Project governance: case studies on financial incentives

Appropriate financial incentives within construction project coalitions can contribute to effective project governance. However, the dearth of primary research material is partly attributed to the lack of a suitable methodology with which to study projects. Social network analysis (SNA) is proposed as an analytical tool to explore coalition governance. Primary data are presented for three European case studies employing quite different approaches to the use of financial incentives in project governance. The case studies investigate pain share/gain share arrangements implemented under a prime contracting procurement approach; an unusual use of activity-related penalties in the French system of procurement; and the use of guaranteed maximum price supplements within a UK standard form of (without contractor's design) building contract. The use of SNA enables the observation of a number of transaction sets and the formulation of a framework for the quantification of construction project governance. The first case study demonstrates the decentralization of client-orientated financial management, from consultant quantity surveyor to a number of multidisciplinary cluster leaders. The second case study illustrates the importance of incentive contiguity in effective project governance. The third case study uses SNA to demonstrate the way in which financial governance could be transformed through the transference of client-orientated financial management from the client and their professional adviser to the main contractor.

Les incitations financières appropriées, dans le cadre d'un fonds commun relatif à un projet de construction, peuvent contribuer à une gestion efficace du projet. Or, la pénurie de matériel de recherche primaire est attribuée, en partie, à l'absence d'une méthodologie appropriée permettant d'étudier de tels projets. Dans cet article, l'auteur propose l'analyse du réseau social (SNA) comme outil analytique permettant d'explorer la gouvernance collective. L'article présente des données primaires concernant trois études de cas européennes employant des méthodologies tout à fait différentes d'utilisation des incitations financières dans la gouvernance du projet. Ces études de cas portent sur les mécanismes de partage des difficultés/partage des gains mis en ?uvre au titre des approvisionnements par un maître d'?uvre, sur l'usage inhabituel de pénalités liées à l'activité dans le système français des approvisionnements et sur l'usage de suppléments de prix garantis et maximaux dans une forme standard du SNA, au Royaume-Uni, permettant l'observation d'un certain nombre d'ensembles de transactions et la formulation d'un cadre pour la quantification de la gouvernance du projet de construction. La première étude de cas démontre la décentralisation de la gestion financière orientée ‘client’, du consultant métreur-vérificateur vers un certain nombre de responsables de groupes pluridisciplinaires. La deuxième étude de cas illustre l'importance de la contiguïté incitative dans une gouvernance de projet efficace. La troisième étude de cas utilise la SNA pour démontrer comment pourrait être transformée la gouvernance financière en passant d'une gestion financière orientée ‘client’, du client et de son conseiller professionnel, vers le maître d'?uvre.

Mots-clés: modèles de développement, collaboration, gouvernance, incitations, contrats de maître d'oeuvre, approvisionnement, dynamique du projet, organisation du projet, analyse du réseau social, intégration des équipes.     

Selecting a suitable procurement method for a building project

Building procurement has become a fashionable term with industry practitioners and researchers. It determines the overall framework and structure of responsibilities and authorities for participants within the building process. It is a key factor contributing to overall client satisfaction and project success. The selection of the most suitable procurement method consequently is critical for both clients and project participants, and is becoming an important and contemporary issue within the building industry. The problem, nevertheless, lies in the fact that there has been limited empirical research in this field of study. Postal questionnaire surveys of 41 clients and 35 consultants were carried out, and were used to obtain experience of and attitudes to a variety of procurement methods and the criteria used for selection. The findings indicate that a simple set of the criteria generally is adequate and sufficient for procurement path selection, and that there is a reasonable consensus on the appropriate weighting for each path. Moreover, it is shown that, contrary to expectations, similar clients generally do not have similar procurement needs.     

Developing a procurement path determination chart SEM-based approach

The choice of an appropriate procurement system is crucial to construction project success. Procurement selection is largely based on path determination charts, with at least eight key criteria needing to be weighted by decision-makers. Including certain criteria whilst ignoring client-borne transaction costs (TCs) resulting from environmental uncertainties simplifies this process. TCs are ‘unseen’ costs associated with pre- and post-contract work. The effects of uncertainties in the transaction environment and procurement systems on TCs are investigated, comparing the traditional and design-build procurement systems. A cross-sectional sample approach was deployed, involving survey questionnaire and results verification through ‘real-world’ cases. Data was sought from construction professionals in management, design and operation of construction projects. The research participants evaluate their time spent on procurement activities using a five-point Likert scale. Hypotheses of the relations between environmental uncertainties, procurement systems, and pre- and post-contract TCs are tested using a structural equation modelling (SEM) approach. The study found that TCs account for about 46.75% and 42.88% of the daily time spent by project managers in traditional and design-build procurement systems in New Zealand respectively. The study concludes that the TC concept is a useful framework for determining objective instead of subjective opinions for procurement decisions.     

