Risk sharing and effective incentives in collaborative procurement

There are a number of options available for procurement of construction work. The main differences between the options include the payment mechanisms and risk allocation between the project participants. Payment options include fixed price contracts, cost-reimbursable contracts and target cost contracts. Use of collaborative procurement based on target cost contracts is on the increase in UK construction. Other innovative arrangements for procurement include Early Contractor Involvement (ECI) design and build. The key features and risk allocation inherent in different procurement methods are discussed. The characteristics of ECI contracts are assessed including an evaluation of the payment mechanisms in a major rail project. It is concluded that experience of ECI design and build contracts is still limited. As a consequence, further theoretical research and empirical data analysis are required to collate information which will guide industry in designing effective incentives in collaborative procurement.