James M.W. Wong

A Structural Equation Model of Feasibility Evaluation and Project Success for Public–Private Partnerships in Hong Kong

A successful public-private partnership (PPP) scheme can be described as one that can lead to the delivery of high-quality end products and/or services, which can satisfy the needs of the community, achieve the intended targets/goals of the government, as well as provide a favorable financial return for the private sector involved with the project. This study aims to establish an evaluation framework for the initial feasibility evaluation of a PPP project that would satisfy all the stakeholders. The factors for evaluating the feasibility of PPP projects can be classified into five broad categories: technical; financial and economic; social; political and legal; and others. Through the structural equation modeling approach, data attained from a questionnaire survey conducted in Hong Kong was analyzed and a model was developed to examine the relationships between different evaluation factors and the overall satisfaction of stakeholders. The results indicate that technical and social aspects are critical to the feasibility of PPP projects, and therefore, are the determining factors for success. This paper should assist relevant stakeholders to improve their understanding on the relative importance of the evaluation factors, and help to establish a comprehensive framework for decision makers to evaluate the feasibility of PPP projects. The predictors for PPP project success were also determined to enrich the knowledge base and help formulate management strategies to better implement the PPP project delivery approach.

Reliability of the Box-Jenkins model for forecasting construction demand covering times of economic austerity

As a driving engine for growth, the construction industry plays an important role in a country’s economic development process. Despite that, the industry is vulnerable to cyclical oscillation and at times more fundamental changes in work volume when the regional or global economy is hit by unforeseen events. In order to formulate appropriate policies and directions to help ease the impact of a fluctuating volume of construction work, a model that can reliably predict the work of various construction sectors after any economic turbulence would be extremely useful. In this study, the Box–Jenkins approach is used for model development due to its simplicity and sound theoretical background. The results illustrate that the Box–Jenkins models can reliably predict the medium‐term total construction demand and residential demand covering a turbulent period of ups and downs in construction demand. A multiple regression model is also developed to compare against the modelling reliability of the Box–Jenkins model.

Construction and economic development: the case of Hong Kong

The role of construction in economic development is an important issue facing the construction research community, government and international development agencies. Based on empirical analyses, the complexities of the relationship between construction activity and stage of economic development in Hong Kong were examined. With time series data, Granger causality test results show that the construction output particularly the infrastructure sector drives the economic growth of Hong Kong, and not vice versa. Findings further indicate that the role of the local construction industry changes as the economy matures from newly industrializing country (NIC) to advanced industrialized country (AIC) status, as revealed by the diminishing rate of capacity addition by construction as well as the growing maintenance and repair sector. This complies with Bons inverted U‐shaped relationship between construction activity and gross domestic product (GDP). However, the proposition of ‘volume follows share’ is not supported since the indigenous construction investments still sustain for the service‐oriented economy which inevitably needs commercial development and logistics infrastructure to provide the services. The results may be significant for policy makers in NICs, in the long run, to formulate corporate and industrial policies to chart out a viable and sustainable course to revive the vigour of the industry.

Forecasting construction tender price index in Hong Kong using vector error correction model

Reliable short‐ to medium‐term prediction of the tender price index (TPI) is crucial to construction stakeholders, and this has stimulated the interest of the research community to seek a more analytical method for TPI forecast. The purpose of this study is to establish an econometric model for accurately predicting the tender price movements based on a group of associated financial and macroeconomic variables. Applying Johansen’s method for multivariate cointegration analysis, the tender price was found to be cointegrated with the gross domestic product, construction output and building cost. A vector error correction (VEC) model imposing the cointegration restriction was then developed for the purpose of forecasting. The model was verified against various diagnostic statistical criteria and compared with the Box‐Jenkins and regression models. With a mean absolute percentage error for a three‐year ahead forecast at 2.9% level, the developed VEC model outperforms the Box‐Jenkins and regression models, and is proven to be efficient and reliable in forecasting the short‐ to medium‐term tender price movements. The model can assist estimators to predict the TPI pattern in advance, and it can also help the public sector in planning for the construction workload to improve the stability of the construction market. Although the VEC model developed focuses on the Hong Kong construction market, the econometric technique can be applied to modelling other economic variables.

Achieving better performance through target cost contracts: The tale of an underground railway station modification project

Purpose – This paper aims to explore the implementation framework, project performance, underlying motives, perceived benefits, potential difficulties, as well as critical success factors, of adopting the target cost contracting (TCC) form of procurement, based on an in‐depth real‐life case study of a challenging underground railway station modification project in Hong Kong.Design/methodology/approach – The case project was analysed by means of the related project documentation and face‐to‐face interviews with the relevant senior representatives from the client organisation.Findings – The target cost‐based procurement strategy generates a plethora of benefits throughout the whole delivery process of the project case, including the provision of cost incentives for the contractor to work efficiently, aligning individual goals of various contracting parties with the overall project objectives, achieving better value for money and more satisfactory overall project performance in terms of time, cost and disput...

