Disease management contracting: key elements

Although the data at the outset of a contractual agreement can often be incomplete or inaccurate, and the analytical tools necessary to interpret these data are still being developed, partners about to enter a disease management (DM) arrangement can nonetheless take steps to ensure that the relationship will be sound and successful. Pharmaceutical firms (and other service providers) wishing to enter into DM relationships with managed-care organizations must consider several important factors of the contracting process to protect their financial interests and benefit from the partnership, particularly in the first 1 to 2 years of the arrangement. This paper provides recommendations for both general strategies and financial elements of DM contracting, and defines several contractual elements that can help to secure a harmonious and profitable partnership. These suggestions address concerns for various types of partnerships, including risk-sharing and fee-for-service plans. Early and careful consideration of the legal aspects of the DM business can protect companies from incurring significant, unanticipated losses.     

Fundamental Analysis of Profitability of Large Engineering and Construction Firms

This research examines the strategic performance of sixty-one large international engineering and construction (E&C) firms from the regions of North America, Europe, and East Asia. The primary objective is to identify critical factors of corporate strategy that potentially affect the prospects of a large E&C firm. The research methodology relies on financial analysis and strategic management theories to draw meaningful conclusions. Statistical tests are selectively conducted to assess various aspects, including profitability, capital structure and asset liquidity. This paper documents the research findings for the first aspect—profitability. The first part of the findings suggests that there is no significant correlation between firm size and profitability. Large firms, which are endowed with greater resources and prowess, are not guaranteed to be more profitable. However, firm size has some influence on generic strategies, as large firms tend to adopt either a broadly targeted or a nonrelated diversification strategy. Regional trends of revenue growth of firms are subsequently presented. Despite strong forces of globalization experienced in many other industries, the growth trends suggest that the construction business remains largely localized in nature. Consequently, domestic and regional economic outlook, rather than global trends, should be given more weights in strategic planning.     

Contracting Relationship Trends and Transitions

Construction industry reports worldwide have called for radical cultural changes to reduce adversarial conflicts and increase productivity levels. These reports have recommended reintegration of fragmented function and teams through different teamworking approaches such as partnering and alliancing. The theoretical basis for such approaches can be tracked back to relational contracting (RC) principles. Recent teamworking initiatives have met with some success, based on structured cooperation between owners and contractors. However, the full benefits of these cooperative approaches may only materialize if (1) all potential team members/project partners are selected on the basis of relevant rationalized evaluation criteria; (2) all stakeholders work closely together as a coalesced team with common objectives, and (3) these arrangements are underpinned by government-sponsored, proper change initiatives. These approaches and arguments are analyzed in this paper, aiming at developing the required project culture through the application of RC principles for the joint management of risks during the entire project life cycle. Relevant observations from two recent Hong Kong-based industry surveys indicate a high motivation toward such approaches. Finally, examples of some potentially beneficial change initiatives are used to illustrate the potential synergies that are achievable.     

Legal Issues Associated with Emergent Actor Roles in Innovative U.K. Procurement: Prime Contracting Case Study

Pressure for reform in U.K. construction procurement has led to a move toward relational contracting. Long-term partnerships between clients and construction service providers have enabled traditional construction roles to change radically and the reconfiguration of relationships between these emergent actors. Social network analysis was used to examine the new roles and relationships under an innovative procurement strategy known as prime contracting. This public sector procurement approach involved the introduction of the role of cluster leader combining the skills and knowledge traditionally provided by the architect, the chartered quantity surveyor, and the construction manager. The role of cluster leader was adopted by specialist contractors using existing staff and in the absence of dedicated training. The role was voluntary, however, those performing it were obliged to absorb liabilities relating to design information produced by other actors, financial management on behalf of the prime contractor, and responsibility for the management of the contract period, upon which the contract between the employer and the prime contractor was based. The additional responsibilities associated with the role of cluster leader were accepted without financial compensation, on the basis of maintaining goodwill with the prime contractor and employer. Liabilities arise for the firms and potentially individuals within those firms. There are also concerns about the likelihood of appropriate professional indemnity insurance coverage being available to cluster leaders.     

