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This paper aims to explore the implementation framework, project performance, underlying motives, perceived benefits, potential difficulties, as well as critical success factors, of adopting the target cost contracting (TCC) form of procurement, based on an in‐depth real‐life case study of a challenging underground railway station modification project in Hong Kong.

The case project was analysed by means of the related project documentation and face‐to‐face interviews with the relevant senior representatives from the client organisation.

The target cost‐based procurement strategy generates a plethora of benefits throughout the whole delivery process of the project case, including the provision of cost incentives for the contractor to work efficiently, aligning individual goals of various contracting parties with the overall project objectives, achieving better value for money and more satisfactory overall project performance in terms of time, cost and dispute occurrence.

Although the selected TCC case study project is based in Hong Kong, the research findings and hands‐on experience of the relevant industrial practitioners may be cross‐referenced to other similar TCC projects in other parts of the world for international comparisons.

The paper provides some useful insights into assisting key project stakeholders in maximising the benefits, whilst minimising the detriments brought about by potential difficulties in launching the TCC scheme. It seeks more research evidence to evaluate the entire project delivery process, and capture the levels of success and lessons learned from previous TCC construction projects for generating best practice recommendations to achieve better construction performance.

The purpose of this paper is to present a case study on the use of performance-based contracting in the outsourcing of a reliability-centered maintenance program of a Gulf oil refinery.

A case study method is used whereby data are collected through semi-structured interviews, informal discussions with executives from the participant companies, in addition to official documents and secondary materials.

The case analysis reveals the use of a risk–reward payment scheme and key performance indicators (KPIs) deployed to support the management of the outsourced maintenance function. The financial incentive scheme was clearly designed to motivate the outsourcing contractor to achieve more financial benefits when meeting a defined set of KPIs while also delivering operating cost savings and other qualitative benefits to the outsourcing company. Managing the outsourced function also involved the use of routine budgetary control systems, in addition to other informal control mechanisms such as trust, knowledge sharing, mutual understanding and co-operation between the two collaborative partners.

The evidence presented in the case description and analysis may assist in increasing the understanding of how outsourcing relationships in maintenance business are managed and evaluated. The case findings may also provide the opportunity for further research investigating the use of performance measurement systems and incentive-based schemes in a variety of maintenance contracts.

The case study presents new empirical evidence on the use of performance risk–reward payment schemes in the management of an outsourcing relationship. Findings reported in the study will add to the existing literature on maintenance performance measurement and management practices in outsourcing relationships.

The purpose of this paper is to provide a broader understanding of target cost arrangements by empirical study of the choice of sharing ratios from the perspective of both clients and contractors.

Eight Swedish construction clients and eight contractors were interviewed. These interviews were followed by a case study of a large construction project with a target cost contract. The data for the case study were gathered through interviews, contract documents and non‐participant observation. The impact of perceived risks on the selection process is discussed in terms of agency theory.

Key factors influencing the selection of a sharing ratio included perceptions of fairness, knowledge of target cost contracts, and long‐term relationships. The perceived level of risk is affected by the perceived performance risk and the perceived relational risk. Consequently, attention should be paid to the impact of long‐term relationships on the design and outcome of target cost contracts since such relationships reduce the risks associated with asymmetric information, such as relational risk.

This study identifies factors that previous research has ignored in relation to the negotiation of target cost contracts.

Guaranteed maximum price (GMP) and target cost contracting (TCC) with a pain‐share/gain‐share arrangement have been adopted to integrate the construction delivery process and motivate service providers to seek continuous improvements in project outcomes. However, there is still a lack of research evidence to evaluate the levels of success and lessons learned from these innovative procurement strategies. Based on the analysis of a series of in‐depth interviews on the perceptions of various relevant experienced industrial practitioners, this paper aims to explore the key attributes of GMP/TCC including the underlying motives, perceived benefits, potential difficulties, critical success factors, key risk factors involved and optimal project conditions for adopting GMP/TCC. The research findings are useful in assisting key project stakeholders in minimising the detriments brought about by potential difficulties in and maximising the benefits derived from implementing GMP/TCC concepts. The study is also significant in contributing to new knowledge and practical information of GMP/TCC applications and implementation, in both a national and international context.

The 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.

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.

Experienced practitioners shared the unanimous perception that: reasonable share of cost saving and fair risk allocation; partnering spirit from all contracting parties; right selection of project team; well‐defined scope of work in client's project brief and early involvement of contractor in design development, are the most essential ingredients for the successful implementation of GMP/TCC scheme.

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.

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 win‐win 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.

In prior work, GAO found that contractors were paid billions of dollars in award fees regardless of acquisition outcomes. In December 2007, the Office of Management and Budget (OMB) issued guidance aimed at improving the use of award fee contracts. GAO was asked to (1) identify agencies’ actions to revise or develop award fee policies and guidance to reflect OMB guidance, (2) assess the consistency of current practices with the new guidance, and (3) determine the extent agencies are collecting, analyzing, and sharing information on award fees. GAO reviewed the Departments of defense (DOD), Energy (DOE), Health and Human Services (HHS), and Homeland Security (DHS) and the National Aeronautics and Space Administration (NASA)-agencies that constituted over 95 percent of the dollars spent on award fee contracts in fiscal year 2008.