Coping with structural change in construction: experiences gained from advanced economies

As an economy approaches maturity, the relative importance of the construction sector would gradually decline. Without effective policies and strategies, the construction industry will suffer irreversably and this may trigger a knock‐on effect to the overall economy. The experiences of selected advanced economies are examined, including Australia, Japan, Singapore, South Korea and the UK in coping with structural changes in construction. Strategies employed by the government and the construction industry of these advanced economies to reinvent the construction industry were captured through an extensive literature review and a series of interviews with indigenous industry practitioners. In order to revitalize the construction industry, governments would accelerate publicly funded projects; provide financial support to ease the burden of industry stakeholders; and stimulate the market demand. In contrast, the industry would explore various market alternatives while companies would sharpen their competitive advantage locally and internationally through merger and acquisition. The identified strategies are corresponded to a construction industry development framework, which could therefore serve as a valuable reference for policy makers and practitioners to rejuvenate construction demand when a country approaches an urban service economy.

Empirical study of the risks and difficulties in implementing guaranteed maximum price and target cost contracts in construction

Over the past few decades, both the guaranteed maximum price (GMP) and target cost contracting (TCC) arrangements have been regarded as alternative integrated procurement strategies for clients to mitigate risks, minimize claims, integrate the diverse interests of a complex construction project, and offer incentives to provide value-added services. However, the adoption of GMP/TCC contracts may also generate significant risks and difficulties that merit considerable attention. This paper aims to provide a concise review of the potential pitfalls of the GMP/TCC scheme in general and identifies the key risk factors and potential difficulties associated with GMP/TCC in comparison with other procurement strategies in construction in particular via an empirical survey of clients, contractors, and consultants in Hong Kong. The survey data gleaned from 45 valid replies were analyzed using the mean score ranking technique, Kendall’s concordance test, and Spearman’s rank correlation test. The survey results indica...

Identifying the critical success factors for target cost contracts in the construction industry

Purpose – The paper aims to present a succinct review of guaranteed maximum price (GMP) and target cost contracting (TCC) concepts and features in general, and to identify the critical success factors for procuring GMP/TCC contracts from the Hong Kong perspective in particular.Design/methodology/approach – By means of an empirical questionnaire survey geared towards industrial practitioners with direct hands‐on GMP/TCC experience, the opinions of various contracting parties including clients, consultants and contractors were solicited, analysed and compared in relation to GMP/TCC success factors.Findings – Experienced practitioners shared the unanimous perception that: reasonable share of cost saving and fair risk allocation; partnering spirit from all contracting parties; right selection of project team; well‐defined scope of work in clients project brief and early involvement of contractor in design development, are the most essential ingredients for the successful implementation of GMP/TCC scheme.Rese...

An econometric model for forecasting private construction investment in Hong Kong

Acknowledging the importance of the private construction market and a close linkage between private construction investment, public sector output and general economic conditions, there is a strong motivation to develop reliable models to forecast private construction investment. Based on the Hong Kong scenario, two modelling approaches, namely the vector error correction (VEC) and the multiple regression models are developed and compared for their modelling accuracy and ability to handle non‐stationary time series data. The result suggests that private construction investment in Hong Kong can be predicted by reference to public investment in construction, gross domestic product (GDP) and unemployment rate. All in all, the VEC model is considered more accurate and robust in handling non‐stationary data. Through the VEC model, it is possible to confirm that the crowding‐in effect of public work programmes, though minimal, is discernible in private construction investment in Hong Kong. Yet private construction investment is more sensitive to general economic conditions, as represented by GDP and unemployment rate. The GDP could represent the ability of investors to pay for construction items, while the unemployment rate is used as a proxy for the willingness of end‐users to purchase the construction items. The models proposed should help policy and decision makers formulate suitable policies and strategies to sustain the construction industry in the medium to long run.

Construction manpower demand forecasting: A comparative study of univariate time series, multiple regression and econometric modelling techniques

Purpose – The purpose of this paper is to examine the performance of the vector error‐correction (VEC) econometric modelling technique in predicting short‐ to medium‐term construction manpower demand.Design/methodology/approach – The VEC modelling technique is evaluated with two conventional forecasting methods: the Box‐Jenkins approach and the multiple regression analysis, based on the forecasting accuracy on construction manpower demand.Findings – While the forecasting reliability of the VEC modelling technique is slightly inferior to the multiple log‐linear regression analysis in terms of forecasting accuracy, the error correction econometric modelling technique outperformed the Box‐Jenkins approach. The VEC and the multiple linear regression analysis in forecasting can better capture the causal relationship between the construction manpower demand and the associated factors.Practical implications – Accurate predictions of the level of manpower demand are important for the formulation of successful pol...