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\nof the Construction Law Journal in which the findings of seven face-to-face\nstructured interviews, conducted in Hong Kong, on the perceptions of key risk\nfactors and risk mitigation measures for Guaranteed Maximum Price (GMP)\ncontracts and Target Cost Contracts (TCC) were reported. Further to this previous\nresearch undertaken in Hong Kong, five similar in-depth structured interviews\nwere conducted in the United Kingdom. The interviewees perceived the change in\nscope of work, quality and clarity of tender documents, selection of competent\nsubcontractors and unforeseen ground conditions as key risk factors encountered\nin GMP/TCC construction projects. They also considered a basket of measures\nincluding: the adjudication of bids in risk assessment; total reflection on potential\nrisks in tender documents; use of risk registers; and development of a proper risk\nmanagement process, as being effective in risk mitigation. The UK findings were\ncompared and contrasted with those from Hong Kong. It was found that the key\nrisk factors associated with GMP/TCC contracts between the two jurisdictions are similar by nature in general. However, differences in perceptions on risk\nmitigation measures are also observed, which may be due to the disparities in the\nimplementation of GMP/TCC methodology between the two regions.