Identification of significant risk factors of guaranteed maximum price (GMP) contracts

Abstract

The construction industry is a risk-prone industry where projects are implemented in a dynamic environment with frequent exposure to various uncertainties. A construction contract is a document that allocates the risks associated with a construction project among the project stakeholders. Guaranteed Maximum Price (GMP) contracts have become popular as a project delivery method because they provide the client with a high degree of cost certainty through a fixed price cap that the contractor cannot exceed. However, most of the GMP projects are risky. Thus, the significant risk factors of GMP projects have to be identified to ensure their successful completion. This study, therefore, aimed to identify and rank the most significant risk factors present in GMP contracts. The study adopted a quantitative approach, which included a Delphi survey conducted in two rounds and a statistical analysis of the survey data. The most significant risk factors associated with GMP contracts were ranked according to their impact on the projects and their probability of occurrence (severity). Poorly defined scope of work and design changes were found to be the most significant risk factors associated with GMP contracts. The other significant risk factors of the projects are related to the scope of work, design, documentation, unfamiliarity with the GMP concept, agreed GMP value, and financial failures of the client and contractor.