chapter  9
10 Pages

Risk mitigation in target cost contracts

The conventional adversarial relationships between clients and builders are often attributable to their individual interests and the nature of their businesses rather than the whole project itself (Chan et  al., 2012). Although there have been many projects that have adopted TCC and GMP (Trench, 1991; Walker et  al., 2000), discrepancies in management systems, unfamiliarity with the procurement arrangements of major project parties and individual cultural background made TCC and GMP contracts problematic. For instance, Bogus et al. (2010) found that GMP arrangements were less likely to have cost and time growth when compared with lump-sum contracts in the United States. Nevertheless, Roja and Kell (2008) investigated GMP projects in the north-western United States and found that 75% of public school projects and 80% of non-school projects exceeded the contract GMP value. This result showed that GMP was not actually ‘guaranteed’. Therefore, this chapter aims to identify methods to mitigate the risks potentially affecting overall performance of TCC and GMP projects.