Payment options in collaborative procurement of major construction projects

Abstract

There are many options available for procurement of construction work. The main differences between the options include the payment mechanisms and risk allocation between the project participants. Payment options include fixed-price contracts, cost-reimbursable contracts and target-cost contracts. Use of collaborative procurement based on target-cost contracts is increasing in construction worldwide. Other innovative arrangements for procurement include early contractor involvement design and build. The key features and risk allocation inherent in different procurement methods are discussed. The characteristics of early contractor involvement contracts are assessed including evaluation of the payment mechanisms in a major rail project. It is concluded that experience of early contractor involvement design and build contracts is still limited. As a consequence, further theoretical research and empirical data analysis are required to collate information which will guide industry in designing effective incentives in collaborative procurement for infrastructure projects.