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Risk under performance-based contracting in the UK construction sector

Author

Listed:
  • Stephen Gruneberg
  • Will Hughes
  • Debbie Ancell

Abstract

As a method of procuring the services of the built environment, performance-based contracting (PBC) seeks to link the building supplier to longer term commitments than has traditionally been the case in the construction sector. By rewarding the building producer according to the way that building or structure delivers the users' requirements, rather than according to a list of assembled parts, a number of additional risks are taken by contractors, including fitness for purpose, costs and briefing. The extent to which contractors recognize these risks and their methods of dealing with them vary considerably and are influenced by their attitudes towards risk. As the risks associated with PBC are seen as large, uninsurable, and vulnerable to changing client requirements, the majority of respondents would reject the use of PBC as a method of contracting. Nevertheless, PBC may be used under particular conditions, where rewards are deemed sufficient to compensate for the additional risk to the contractor of undertaking work on the basis of a stream of payments paid over the life of a structure depending on the satisfactory performance of the building or as part of a private finance initiative.

Suggested Citation

  • Stephen Gruneberg & Will Hughes & Debbie Ancell, 2007. "Risk under performance-based contracting in the UK construction sector," Construction Management and Economics, Taylor & Francis Journals, vol. 25(7), pages 691-699.
    • Handle: RePEc:taf:conmgt:v:25:y:2007:i:7:p:691-699
    DOI: 10.1080/01446190601164097
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    Citations

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    Cited by:

    1. Pliego Marugán, Alberto & García Márquez, Fausto Pedro & Pinar Pérez, Jesús María, 2022. "A techno-economic model for avoiding conflicts of interest between owners of offshore wind farms and maintenance suppliers," Renewable and Sustainable Energy Reviews, Elsevier, vol. 168(C).
    2. Stefan Olander, 2014. "Performance-Based Contracts for Road Projects," Construction Management and Economics, Taylor & Francis Journals, vol. 32(5), pages 487-488, May.
    3. Nadezda Gulko & Catriona Hyde & Nina Seppala, 2017. "Disclosure of corporate risks and governance before, during and after the global financial crisis: case study in the UK construction industry in 2006–2009," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(3), pages 207-223, August.
    4. Arshad Ali Javed & Patrick T.I. Lam & Albert P.C. Chan, 2014. "Change negotiation in public-private partnership projects through output specifications: an experimental approach based on game theory," Construction Management and Economics, Taylor & Francis Journals, vol. 32(4), pages 323-348, April.
    5. Shobha Ramalingam, 2020. "Subcontractor Selection Process Through Vendor Bids: A Case of An Outsourcing Service in Construction," IIM Kozhikode Society & Management Review, , vol. 9(2), pages 129-142, July.

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