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The owner may involve design and construction service providers in a project at different stages of planning and design. Early involvement of the versatile know‐how of service providers places the owner at the services providers’ mercy as to pricing. Late involvement, when design is close to completion, allows using price competition to ensure reasonable pricing. Then, design usually does not involve interplay between the key parties to benefit the project. The aim of the conceptualization is to overcome the above‐mentioned problem by generating a novel type of two‐stage target‐cost contracting system which combines early selection and price containment. There the calculated tender price is based on both the owner’s estimates and the tenderers’ unit cost and overhead data while the project scope is not yet fully established. Selected service providers then develop the project and its designs in cooperation with the owner before the actual target‐cost is set. Incentives have been created to lower the target‐cost below the earlier calculated tender price. The idea is to spur actors to invest especially in the critical pre‐implementation development phase. Subsequent risk sharing is believed to increase the cooperation between parties further. The model offers a means, especially for European public owners, to enter into a cooperative relationship that is of value in the case of projects involving special challenges and a great deal of uncertainty. The European Procurement Act requires costs to be taken into account in the selection.Incentive contracts, target‐cost, early contractor involvement, public sector procurement, alliancing,

PurposeThe purpose of this study is to create a framework to analyze approaches for coordination, adaptation and safeguarding of exchanges in interorganizational project networks.Design/methodology/approachAn analysis framework to analyze governance in project networks was created based on a systematic review of existing literature. The framework was applied to analyze governance approaches used in a large infrastructure project implemented with an alliance project delivery method to illustrate the practical validity of the framework.FindingsThe analysis framework categorized governance in project networks in six dimensions: goal setting, rewarding, monitoring, roles and decision-making, coordination and capability building. A set of questions for each governance dimension was created and the analysis framework was applied in the context of a project alliance.Research limitations/implicationsThe focus of this research is on governance internal to a project network. The authors identified dimensions of governance in project networks and related governance approaches based on a systematic literature review. The practical applicability of the framework was validated in a single case study setting.Practical implicationsThe paper introduces a concept of governance in project networks, which takes the perspective that all actors that have an influence on project implementation are part of an interorganizational project network. The focal organization may have had a significant role in the design of governance, but governance also emerged from the network structure of companies and the interactions among them. The analysis framework created in this research can be used to design and analyze governance in different type of project context.Originality/valueThe paper introduces a concept of governance in project networks, which takes the perspective that all actors that have an influence on project implementation are part of an interorganizational project network.

Purpose – Early involvement of the project team with the construction resources seems to be gaining popularity as it aims to improve the cost efficiency of a project as there is significantly more potential to influence the project solution at that point in time. The missing price during early involvement/selection and the principal-agent setting, however, tend to leave the project owner in doubt of the reasonableness of pricing when it is fixed only later after the joint design phase involving the service provider and the owner. The purpose of this paper is to find a solution for this challenge. Design/methodology/approach – A two-stage target-cost (2STC) arrangement has been proposed as the solution. In this model the service provider earns a bonus by suggesting a lower target cost than the reference set at the time of the involvement of the provider. The amount of bonus also impacts the cost over-run risk transferred to the service provider to avoid overly optimistic promises. The proposition encompassed just the basic idea, and did not really delve into actual model formulations and their functioning under practical realities. Therefore, the required work is presented here in the form of a conceptual, discursive study focusing on relevant theories and empirical findings from major investment projects. Findings – The study produces a requirement framework for the 2STC model to allow functioning models to be formulated and tested. The framework incorporates numerous requirements, constraints and a suggested path forward. For instance, while the model may not be manipulatable, it must incentivise the service provider to seek more cost-effective project solutions, be feasible also from the view of the project owner and adapt to various project risk profiles and ranges of efficiency improvements. Research limitations/implications – The study suggests more concrete model formulations to be provided under the guidance of the presented framework. Originality/value – The 2STC model is a unique concept and no comparable construct is known to exist. Besides the requirement framework, the study also strengthens the foundation of and need for the 2STC model by a thorough survey of its theoretical linkages. Accordingly, the study presented in this paper forms the second stage in the overall 2STC development process focused on benefiting project owners and the industry.

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