Organizational Culture and Knowledge Management Success at Project and Organizational Levels in Contracting Firms

This research focuses on contracting firms within the construction sector. It characterizes and evaluates the composition of organizational culture using four culture types (clan, adhocracy, market, and hierarchy), the strategic approach for knowledge flow, and the success of knowledge management (KM) systems at different hierarchical levels of contracting organizations (project and parent organization level). Responses from managers of local or overseas contracting firms operating in Hong Kong were collected using a carefully constructed questionnaire survey that was distributed through electronic mail. The organizational value is analyzed in terms of the four cultural models. Clan culture is found to be the most popular at both project and organization levels, which means that the culture of contracting firms very much depends on honest communication, respect for people, trust, and cohesive relationships. On the other hand, hierarchy culture, which focuses on stability and continuity, and analysis and control, seems to be the least favored at both levels. Another significant finding was that the two main KM strategies for knowledge flow, codification and personalization, were employed at both project and organization levels in equal proportion. This indicates that successful KM efforts at both enterprise levels utilize a hybrid and balanced approach for their knowledge flow, and that they complement each other. The findings also revealed that knowledge management system success factors emphasize the support of the management level. The results show that KM is critical and beneficial as indicated by 64% at the project and 74% at the organization level. The expectation is higher for organizations as they are the organizational memories in which experiences of past projects are archived and connected. Understanding these factors and the relationships among them has been demonstrated to be critical in order to increase the chances of success or to help with making decisions when applying KM.     

OSHA Regulations Effects on Construction

The financial consequences of the direct and indirect cost of construction accidents is large. Previous cost studies show that accidents add approximately 6.5% to the nation's construction expenditures. However, the data from the present investigation indicate there has been a reduction, during a 5 year interval (1976–1981), in the amount contractors perceive they spend for complying with OSHA rules and regulations. The decrease in terms of percentage of construction cost is from 2.8% to 1.4% for the ENR 400 firms and from 4.5% to 2.4% for the OCA (Ohio) contractors. The foregoing may be due, in part, to either a variation in OSHA enforcement methods, or a change in the standard operating procedures of contractors, or both reasons. Whatever the reason, contractors, both large and small, appear to have learned to cope with OSHA and feel that the associated rules and regulations are less of a monetary burden.     

Perceptions of Construction Professionals Concerning Important Skills of Effective Project Leaders

The purpose of this study was to identify the most important skill of an effective project leader as perceived by the significant actors in the construction industry. A total of 120 questionnaires drawn from six construction-related professionals, comprising architecture, building, civil engineering, mechanical and electrical engineering, estate surveying, and quantity surveying were collected and used for the study. These professionals were employed in clients’ organizations (N = 40), consultancy firms (N = 48), and contracting firms (N = 32). Frequency counts of the responses were computed, from which the mean item score for each skill was calculated to obtain the relative importance index. The relative importance indices were then ranked from the highest to the lowest for the clients, the consultants, the contractors, and the weighted average. The results showed that the most important skill is decision making for the client and for the three groups combined. The consultants agreed that leadership and motivation is the most important skill for the project leader. This is followed by decision making. The contractors ranked communication as the most important skill of an effective project leader. In the overall analysis, there is no significant difference in the perceptions of the three significant actors regarding the ranking of the skills. The implications of these findings for practice and research are analyzed and discussed, herein.     

Analysis of Occupational Injuries and Fatalities in Electrical Contracting Industry

The purpose of this paper was twofold: (1) to determine jobs/tasks associated with current injury, illness, and fatality trends in the electrical contracting sector of the construction industry; and (2) to identify current safety practices associated with the prevention of these injuries, illnesses, and fatalities. To achieve the project objectives, a survey was designed and sent to Michigan electrical contractors. To design an adequate survey, the research team first collected background information using the U.S. Bureau of Labor Statistics online database, published research, and contractor interviews. This paper presents and discusses the results of this study.     

Contractors’ Claims Insurance: A Risk Retention Approach

The negative effects of claims and disputes have serious negative impacts on contracting parties, their projects, the construction industry as a whole, and consequently on the nation’s economy. This paper explores a method for mitigating the negative effects associated with contractors’ claims and disputes using a risk retention approach. This method can help contractors in getting early relief from the financial and economic burdens of construction claims. To meet the goals and objectives of this study, the writers have: (1) investigated the feasibility of pricing insurance premiums using the options pricing theory; (2) explored the applicability of modeling the options pricing theory using Monte Carlo simulation; (3) set up the principles required for optimal design of a risk retention group for construction claims; and (4) tested the possible impact of the newly developed risk retention group using historic data of 10,193 construction projects spanning over 12 different California districts. Pursuant to this study, it was verified that construction claims satisfy the required principles for insurance. Also, based on the used testing framework, the developed risk retention group for construction claims has been proved a success from the insured and insurer sides. It is the writers’ hope that this study will lay the basis for a leading risk management technique that could be extended over the nation for the benefit of relieving the negative consequences associated with lengthy claims and disputes resolution in the construction industry.     

