Contracts and incentives in the construction sector
Hughes, W., Kwawu, W. and Hillig, J.-B. (2010) Contracts and incentives in the construction sector. In: Caldwell, N. and Howard, M. (eds.) Procuring complex performance. Studies of Innovation in Product-Service Management. Routledge, New York, pp. 59-77. ISBN 9780415800051
Full text not archived in this repository.
The aim of this chapter is to examine what the construction sector brings to our understanding of the procurement of complex performance. The chapter is divided into the following parts: fi rst, an overview of the various matters that contribute to the complexity of construction procurement is provided. Second, the most important contractual incentive schemes found in construction contracts are discussed, and this is followed by, third, an examination of the changes associated with the shift towards procuring complex performance (PCP) (service provision). Fourth, the main findings of the authors’ recent research on PCP contracts are summarised, followed by the conclusion. It should be noted that the procurement of services is referred to as ‘PCP’ in this chapter.
Arrowsmith S. (2005). The law of public and utilities procurement. 2nd edition. Sweet & Maxwell, London. Bleeke, J. A. and Ernst, D. (1995). Is your strategic alliance really a sale? Harvard Business Review. (1 January): 97–105. Boukendour, S. and Bah, R. (2001). The guaranteed maximum price contract as call option. Construction Management and Economics. 19, (6): 563–567. Boukendour, S and Hughes, W P (2009). Competitive behaviour without competition. Working paper. School of Construction Management and Engineering, University of Reading. Bower, D., Ashby, G., Gerald, K. and Smyk, W. (2002). Incentive mechanisms for project success. Journal of Management in Engineering. 18, (1): 37–43. Brady, T., Davies, A. and Gann, D. (2005). Creating value by delivering integrated services. International Journal of Project Management. 23, (5): 360–365. Bresnen, M. and Marshall, N. (2000a). Building partnerships: case studies of client-contractor collaboration in the UK construction industry. Construction Management and Economics. 18, (7): 819–832. Bresnen, M. and Marshall, N (2000b). Motivation, commitment and the use of incentives in partnerships and alliances. Construction Management and Economics. 18, (5): 587–598. Davies, A., Brady, T. and Hobday, M. (2006). Charting a path toward integrated solutions. MIT Sloan Management Review. 47, (3): 39−48. Elliott, P. (1972). The sociology of the professions. Macmillan, London. Foote, N. W., Galbraith, J., Hope, Q. and Miller, D. (2001). Making solutions the answer. McKinsey Quarterly. 3: 84–93. Friedman, L. M. (1984). Two faces of law. Wisconsin Law Review. 1: 13–33. Gann, D. M. and Salter, A. J. (2000). Innovation in project-based, service-enhanced firms: the construction of complex products and systems. Research Policy. 29, (7–8): 955–972. Gruneberg, S. L. and Hughes, W. P. (2006). Understanding construction consortia: theory, practice and opinions. RICS Research Papers. 6, (1): 1–53. Gruneberg, S. L., Hughes, W. P. and Ancell, D. J. (2007). Risk under performance-based contracting in the UK construction sector. Construction Management and Economics. 25, (7): 691–699. Hoezen, M. and Hillig, J.-B. (2008). The competitive dialogue procedure: advantages, disadvantages, and its implementation into English and Dutch law. In Proceedings COBRA RICS Construction and Building Research Conference, Dublin, Ireland, September 4–5 (available at http://www.rics.org/ research archive). Hughes, W. P. and Gruneberg, S. (2009). Review of performance-based contracting. School of Construction Management and Engineering, University of Reading. Hughes, W. P., Hillebrandt, P., Greenwood, D. G. and Kwawu, W. E. K. (2006). Procurement in the construction industry: the impact and cost of alternative market and supply processes. Taylor and Francis, London. Hughes, W. P. and Maeda, Y. (2002). Construction contract policy: do we mean what we say? RICS Research Papers. 4, (12): 1–25. Hughes, W. P., Yohannes, I. and Hillig, J.-B. (2007). Incentives in construction contracts: should we pay for performance? In: Haupt, T. and Milford, R. (eds.), Proc. of CIB World Building Congress: Construction for Development. Cape Town, South Africa, 2272–2283. Kogut, B. (2000). The network as knowledge: generative rules and the emergence of structure. Strategic Management Journal. 21, (3): 405–425. Kwawu, W. (2009). Relational contracting in the UK construction sector. Unpublished PhD Thesis, School of Construction Management and Engineering, University of Reading. Kwawu, W. E. K. and Hughes, W. P. (2008). Strategies for aligning organizational incentive systems through contracts. In: Burt, G. (ed.), Knowledge and Information Management through Life (KIM Conference). Reading. Lal, H. (2008). Decommissioning contracts: getting more for less: the role of incentives-based contracts. Society of Construction Law Paper D89. . Society of Construction Law, London. Lyons, B. and Mehta, J. (1997). Contracts, opportunism and trust: self-interest and social orientation. Cambridge Journal of Economics. 21, (2): 239–257. Macaulay, S (1963). Non-contractual relations in business: a preliminary study. American Sociological Review. 28, (1): 55–66. Macneil, I. R. (1980). The new social contract, an enquiry into modern contractual relations. Yale University Press, New Haven, CT. Oliva, R. and Kallenberg, R. (2003). Managing the transition from products to services. International Journal of Service Industry Management. 14, (2): 160–172. Scherer, F. M. (1964). The theory of contractual incentives for cost reduction. The Quarterly Journal of Economics. 78, (2): 157–280. Society of Construction and Quantity Surveyors. (2007). Assessment of liquidated damages for late completion of building contracts. 3rd edition. Society of Construction and Quantity Surveyors, Huddersfi eld. Spada. (2009). British professions today: the state of the sector. Spada, London. The Stationery Office. (2000). Public Private Partnerships: the government’s approach. HM Treasury, London. Trepte, P. (2007). Public procurement in the EU: a practitioner’s guide. 2nd edition. Oxford University Press, Oxford. Veljanovski, C. (2006). The economics of law. 2nd edition. The Institute of Economic Affairs, London. Williamson, O. E. (1979). Transaction cost economics: the governance of contractual relations. Journal of Law and Economics. 22, (2): 233–261. Williamson, O. E. (1985). The economic institutions of capitalism: firms, markets, and relational contracting. The Free Press, New York. Williamson, O. E. (1996). Transaction cost economics and organization theory. In: Smelser, N. J. and Swedberg, R. (eds.), The handbook of economic sociology. Princeton University Press, Princeton, NJ, 77–107.