This paper is about restoring confidence in shared risk and reward. In such projects, characterized by multiparty contracts, clients bear the risk of costs exceeding budgets and the project’s design professionals and constructors risk doing the work for no profits. A small chance of either occurring might dissuade the parties from embracing shared risk and reward contracts. In a recent study by the authors, of four shared risk and reward projects, one exceeded budget. The client paid 6.4% more than expected and the risk pool members made no profit. Adding other shared risk and reward projects on which the authors companies have worked, the failure rate was 15%. Compared to traditional practice, clients may have received value for money even on these failed projects and so want to continue shared risk and reward, but may be unable to attract more experienced companies in the face of this probability of profit failure. The objective of this paper is to identify the factors that contributed to the failures and to propose counter measures to prevent reoccurrence. Failure to follow target value design principles is found to be a primary contributor to cost overruns on shared risk and reward projects.
Countermeasures, integrated project delivery, shared risk and reward, sustainability, target value design
Ballard, G. , Dilsworth, B. , Do, D. , Low, W. , Mobley, J. , Phillips, P. , Reed, D. , Sargent, Z. , Tillmann, P. & Wood, N. 2015, 'How to Make Shared Risk and Reward Sustainable' In:, Seppänen, O., González, V. A. & Arroyo, P., 23rd Annual Conference of the International Group for Lean Construction. Perth, Australia, 29-31 Jul 2015. pp 257-266