Experiences of the use of the New Engineering Contract

Journal of Facilities Management

et al. 2010

Purpose-This paper aims to present a succinct review of guaranteed maximum price (GMP) and target cost contracting (TCC) concepts and features in general, and to identify the critical success factors for procuring GMP/TCC contracts from the Hong Kong perspective in particular. Design/methodology/approach-By means of an empirical questionnaire survey geared towards industrial practitioners with direct hands-on GMP/TCC experience, the opinions of various contracting parties including clients, consultants and contractors were solicited, analysed and compared in relation to GMP/TCC success factors. Findings-Experienced practitioners shared the unanimous perception that: (1) reasonable share of cost saving and fair risk allocation; (2) partnering spirit from all contracting parties; (3) right selection of project team; (4) well-defined scope of work in client's project brief; and (5) early involvement of contractor in design development, are the most essential ingredients for the successful implementation of GMP/TCC scheme. Research limitations/implications-Although the research study is based in Hong Kong with a limited sample size, the survey findings and hands-on experience of the relevant industrial practitioners may be cross-referenced to other similar investigations in other parts of the world for international comparisons. Originality/value-The research study has provided some useful insights into assisting key project stakeholders in determining important successful ingredients when launching GMP/TCC scheme. Such an identification of critical success factors would be valuable in formulating effective practical strategies to improve overall project performance, create winwin opportunities for contracting parties and mitigate the occurrence of construction disputes/claims. It also attempts to seek more research evidence to capture the levels of success and lessons learned from previous GMP/TCC construction projects for generating best practice recommendations for future implementation.

Section: Target Cost Contractsmentioning

confidence: 99%

Identifying the critical success factors for target cost contracts in the construction industry

Journal of Facilities Management

et al. 2010

An empirical survey of the motives and benefits of adopting guaranteed maximum price and target cost contracts in construction

International Journal of Project Management

et al. 2011

In light of increasing project complexity, constraints on programme schedule and limited budget, there exists a strong call for changes in contracting procedures in construction. Both the Guaranteed Maximum Price (GMP) and Target Cost Contracting (TCC) approaches with a gain-share/pain-share arrangement have been advocated to achieve better value for money and more satisfactory project performance. This paper aims to review the prevailing practices of GMP/TCC in general, and explore the motives and benefits of implementing the GMP/TCC scheme in comparison with the traditional fixed-price lump-sum contract in particular. The research study is based on a comprehensive literature review and an industrywide empirical questionnaire survey for evaluating the relative importance of motives and benefits associated with GMP/TCC in Hong Kong. The survey data collected from 45 valid completed questionnaires were analysed using the mean score ranking technique, Kendall's concordance test, Spearman's rank correlation test and one-way ANOVA test. The perceived benefits were measured and ranked from the perspectives of the client, contractor and consultant for cross-comparison. The survey findings indicated that the three most common motives of clients behind their decision of adopting GMP/TCC include: (1) To generate an incentive for contractor to achieve cost saving; (2) To develop better working relationship within the project team; and (3) To tap in contractor's expertise in design and innovation. The top three perceived benefits of applying GMP/TCC were found to be: (1) Early settlement of final project account; (2) Improved partners' working relationship under a partnering arrangement; and (3) Capability of integrating contractor's expertise in building designs and innovations prior to construction. The research results are particularly essential in assisting key project stakeholders to realise the potential benefits derived from the use of GMP/TCC contracts and in generating more useful insights into alternative integrated contracting strategies for the construction industry, so as to drive for excellence in overall project performance. This is the Pre-Published Version.

Empirical Study of the Risks and Difficulties in Implementing Guaranteed Maximum Price and Target Cost Contracts in Construction

J. Constr. Eng. Manage.

et al. 2010

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 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 claimconscious contractors in a project procured by a GMP/TCC contract' was considered to be the most significant risk factor; whilst '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.