Association of Risk Attitude with Market Diversification in the Construction Business

In construction, many large firms are diversified, and their diversification is recognized as a corporate strategy for growth and risk management. Diversification indicates extended competition into a different market sector. It is a departure from a firm’s experience base, and it can be riskier than improving performance in the currently operating market. Then, contractors’ diversification and their aggregate pattern in the market, if there is any, are realized outcomes through competition among contractors over different market sectors. The competing contractors may have different risk attitudes, which are the subconscious but critical basis of their risk-taking behaviors in competition. This study investigates the association of contractors’ organizational risk attitudes with their diversification on the basis of simulated competition among multiple contractors. The simulation replicates the actual diversification pattern of large U.S. construction contractors. The results provide new insight on the relationship between contractors’ risk attitude and their diversification as well as their competitive success.     

Mobilizing Institutional Knowledge for International Projects

Multinational engineering consultants, contractors, and real estate developers work on projects in various countries, encountering many challenges that arise from cross-national differences. These projects frequently bring together diverse participants in an unfamiliar environment. In these situations, firms are exposed to different “institutions”—regulations, norms, and cognitive-cultural beliefs—that can increase misunderstandings, delays, and costs. Knowledge of these institutional elements is critical to create a project that is both locally sustainable and profitable for the firm. Departing from institutional theory and the knowledge-based view of the firm, we conduct exploratory research based on interviews from informants in 15 firms to identify the methods that multinational real estate developers, contractors, and engineers use to transfer and mobilize institutional knowledge for their global projects. We contribute to theory by adding to the developing literature that uses institutional theory to examine differences on global projects and by analyzing the specific methods firms use to transfer institutional knowledge internally, across projects and divisions. Ultimately, this research, combined with the work of others, can develop new processes for firms engaged in international projects to enhance their mobilization of institutional knowledge, and thereby improve the outcomes of international projects.     

Design∕Build Methods for Electrical Contracting Industry

This paper reports on a project sponsored by the Electrical Contracting Foundation that examined the design∕build (D∕B) approach and the various dimensions of the decision process that electrical contractors consider before entering this emerging marketplace. Electrical contractors were surveyed regarding many different aspects of D∕B and how those factors impact their business. The survey revealed several important trends and preferences among electrical contractors. One area identified in the survey worthy of note is that many of the electrical contractors felt ill prepared to embark on D∕B with their current understanding of the issues.     

Portfolio Cash Assessment Using Fuzzy Systems Theory

Gaps between cash outflows and inflows throughout the life cycle of construction projects can create extended periods of low cash availability for a construction contractor, jeopardizing the financial stability of the business. A number of researchers have therefore attempted to model cash availability at a project level. However, at a firm level, financial stability is more thoroughly examined as a function of the cash flows related to multiple projects. This paper proposes a methodology on the basis of fuzzy systems theory to forecast cash requirements of a portfolio of projects for a construction firm, taking into account the effect of changing portfolio composition on portfolio cash-flow risk. Portfolio cash-flow risk is calculated from a variance matrix created by using covariance among cash flows of pairs of projects. Expert opinions of a group of highway construction contractors regarding project selection, project risk assessment and cash control were collected to create a fuzzy proportional derivative (PD) model that predicts portfolio risk for a construction firm. The model was assessed by the same group of contractors for overall logic (if/then rule base), appropriateness of cash-flow calculations (moving weights of cost categories), and practicality through application on a hypothetical test case. The paper concludes that a fuzzy proportional derivative model can be an effective tool to establish trends in cash-flow availability and risk across a portfolio of construction projects.     

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 indicated that “involvement of inexperienced or claim-conscious contractors in a project procured by a GMP/TCC contract” was considered to be the most significant risk factor; while “design development must keep pace with main contractor’s program for tendering the domestic subcontractors’ works packages” as the major difficulty in implementing GMP/TCC projects. The research findings derived from this study are particularly essential in assisting the contracting parties to mitigate the detriments brought about by potential risks or difficulties when embarking on GMP/TCC contracts. It has also generated valuable insights into developing effective recommendations for alleviating the barriers to GMP/TCC success for future construction projects.     

Mechanical Contracting Safety Issues

The purpose of this paper is twofold: (1) to determine jobs/tasks associated with current injury, illness, and fatality trends in the mechanical contracting branches of the construction industry; and (2) to identify current safety practices associated with the reduction of risk of these injuries, illnesses, and fatalities. To achieve the project objectives, a survey was designed and sent to Michigan mechanical contractors. To design an adequate survey, the research team first collected background information using U.S. Bureau of Labor Statistics online database, published research, and contractor interviews. Fourteen of the 50 mechanical contracting surveys distributed were completed. The pilot study found eye injuries due to grinding and welding and upper extremity cuts due to sheet metal to be the most frequent mechanical contracting task/injury combination.     

