Stukhart, G (1984) Contractual incentives. Journal of Construction Engineering and Management, 110(1), pp. 34-42. ISSN 0733-9364
Abstract
Contract incentives are the means by which an owner intends to secure certain project goals through the contracting process. Incentive contracting is designed primarily to reduce cost in negotiated contracts through profit sharing ratios, which should improve on the efficiency of cost reimbursable contracts. In the process, financial risk and control are shared by the owner and contractor, according to a ratio which is established in the early stages of project design. Contractual incentives are used frequently in construction to reduce overall project time. However, there is a lack of published research on the theory and' consequences of the use of incentives in construction. Studies in government research and development contracts using incentives shows that contractors may not always behave in the fashion intended by owners designing such contracts. The apparent reason is that the risk a contractor assumes under conditions of limited scope and design information biases the setting of targets, so that overruns/underruns are more dependent on where targets are set, rather than on sharing ratios. In the construction industry this is apparently recognized, and targets are not fixed until design is approximately 40%-60% complete. Moreover, as the contractor and owner attain more knowledge of the project, both parties should attempt to reduce owner risk and control.
| Item Type: | Article |
|---|---|
| Index terms: | overrun, profit, bias, research and development, owner, project design, efficiency, construction industry |
| Subjects: | economic analysis, contractual arrangements, research management, sociology, project controls, industry analysis, performance management, probability and distributions |
| Topics: | Business Strategy, Research Practice, Stakeholder Management, Procurement, Quality Management, Time Control |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here