Online from: 1994
Subject Area: Built Environment
|Title:||The selection of sharing ratios in target cost contracts|
|Author(s):||Ulrika Badenfelt, (Department of Technology Management and Economics, Chalmers University of Technology, Göteborg, Sweden)|
|Citation:||Ulrika Badenfelt, (2008) "The selection of sharing ratios in target cost contracts", Engineering, Construction and Architectural Management, Vol. 15 Iss: 1, pp.54 - 65|
|Keywords:||Construction industry, Contracts, Risk management, Sweden, Target costs|
|Article type:||Case study|
|DOI:||10.1108/09699980810842061 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – 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.
Design/methodology/approach – 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.
Findings – 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.
Originality/value – This study identifies factors that previous research has ignored in relation to the negotiation of target cost contracts.
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