Definition
According to the Construction Industry Review Committee (2001), Target Cost Contract (TCC) and Guaranteed Maximum Price (GMP) which link the financial goals of contractor with the overall project objectives, can be effective means for motivating contractors to achieve better project outcomes.
Target Cost Contract (TCC)
Twort and Rees (2004) defined that TCC is a contract in which the contractor shares a proportion of cost underrun as a reward if the expenditure is less than the target cost, while he has to bear a proportion of cost overrun if he expends more than the target. Wong (2006) considered that a contract in which the contractor is paid the actual cost for the work done during the construction stage. When the final construction
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The contractor receives a prescribed sum, along with a share of any savings to the client under this procurement approach. If the cost of the works exceeds the assured maximum, the contractor bears the excessive costs. Gould and Joyce (2003) stated that under this situation, a ceiling price is established, and the contractor is solely responsible for any additional costs.
Benefits of TCC/ GMP
The perceived benefits of the TCC or GMP are only have the cost control, time control, quality control, but it also have the working relationship with contractors.
Cost
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Therefore, it can reduce the time overlap of the design and the construction, and it will not waste time to wait the design. The client willing to solve any problems with the contractors when compared with the other contracts, therefore, the decision of any changes can be more efficiently. Moreover, the contractor early to participate in the combining design and construction stage, it enhances the buildability and lets the progressive planning to achieve a faster construction. The client and the contractors are pre-agreed the arrangement of the changes, therefore it can reduce the claims and the disputes between
To get a better understanding of the scope of the variable costs, let’s take a look at how a contractor determines the bid for a job. A typical bid for a flooring job is broken down into six phases: Initial Preparatory Work...
On the surface, making sure a project measures up to a range of consistent, prescribed criteria in order to be accepted would appear to be a sound business practice. But in our opinion, we think DC only focused on the financial management. We think they should utilize the strategy map strategy. A strategy map provides a uniform and consistent way to describe that strategy, so that objectives and measures can be established and managed. The strategy map provides the missing link between strategy formulation and strategy execution. (Norton and Kaplan, 2004 *1) Furthermore, DC won't only focus on the financial report; they also manage by human resource and other strategic elements. Also, any of the above financial calculations or assumption could bring the wrong settlement or the expectations will be seriously biased.
Benefit for the customer to remain involved at all stages and for their voice to be heard.
The 'Standard' of the 'Standard'. Combination of project cost forecasts with earned value management. Journal of Construction Engineering & Management, 958-966. Sitnikov, C. (2012). The 'Standard'.
Wal-Mart’s compensation structure consist of three components for their executives’ total direct compensation, or TDC: base salary, annual cash incentive, and long-term equity (consisting of a mix of performance share units and restricted stock/restricted stock units). Wal-Mart’s compensation for their NEO’s breakdown was as follows: 48.5% long-term performance share units, 10.6% base salary, 24.7% annual cash incentive, and 16.2% restricted stock. Target’s compensation structure consist of three components for their executives’ total direct compensation, or TDC: base salary, short-term incentive, and long-term equity (consisting of a mix of performance share unit awards and performance based restricted stock unit awards). Target’s compensation
...o be compensated for any effect the event has on the Prices and the Completion Date or a Key Date’. Eggleston (2005) and Rowlinson (2012) both state that the CE procedure within the NEC3 is profoundly different to the variation and change procedures in traditional contracts, such as the JCT.
When looking at Target’s value chain, it is evident that they apply aspects of both design and corporate responsibility while thinking through every decision they make to ensure it lives up to their values and helps the world. Starting at the top, they look at design. Design is what they call the heart of the business. Looking at every detail from the big picture to the small things that make a Target shopping experience, the goal is to do it with greater efficiency, style and smarts. (Corporate Responsibility Report, 2014).
...nt costs are allocated using different factors. This is because to determine the magnitude and the scope of a certain cost, there must be some factors to be considered. Hence different categories of costs are treated differently and are allocated cost differently. Hence it is clear that cost allocation is a noble requirement for every project.
..., 2013). As these contractors are risk-averse, they will drop out in the first phase leaving only the most efficient contractors to compete against each other. Furthermore the inclusion of a premium, offers less incentive for collusion as contractors are more inclined to deviate from a cartel to receive a higher payoff. Although theoretically feasible in a controlled environment, in real life there are laws and regulations that protect firms against collusive practices. In the case where the client may suspect collusion is a real possibility, AMSA offers the most effective collusion deterrence. However administratively it may be difficult to implement phase 1, where the price sequentially drops as the tender process takes several months with contractors rarely interacting with each other compared to an auction where the bidders are together and bid in one sitting.
Estimates form the basis of tender comparison, so it should be as accurate as possible, if deficient the award settlement becomes arduous (Odusami & Onukwube, 2008). Accurate cost estimate for projects are tremendously essential to both the clients and the contractor. It provides the basis for the contractor to submit the tender and allows the parties to highlight the final cost of the project at an early stage. Essentially it is used for planning the entire project and helps during the execution phase (Akintoye and Fitzgerald, 2000). It has been pointed out that the building cost of the project usually differs from the estimated final cost and this is due to the variations (Oberlender and Trost,
Time-phased project work is the basis for project cost control. Work package duration is used to develop the project network. Further, the time-phased budgets for work packages are timetabled to establish fiscal measures for each phase throughout the project. The time-phased budgets are to emulate the real cash needs of the budget, which will be used for project cost control. This information is useful to estimate cash outflows. The project manager's attention is on when the costs are to occur, when the budgeted cost is earned, and when the actual cost materializes. This information is made up to measure project schedule and cost variances (Gray & Larson, 2005). The following are typical types of costs found in a project:
However, there are some disadvantages in the processes. First, it is very consume time in the pre contract process due to the strategy is sequential and construction cannot be started before the completion of design. Also, the contractor is not appointed in the design stage, so the contractor and supply chain are no input into the design or planning of the project. Mo...
Scott Jardine, 2007, “Managing risk in construction projects – how to achieve a successful outcome – an article”, PricewaterhouseCoopers.
This paper examines the legal aspects of procurement management and specifically how procurement management can be used as an effective tool for the overall management of a project. This paper focuses on the basics of common contract laws, the basics of agency law, the Uniform Commercial Code (UCC), and some aspects of that pertaining to the Federal Acquisition Regulations (FAR). A summation of the company’s position in relation to a given supplier (provided the company decides not to procure all of the material in a contract) will be examined along with how that position is strengthened by understanding the legal aspects of procurement management. Finally, the paper will analyze how the project manager is supported by the contract management function. Fleming (2003) posited that there is a clear and important distinction that should be made that delineates the work of the project from the inside work of the company.
Specifications are usually used by many parties such as contractor, consultant and etc. The installation method of all the sections for the construction such as foundation, windows, door etc. are all clearly described in the specification. Specification is often abbreviated as spec; it may refer to a detailed set of requirements to be fulfilled by material, design, product, or service. If so a material, product, or services fail to meet one or more of the required specifications, it may be referred to as being out of specification. A specification is a type of technical standard. Specifications are also used for controlling the quality of the overall project. Budget is also one of the main key parts in a project that can be managed and controlled with the use of specification. Contractors who can’t meet the requirements for the specs need to consult with the architect before bidding. If the contractor ...