Developing a tendering strategy in two-envelope fee tendering based on technical score-fee variability

Consultants, in competing for work through two-envelope fee tendering, have been urged to consider variability differences between fees and technical scores, since the criterion with the greatest variability will influence which consultant is awarded the contract. Fee and technical score variability arising from different client fee tendering competitions is analysed in this paper, and a method proposed for determining whether a particular client's two-envelope fee tendering competition is likely to be dominated in terms of technical score or fee. Such information should be useful to consultants, as part of their bidding strategy, in deciding whether to aim for a higher technical score or submit a lower fee. Standard deviation is used to measure fee and technical score variability. Fee and technical score standard deviations are determined for each tendering competition, expressed as a ratio and aggregated over a series of competitions. A technical score-fee standard deviation ratio approximately equal to unity indicates that for future competitions consultants should adopt a balanced bidding strategy in putting equal emphasis on fee and technical score. A smaller ratio indicates that consultants should adopt a ‘low fee’ strategy whereas a larger ratio shows that consultants should adopt a ‘high technical score’ strategy. Fee tendering data from two large Hong Kong public sector clients were analysed. Fees were found to dominate the vast majority of tendering competitions, thereby indicating that consultants would be wise to adopt a low fee strategy in future competitions.     

Mapping stakeholders’ cultural learning in the hospital briefing process

In the context of a major hospital redevelopment project, briefing is conceived as an organic and cyclical process of cultural learning whereby project and hospital representatives gradually converge upon a shared meaning of each other’s values, beliefs and needs over time. Using a comparative cause mapping that draws on a case study approach and interviews, it was found that the clinicians’ understanding of the key cultural concepts differed significantly from all other groups and that clinicians’ ability to influence hospital design outcomes is constrained by their relative social marginalization in the briefing process. It follows that hospital facilities would better meet client needs if the briefing process is managed as a process through which project participants interact to socially construct a common understanding of project objectives and requirements; and if knowledge about facility requirements is not merely ‘given’ information but is the result of cultural learning involving social processes among the briefing participants.     

Le monde de la pratique

What are the factors affecting the performance of design-bid-build projects? Ten performance metrics and 60 factors are identified that project team members can use to measure and manage the success levels of construction projects in four broad categories: cost, time, quality and administrative burden. A survey and correlation analysis of 65 design-bid-build projects in Singapore is used to suggest the factors that affect each performance metric significantly. Contractor characteristics are the key determinants affecting the highest number of performance metrics. The most significant variable is the contractor's past record for completing projects on budget and to an acceptable level of quality. Based on this evidence, it is recommended that clients and consultants pay closer attention to a wider array of characteristics (not just the initial price) involving contractor selection. Another key determinant is the project character with the most important variable being the percentage of repetitive elements.     

Learning search keywords for construction procurement

Seeking information from websites has become an essential part of a contractor's procurement undertaking, as more and more procurement websites become available on the Internet. Websites host extremely large amounts of information; a keyword search, therefore, is often more efficient than browsing via an index. However, in order to find the desired information, it may be necessary to enter keywords using a trial-and-error process. This research recognizes that professional procurement experience can help users search website information more effectively, by using fewer keywords, and so proposes a learning model and suggestion model that can capture such experience, thus guiding inexperienced users in their search. Experiments, evaluating the performance of the system, were also conducted.     

