Client recommendations for financial incentives on construction projects

Abstract

PurposeThe paper seeks to provide recommendations for construction clients who design and implement financial incentive mechanisms (FIMs) on projects.Design/methodology/approachFour 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.FindingsFIM 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/implicationsThis paper provides practical recommendations to industry and hence does not emphasise theoretical aspects.Practical implicationsThe 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/valueIn 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.

Incentives in Third‐Party Governance: Management Practices and Accountability Implications

“…With this mind, trust is a foundational feature of effective nonmonetary incentives. Trust between the government and contractor can motivate contractors to attain monetary incentives (Rose and Manley 2010 ). Yet too much trust, whether organizational or interpersonal, can yield less than optimal contract outcomes (Jeffries and Reed 2000 ), "overly relaxed attitudes" (Edelenbos and Klijn 2007 , 34), and complacency in expectations (Amirkhanyan 2009 ).…”

Effects of performance-based financial incentives on work performance: A study of technical-level employees in the private sector in Sri Lanka

“…However, we have not come across empirical studies that investigated infl uence of performance-based fi nancial incentives on work performance of technical-level employees. Further, as little research has been directed to investigate performance-based fi nancial incentives, for this study we have drawn literature from fi nancial incentives (such as Jenkins et al, 1998;Rose & Manley, 2010) as well as incentives in general (such as Stolovitch, Clark, & Condly, 2002). erefore, in this article, the terms performance-based fi nancial incentives, fi nancial incentives, and incentives are used interchangeably.…”

“…In this regard, Condly et al (2003) state that fi eld studies conducted in real work settings are more generalizable than other types of studies. ird, although a few empirical research studies have been conducted on incentives (e.g., Rose & Manley, 2010;Stolovitch et al, 2002;Wolf & Zwick, 2008), such empirical research attempts have not taken off worldwide. Fourth, in such circumstances, organizations tend to implement incentive systems without a clear understanding of the factors that increase the positive eff ects and eliminate negative consequences (Stolovitch et al, 2002).…”

The social life of the novel idea: what did social psychologists ever do for us?

“…In another study, it was noted that the nature of the risk/reward package and the way that it is distributed amongst the design team did influence group behaviour through its perceived levels of equity and fairness, thus prompting varying levels of willingness to explore alternative design options or expend effort into modifications that would improve the design or add value (Love et al, 2011). It is important to note the impact of the client's role here too, as perceptions of equity and fairness may derive from a design team understanding that they were selected fairly and on the basis of competence, past performance or capacity to add value, rather than under traditional price-focussed criteria (Rose and Manley, 2010). This highlights the significance of the way in which the design team is procured as a driver of innovative performance, rather than as a by-product facilitated by in-project management (Russell, 2006).…”