Developing a fuzzy risk assessment model for target cost and guaranteed maximum price contracts in the construction industry of Hong Kong

Target Cost Contracts (TCC) and Guaranteed Maximum Price (GMP) schemes have been practised worldwide over the past few decades to achieve better value for money and more favourable project outcomes. However, a comprehensive review of previous works on TCC/GMP in Europe, the United States, Australia and Asia has indicated that there is a limited amount of empirical research focusing on the TCC/GMP procurement approach, particularly on risk issues in the Hong Kong context. This research aims to identify, assess and allocate the key risk factors associated with TCC/GMP schemes, and to evaluate the effectiveness of various risk mitigation measures. Based on a comprehensive literature review and a series of structured face-to-face interviews, an empirical questionnaire survey was then undertaken to solicit the opinions of relevant practitioners on risk identification and assessment, their preference for the allocation of 34 risk factors and the effectiveness of 18 recommended risk mitigation measures. The key risk factors of TCC/GMP were identified, whilst the preference of risk allocation and the effective risk mitigation of projects procured in these procurement strategies were also explored in the questionnaire survey. A Fuzzy Risk Assessment Model for TCC/GMP construction projects has also been developed using factor analysis and fuzzy synthetic evaluation method, based on the results of the questionnaire survey. The most important 17 Principal Risk Factors after the calculation of normalised values were selected. Five Principal Risk Groups (PRGs) were then generated by factor analysis. It is found that "design documentation risks" is the major hurdle to the success of TCC/GMP projects in Hong Kong. The model was then validated by seven experts of TCC/GMP in Hong Kong and was confirmed as being reliable and adequate for use. More importantly, an Overall Risk Index associated with TCC/GMP construction projects and the risk indices of individual PRGs can be generated from the model for reference by stakeholders. An objective and reliable 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 judgments.