Emergency Contracting Strategies for Federal Projects

During the past decade, government agencies have struggled to adequately respond to emergency events that require labor, materials, equipment, and services provided by construction contractors. In fact, the criticism directed at government agencies during their response to, and recovery after, recent events is a testament to the insufficient contracting strategies that were implemented. Countless media headlines highlighted the fragmented approach used to hire contractors expeditiously, and several agencies were criticized for their inconsistent contracting methods. As a result, a study was initiated to investigate the differences between normal federal contracting procedures, as outlined in the Federal Acquisition Regulation (FAR), and emergency acquisition procedures that are permitted by the FAR. The study found six examples of waivers to the usual regulations or expedited contracting techniques permitted by the FAR. Furthermore, the study highlighted five emergency contract strategies that are available to the Navy (as one example of a government agency with contracting authority) and may be available to other governmental contracting authorities as well. Consequently, the purpose of this paper is to identify emergency contract strategies that can be used by government agencies and to outline the criteria that must be met to use each strategy.     

Adoption Patterns of Advanced Information Technologies in the Construction Industries of the United States and Korea

The results of a survey conducted by the ASCE Wireless Construction Committee are presented. The goal of the effort is to better understand how much construction contractors have advanced in adopting information technologies in general and wireless communications in particular. Responses were collected from 152 U.S. and 31 Korean firms. It was found that, overall, the strongest interest among the responding contractors is in document and content management applications. Differences between Korean and U.S. contractors are discussed. The data indicate that the use of information technology by contractors is generally higher in Korea than in the United States. Both practitioners and scientists will be able to use the presented study because the data reveal the managers’ perceptions of the most promising opportunities for and highest barriers to implementation of advanced communication systems in construction. With the information provided, interested readers of this journal will be able to focus their attention on pursuing specific opportunities and removing barriers to future adoptions.     

Hybrid Prequalification-Based, Innovative Contracting Model Using AHP

Design-build, cost-plus-time, and warranty are three innovative contracting methods used by the Federal Highway Administration (FHwA). Because of the challenges inherent in the nature of these approaches, contractors need to be capable and experienced to successfully deliver projects. It is then necessary to prequalify contractors to reduce the inherent risk of a project. Therefore, the objective of the research project described in this paper is to provide a methodology that will help public owners prequalify and select contractors within the context of the three delivery methods mentioned above. As a result, a hybrid prequalification and selection model to screen contractors who want to submit bids on public projects using any of the three innovative contracting methods above was developed. The analytical hierarchy process (AHP) was used to make prequalification decisions when multiple criteria are used. In addition, three case studies were developed to evaluate the application of AHP to the prequalification criteria in the three innovative contracting methods. AHP was utilized as an effective prequalification decision-making tool that eliminates subjectivity and produces decisions built on consistent judgments.     

Partnering on Defense Contracts

Contracting on government construction projects has historically been structured and adversarial. The decade of the 1990s saw the advent of a new attitude in government contracting that emulated success stories from the private sector. After witnessing several high-profile success stories such as constructing the Atlanta Olympic Park, the government embraced the concept of partnering as a primary method of contract administration. The private sector consistently demonstrated an ability to contract for services while realizing a marked decrease in claims and litigation costs with partnering. Their success was founded in the building of trust within the project team by creating a common bond between previously dissociated parties. This was achieved through developing a mutual understanding of the other parties’ interests and goals in the project while maintaining a team focus on the ultimate goal of a successful project. The government espied partnering as a way to improve its relationships with contractors and reduce the volume of litigation that seemed to only be increasing in the industry. The government began a paradigm shift by instilling a new attitude of openness and communication with contractors as well as implementing several broad contract administration changes. This paper examines the process of partnering, its key elements and core competencies, and how various agencies apply these principles in their construction management. The paper further researches stakeholder goals and important issues when entering into a partnering relationship on government contracts and what barriers are perceived that preclude the process from working as effectively as possible.     

Costs and Benefits of MBE Rules in Construction

The findings of a study designed to investigate the costs and benefits of Minority Business Enterprise (MBE) regulations in the construction industry are presented. The data indicate that large contractors have less difficulty than smaller organizations in meeting MBE requirements. In addition, it is shown that the regulations both benefit and enlarge the number of minority contractors. According to the study, however, MBE procedures have not increased the number of qualified minority contractors. The data also indicate that MBE regulations have increased the cost of construction projects. The amount allocated, although significant when compared to percentage profit, is not substantial. For example, the unweighted values, in terms of construction dollar volume, range from 3.41% for the Engineering News‐Record (ENR) 400 organizations to 3.33% for the Associated General Contractors of Indiana, AGC (Indiana). The weighted values range from 2.04% for the ENR 400 contractors, to 3.74% for the AGC (Indiana). The great majority of firms surveyed indicate that MBE rules and regulations should be modified. Better agency procurement efforts and comprehensive programs to train minority contractors are mentioned as a necessity.