to mitigate the potential risks associated with GMP/TCC schemes.