Analysing the novated design and construct contract from the client's,design team's and contractor's perspectives

The novated design and construct (ND&C) contract is one of the increasingly preferred options among developers of large commercial and residential projects across Australia. As a consequence of novation, the design team's obligation to the client gets transferred to the contractor who becomes responsible for carrying out the detailed design work at a later stage of project life cycle. Subsequently, there are some inherent factors that can depict the effectiveness of how all parties in the process interact leading to a successful delivery of project through ND&C contracts. A common set of 31 influencing attributes have been identified through a systematic research approach and their relative significance and impacts have been determined based on a structured questionnaire survey in selected construction projects. By performing the factor analysis, a total of eight factors significant to ND&C contracts were extracted, namely (1) impact of initial design; (2) client's involvements in post novation design; (3) selection of design team; (4) contractor's obligation; (5) morale in post novation; (6) experience of design team; (7) relationship between contractor and design team; and (8) expertise of DT in ND&C projects. With a clear understanding of the roles of clients, design team and the contractors, these findings could potentially contribute to develop a company's procedures or enhance existing knowledge in relation to the ND&C procurement approach.     

A computer-based scoring method for measuring the environmental performance of construction activities

In line with the promotion of sustainable construction in the past decade, construction professionals have been contributing efforts in protecting the environment in implementing construction activities. Whilst such efforts will be contributed continuously, it is important that the level of the environmental performance in implementing construction activities can be properly measured and communicated to the public and project participants. This paper presents a scoring method for measuring the environmental performance committed by a contractor through calculating the contractor's environmental performance score (EPS). The level of EPS serves as a simple indicator for measuring and communicating the level of a contractor's environmental performance. The procedure for calculating EPS is formulated as an information technology (IT)-supported program. The program is designed not only to calculate EPS but also to allow for assisting contractors in diagnosing the causes of possible poor environmental performance. The diagnosis should enable the project parties involved to identify and adopt proper measures to improve environmental performance during implementing construction activities. A case study is formulated from a simulated environment for demonstrating the application of the EPS system.     

A study of professional perspectives on structural frame selection

The choice of an appropriate structural frame can contribute to effective short‐ and long‐term performance, and enhance client satisfaction but limited research indicates that the issues taken into account during structural frame selection are not very well understood. With this in mind, a major research programme, including interviews and an industry survey, examined the attitudes of project managers, cost consultants and construction clients in analysing the issues they typically consider when choosing the structural frame for a building, and to provide insights about how such decisions are made in practice. Ten key issues were identified as being the most important affecting structural frame selection, but the extent to which different parties considered these and at what stage was found to vary. Also, the variations, between what these parties themselves think of the issues and what others perceive their attitudes to be, were examined. In particular, the results showed that what clients perceive differs considerably from how clients’ views are perceived by others. For instance, according to cost consultants and project managers, their clients’ preference to regularly select a ‘preferred’ frame type or material is a far more widespread tendency than clients themselves actually acknowledged.     

Contractor financial credit limits; their derivation and implications for materials suppliers

Current methodologies for ‘calculating’ contractors' credit limits (for supply of construction materials) are discussed and critically appraised. It is highlighted that credit limit imposition should be a function of a supplier's financial characteristics as well as potential debtors' probability of defaulting upon repayment. A conceptually new approach is presented to identify whether an additional contractor's trade results in a worthwhile gain in utility for the supplier. It is identified, inter alia, that (i) allowing very few contractors credit facilities that account for a large proportion of suppliers' potential profits, (ii) having inaccurate creditworthiness evaluation procedures, and (iii) operating on low targeted profit margins are the characteristics that inflict maximum financial risk upon materials suppliers.     

An empirical study of the benefits of construction partnering in Hong Kong

Many construction companies have adopted partnering in their construction projects over the past 10–15 years due to favourable project outcomes achieved. Its use in construction projects has been increasing rapidly as its benefits become more apparent and pervasive. This paper reviews the partnering literature within the construction field and tries to portray the comprehensive picture of benefits for the partnering practice. Through partnering and the active involvement of all key project parties, the project is more likely to be completed within budget, on time, and with the least number of conflicts, claims and work defects. Also, this paper reports upon the findings of a questionnaire survey of partnering benefits in Hong Kong. Seventy‐eight project participants completed a questionnaire to indicate the relative importance of partnering benefits. The perceived benefits were measured and ranked from the perspectives of the client, contractor and consultant for cross‐comparison. The results revealed that ‘Improved relationship amongst project participants’, ‘Improved communication amongst project participants’ and ‘More responsive to the short‐term emergency, changing project or business needs’ were the most significant benefits derived from the use of partnering. More partnering arrangements should be actively introduced into the construction procurement process so that every party can enjoy the full benefits of partnering.     

