Client recommendations for financial incentives on construction projects

Timothy M. Rose · Karen Manley

58 citations0/0 files storedEngineering Construction & Architectural Management

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Construction Project Management and Performance Public-Private Partnership Projects Value Engineering and Management

Abstract

Purpose The paper seeks to provide recommendations for construction clients who design and implement financial incentive mechanisms (FIMs) on projects. Design/methodology/approach Four large Australian building projects commissioned by government clients under managing contractor contracts and completed between 2001 and 2005 were examined to explore the “drivers” that promoted motivation toward financial incentive goals. The results were triangulated across data sources, projects and stakeholder types. Findings FIM design should incorporate: flexibility to modify goals and measurement procedures over time; multiple goals covering different project areas; distribution of rewards across all the key organisations contributing to team performance (e.g. potentially not just the contractor, but the subcontractors and consultants) and a reward amount sufficient to be valued by potential recipients. FIM benefits are maximised through the following complementary procurement initiatives: equitable contract risk allocation; early contractor involvement in design; value‐driven tender selection; relationship workshops; and future work opportunities. Research limitations/implications This paper provides practical recommendations to industry and hence does not emphasise theoretical aspects. Practical implications The uptake of these recommendations is likely to increase the impact of FIMs on motivation and improve project and industry outcomes. Although the study focuses on government clients of building projects, all the recommendations would seem to apply equally to private‐sector clients and to non‐building projects. Originality/value In order to improve motivation and reward high performance, clients are increasingly using FIM in their construction contracts. Despite the rising use of financial incentives, there is a lack of comprehensive construction‐specific knowledge available to help clients maximise outcomes. The study addresses this gap in the literature.

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References

2009Building theories from case study research 1994Developmental Processes of Cooperative Interorganizational Relationships 1992Qualitative Evaluation and Research Methods 2002On the nature of the project as a temporary organization 2003Trust in project relationships—inside the black box 1998Six dangerous myths about pay.2003Construction contracts: the cost of mistrust 2000Motivation, commitment and the use of incentives in partnerships and alliances

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2012Collaboration in public construction—contractual incentives, partnering schemes and trust 2018The importance of hard project management and team motivation for construction project performance 2016Variable pay and job performance of shop-floor workers in lean production

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