With construction markets experiencing sharp inflation and growing uncertainty, contract models are under fresh scrutiny.
At the recent Engineering Advancement Association of Japan (ENAA) business seminar, our consultants Shingo Ohno and Ken Hikasa delivered a well-received presentation entitled 'The Limits of Lump Sum Contracts – Alternatives in an Era of Uncertainty' attracting more than 400 attendees from across Japan’s engineering and infrastructure sectors.
The session addressed the growing limitations of traditional lump sum contracts, particularly in situations where design development is incomplete or where cost volatility is high. Key risks highlighted included increased project cancellations, contractor withdrawal, and disputes due to unfair risk distribution.
The presentation covered:
- How procurement models such as design-bid-build, design-build, EPCM and early contractor Involvement (ECI), can be combined with flexible contract structures to optimise delivery and reduce risk.
- The pros and cons of alternative contract types:
- Remeasurement contracts (suited for incomplete design),
- Cost-plus-fee contracts (enabling early mobilisation with transparency),
- Target price/GMP contracts (incentivising collaboration and shared savings).
Shingo and Ken looked closely at several specific case studies to further illustrate their points. They included:
- The London 2012 Olympics, which was delivered under target price agreements.
- Hong Kong stormwater storage project which was a mix of target price and remeasurement.
- Post-earthquake reconstruction in Japan, using cost-plus-fee models for a rapid start.
The session generated strong interest among both public and private sector attendees in keeping with the broad trend of Japanese organisations exploring more collaborative and adaptive contracting methods for their projects.
Our expert consultants continues to advise on contract strategy, claims, and dispute avoidance across major projects worldwide. To speak to our in-country teams, visit our contacts page.