Incentive strategies for construction project manager: a common agency perspective

According to the principal-agent theory, the agent should be motivated to behave in a manner consistent with the principal’s requirements. By expanding the focus from the bilateral principal-agent relationship within the firm to the triangular relationship between the client, the construction company and its project manager, this study seeks to explore a new way in which construction firms determining incentive strategies for their construction project managers (CPMs). A common agency model of ‘one servant of two masters’ is established while some negative/positive factors are identified, including rent-seeking effect, collusion effect and check-and-balance effect between the three parties. An autonomy-incentive grid is developed in which one can distinguish four alternative strategies. Implementation costs of each strategy in different scenarios are qualitatively assessed and a set of incentive strategies suitable for different scenarios are determined according to the complicatedness of the project and the type of the client. The model of ‘one servant of two masters’ may provide conceptual insights into incentive strategies for CPMs, and provide practical guidelines for construction firms, but at the same time, it needs testing, verifying and improving in the future practice.     

How projects co-create value with stakeholders: The role of ideology and inquiry in spanning the temporary-permanent boundary

Projects transform organisational processes as they deliver physical artefacts and spaces. Yet in the existing literature, there is relatively little attention to how project delivery professionals engage members of an organisation to co-create value. Building on research on stakeholders and organisational boundaries, an empirical study of the renewal of a large Finnish hospital is used to develop new insight into value co-creation between temporary and permanent forms of organisation. In this hospital case study, we find a framing ideology that supports value co-creation is provided by the project practitioners’ commitment to ‘service design’, and an enquiry that enrols organisational stakeholders’ participation and reveals temporal tensions at the temporary-permanent boundary. As the emergent temporal tensions are managed, ideas flow across the boundary and new artefacts and spaces are designed by the project team concurrently with, and are informed by, the implementation of new organisational processes. This study's contribution is to explain how project delivery professionals use ideology and enquiry to engage and co-create value with organisational participants.     

Flow of estimating data in Sri Lankan building contractor organizations

When an estimator prices a bill of quantities, s/he collects, generates and assembles data (estimating data) for the purpose of establishing the cost of constructing the project. The data generated could be used by the contractor's subsequent management functions, and the use of estimating data in the contractors' post-tender management worthy of attention. Drawing information from ten case studies of the organization of Sri Lankan building contractors, this paper identifies the contractors': management functions; management tasks; and management groups. It also establishes the flow of estimating data within and between the management functions. These flows highlight the substantial burden of re-work in the post-tender use of data. It is argued that the current format and presentation of estimating data in Sri Lanka are the major causes for such re-work. However, it was found that any revolutionary change to the conventional format would not be welcomed by the industry. Any new proposal should be developed within the limitation of acceptability to conventional practice. The recommendation is that the ‘unit rate’ is broken down to its cost components of material, labour and plant. The breakdown of the unit rate would supply all the necessary data for direct use, thus reducing the re-work. Further research should be addressed to investigate the best format and structure of this breakdown.     

On-site energy management challenges and opportunities: a contractor's perspective

Although numerous policies encourage CO₂ and energy consumption reduction within the UK non-domestic sector, most measures are primarily focused towards reducing operational impacts, but largely overlook embodied impacts, particularly within the construction process. On-site construction refers to the energy consumed during the installation of materials up to project practical completion and represents the largest share of construction process CO₂ emissions. Contractors have a pivotal role to play in reducing CO₂ and energy consumption due to their significant involvement in project procurement and on-site construction. The key challenges and opportunities are investigated for delivering on-site energy management within UK non-domestic projects from a contractor's perspective. A case study is presented of a large UK principal contractor's on-site energy management practices, based on a wide geographical sample of non-domestic projects and operatives. Shortcomings are found within the contractor's current on-site energy management procedure across the three reporting levels (director, operations and project). Findings identified the lack of data authentication as a significant challenge, whereas capturing additional project variables to facilitate future benchmarking was deemed as a key opportunity for on-site energy management enhancement.