There is a lack of empirical research on risk mitigation strategies for those construction projects procured by guaranteed maximum price contracts (GMP) and target cost contracts (TCC). The paper aims to identify and analyse the risk mitigation strategies for GMP/TCC construction projects from the Hong Kong perspective.

A total of 94 industrial practitioners with both sound knowledge and abundant hands‐on experience of the GMP/TCC methodology participated in an industry‐wide empirical questionnaire survey to indicate their levels of agreement on those 18 risk mitigation strategies identified from reported literature and in‐depth interviews which were later analysed by factor analysis.

The results of factor analysis revealed that the 18 individual risk mitigation strategies can be consolidated into seven underlying grouped factors: relational contracting and mutual trust; clear contract provisions and well‐defined scope of works; involvement of contractor in decision making process; right selection of project team; third party review of project design at tender stage; standard contract clauses for GMP/TCC schemes; and fair treatment of contractor.

Although both GMP/TCC contracts have been increasingly popular in the construction market of Hong Kong, not all of these projects have been equally successful and some of them have been exposed to very high risks or uneven allocation of risks. A detailed analysis and an implementation of recommended effective risk mitigation strategies are essential to the success of GMP/TCC schemes.

The research findings of this study are expected to help the decision makers to generate useful insights into risk mitigation strategies when administering GMP/TCC contracts at an early stage of project delivery and lay a solid foundation for further research on GMP/TCC in both local and international contexts.

Target cost contracts are growing in popularity but concerns remain about the interplay between fee, target, sharing ratios and the final price. This paper offers a fundamental analysis of the principles under‐pinning target contracts. It shows that there is scope for manipulation of tenders and that suboptimal methods of tender evaluation are in use. The paper analyses both fixed fee and percentage fee contracts. Methods of tender evaluation are proposed that will both reduce the scope for manipulation by tenderers and increase the likelihood of the contract being awarded to the tenderer whose final price will be the lowest. The analysis reveals a strong case for setting the contractor's share of cost overrun or underrun at a value that is not less than 50%. Finally, the paper proposes two simplifications that would reduce the number of variables in target cost contracts of the future. One is for the employer to set the fee and the other requires only that a target be tendered but with the fee built into it.

Target cost contracts are commonly used to share the monetary outcome of work or a project. However, discussion is ongoing, as to what constitutes optimal sharing. The purpose of this paper is to examine optimal sharing and derives a result for defined risk assumptions on the owner (risk neutral) and contractor (risk-averse ranging to risk neutral).

The derivation is based on solving a constrained maximization problem using ideas from principal-agent theory. Practitioners were engaged in a designed exercise in order to validate the approach and propositions. The influence of the contractor's level of risk aversion, the cost uncertainty and the contractor's effort effectiveness are examined.

The paper shows that, at the optimum, the sharing ratio between contractor and owner needs to reduce and the fixed fee needs to increase when the contractor becomes more risk-averse, the level of the cost uncertainty increases, or the effectiveness of the contractor effort decreases.

The paper's findings provide practitioners with a useful benchmark for outcome sharing in target contracts.

Existing work on outcome sharing in target contracts is limited to being qualitative and anecdotal in nature. This paper extends existing knowledge by providing a quantitative treatment of optimal sharing.

This paper aims to develop a fuzzy risk assessment model for construction projects procured with target cost contracts and guaranteed maximum price contracts (TCC/GMP) using the fuzzy synthetic evaluation method, based on an empirical questionnaire survey with relevant industrial practitioners in South Australia.

A total of 34 major risk factors inherent with TCC/GMP contracts were identified through an extensive literature review and a series of structured interviews. A questionnaire survey was then launched to solicit the opinions of industrial practitioners on risk assessment of such risk factors.

The most important 14 key risk factors after the computation of normalised values were selected for undertaking fuzzy evaluation analysis. Five key risk groups (KRGs) were then generated in descending order of importance as: physical risks, lack of experience of contracting parties throughout TCC/GMP procurement process, design risks, contractual risks and delayed payment on contracts. These survey findings also revealed that physical risks may be the major hurdle to the success of TCC/GMP projects in South Australia.

Although the fuzzy risk assessment model was developed for those new-build construction projects procured by TCC/GMP contracts in this paper, the same research methodology may be applied to other contracts within the wide spectrum of facilities management or building maintenance services under the target cost-based model. Therefore, the contribution from this paper could be extended to the discipline of facilities management as well.

An overall risk index associated with TCC/GMP construction projects and the risk indices of individual KRGs can be generated from the model for reference. An objective and a holistic assessment can be achieved. The model has provided a solid platform to measure, evaluate and reduce the risk levels of TCC/GMP projects based on objective evidence instead of subjective judgements. The research methodology could be replicated in other countries or regions to produce similar models for international comparisons, and the assessment of risk levels for different types of TCC/GMP projects (including new-build or maintenance) worldwide.