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Anvuur, A M and Kumaraswamy, M K (2010) Promises, pitfalls and shortfalls of the guaranteed maximum price approach: a comparative case study. In: Egbu, C (Ed.), Proceedings 26th Annual ARCOM Conference, 6-8 September 2010, Leeds, UK. Association of Researchers in Construction Management, Vol. 2, 1079–88.
- Type: Conference Proceedings
- Keywords: contract strategy; guaranteed maximum price; incentivization
- ISBN/ISSN: 978-0-9552390-4-5
- URL: http://www.arcom.ac.uk/-docs/proceedings/ar2010-1079-1088_Anvuur_and_Kumaraswamy.pdf
The relative merits of the guaranteed maximum price (GMP) mechanism as a contractual incentive in construction have been much contested. This question was investigated using a comparative case study of two building projects in Hong Kong. Data was collected through semi-structured interviews, review of project documentation and communications, and passive observation of project meetings. The findings suggest that the GMP mechanism has low incentive intensity from an instrumental rationality perspective and high incentive intensity from a value-expressive perspective. Further analysis of the findings leads to two main conclusions about the potential value of the GMP mechanism to a client: (a) it can provide some flexibility in responding to short-term market changes and other idiosyncratic factors and (b) it can be a useful instrument for project work group integration. Based on current approaches to GMP projects in Hong Kong, the ultimate compensation for the additional risk transfer to the contractor should come from the applied mark up or fee rather than any expectation or possibility of financial reward for net cost savings.