Bien que de nombreuses politiques encouragent une réduction du CO₂ et de la consommation d'énergie dans le secteur non résidentiel au Royaume-Uni, la plupart des mesures visent principalement à réduire les impacts opérationnels, mais négligent largement les impacts intrinsèques, en particulier dans le processus de construction. La construction sur chantier fait référence à l'énergie consommée de l'installation des matériaux jusqu'à la réalisation concrète du projet et représente la part la plus importante des émissions de CO₂ au cours du processus de construction. Les entrepreneurs ont un rôle crucial à jouer dans la réduction du CO₂ et de la consommation d'énergie du fait de leur importante implication dans la passation des marchés et dans la construction sur chantier. Les principales difficultés et opportunités sont examinées pour que soit assurée une bonne gestion de l'énergie sur les chantiers dans les projets non résidentiels britanniques du point de vue de l'entrepreneur. Est présentée une étude de cas portant sur les pratiques de gestion de l'énergie sur les chantiers d'un important maître d'?uvre britannique, sur la base d'un large échantillon géographique de projets non résidentiels et de modes opératoires. Il est constaté des insuffisances dans la procédure actuelle de gestion de l'énergie qui est utilisée sur les chantiers par les entrepreneurs sur l'ensemble des trois niveaux hiérarchiques (directeur, exploitation et projet). Les constatations ont identifié le manque d'authentification des données comme un défi important à relever, tandis que la saisie de variables supplémentaires des projets pour faciliter l'évaluation future des performances a été considérée comme une opportunité essentielle pour l'amélioration de la gestion de l'énergie sur les chantiers.

Mots clés: processus de construction, entrepreneurs, gestion de l'énergie, indicateurs de performance environnementale, non résidentiel, construction sur chantier     

Generation of a construction planning from a 3D CAD model

In construction planning practice, increasingly 4D CAD system are applied for construction analysis and communication. Normally the planning expert is responsible for relating building components to construction activities. In this article we describe a method for automated generation of the construction planning. An algorithm is presented that derives the construction order from a solid model of the building. Experiences from a pilot study illustrate the differences between the real planning and the generated planning, and they show the limitations of the current implementation. Finally an outlook is presented on a more advanced planning system that includes contractor's specific knowledge for more accurate results.     

Comparing contributors to time and cost performance in building projects

Identifying the relative strengths of the linkages between procurement sub-systems and project performance was initially hypothesized to be useful for developing guidelines for the formulation of a performance-oriented construction procurement system. A comprehensive model was developed to incorporate all significant procurement sub-systems variables, together with ‘non-procurement’ related (or ‘intervening’) variables to explore and evaluate such linkages. The multiple regression technique was applied to analyze the data from 32 Hong Kong-based building projects and the results were compared with reality. The results suggest that procurement sub-systems variables are less significant than the non-procurement related variables in predicting time and cost performance levels on Hong Kong building projects.     

Valuing a price cap contract for material procurement as a real option

This paper uses real option methodology to compare the cost of a long‐term contract with a price cap to that of spot purchases in construction material procurement. In construction, material procurements are usually short‐term, project‐based and subject to high price volatility. These characteristics and the competitive nature of the industry lower the profit margin of contractors. We have observed that contractors purchase a stable amount of commodity materials such as concrete, structural steel and lumber year after year. For contractors, the price cap reduces the price volatility of materials without their being obliged to purchase a certain quantity; for suppliers, the price‐cap contracts give them steady demand and a bigger market share. We evaluate this price‐cap contract as a real option and find the contractor's optimal ordering policy. When materials are not frequently traded, we model price processes by using related market information and then evaluate the idiosyncratic uncertainties in a risk‐neutral setting. Our methodology does not require market completeness and incorporates some of the results of the latest research in finance such as correlation pricing, option pricing and zero level pricing, as well as Monte Carlo simulation.     

Developing a decision support system for building project procurement

The growing need for improved construction procurement and managerial systems, point to the usefulness of a knowledge-based advisory system to help optimise such decisions, amidst the multiplicity of project variables. This new system would harness lessons learnt from past and present research and practice. A Hong Kong based study on a sample of different building projects and professionals, has yielded ‘knowledge’ that has been analysed and structured into pilot/sample core modules of a proposed knowledge-based decision support system. Results from statistical analysis of the data and an Artificial Neural Network model confirmed the value of the proposed system. An extended study to gather more data/knowledge is recommended to further develop the proposed system, using the methodology presented in this paper.