Risk sharing and incentive contracts

Incentive contracts, often referred to as target cost or cost-plus-incentive-fee contracts, offer the possibility of sharing risk between the client and contractor and take an intermediary position between fixed price and CPFF contracts. This is potentially a more risk efficient alternative for both client and contractor. In the simplest form of incentive contract, where C the actual project cost (which is uncertain at the start of the project) E target cost b the sharing rate, 0 < b < 1 F...

Harnessing creativity and experience

The use of formal procedures to systematically capture personal experience can be very effective in identifying issues and possible responses. However, it is important that the experiences of a wide range of personnel are sought, particularly early on in the identify phase, to ensure a comprehensive set of issues are identified. Individual project managers may not have sufficient breadth of experience to provide this comprehensive view. Pooling of experience needs to include not only project...

Fixed price contracts

Common practice is for clients to aim to transfer all risk to contractors via fixed price contracts. Typically, a contract is awarded to the lowest fixed price bid in a competitive tender, on the assumption that all other things are equal, including the expertise of the tendering organizations. Competitive tendering is perceived as an efficient way of obtaining value for money, whether or not the client is relatively ignorant of the underlying project costs compared with potential contractors....