the impact of financial incentive mechanisms on motivation ... · the impact of financial incentive...

THE IMPACT OF FINANCIAL INCENTIVE MECHANISMS ON MOTIVATION IN AUSTRALIAN

GOVERNMENT LARGE NON-RESIDENTIAL BUILDING PROJECTS

A DISSERTATION SUBMITTED TO THE SCHOOL OF URBAN DEVELOPMENT

AND THE FACULTY OF BUILT ENVIRONMENT AND ENGINEERING OF QUEENSLAND UNIVERSITY OF TECHNOLOGY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

DOCTOR OF PHILOSOPHY

By

Timothy Michael Rose

March 2008

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© Copyright Timothy Michael Rose 2008

All Rights Reserved

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STATEMENT OF ORIGINAL AUTHORSHIP

The work contained in this thesis has not been previously submitted to meet the requirements for

an award at this or any other higher education institution. To the best of my knowledge and

belief, this thesis contains no material previously published or written by another person except

where due reference is made.

Signature: …………………………...........

Date: ……………………………………….

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DEDICATION

This thesis is dedicated to Georgina Black, without whose guidance, patience, unwavering

support, love and encouragement this research would never have eventuated.

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ABSTRACT

The use of financial incentives mechanisms (FIMs) in Australian government large non-

residential building projects is seen as a way to improve project motivation and outcomes and

reinforce long-term commitment between participants. Yet very little empirical research has been

conducted into how FIMs should be applied in the context of construction projects and what

determines their impact on motivation. The primary aim of this research was to identify the

motivation drivers impacting on the achievement of FIM goals. This allowed for the formulation of

recommendations to improve Australian government building procurement strategies, creating

the potential for better project outcomes.

The research involved four major case studies of large construction projects. Analysis of

motivation drivers on each project was based on interviews with senior project participants,

secondary documentation and site visits. Once the motivation drivers were identified, they were

ranked by the weighted number of motivation indicators impacted, to give an indication of their

relative importance. The results provide Australian government clients with key areas for policy

direction.

The findings indicate that the following motivation drivers (in order of impact) were more

important than FIM design in achieving FIM goals:

• equitable contract risk allocation and management

• scope for future project opportunities with the client

• harmonious project relationships

• early contractor involvement in design stages

• value-driven tender selection processes.

A consequence of ignoring these key procurement initiatives can be a less than ideal FIM goal

performance, despite the nature of FIM design, including the strength of the reward on offer.

FIMs have the potential to be a valuable addition to any project procurement strategy. Yet, the

main message of this thesis is: If clients rely solely on financial incentives as the driver of

motivation it will likely result in failure.

KEYWORDS: Financial Incentive Mechanism, Building Project, Building Contracts, Motivation, Procurement, Australia

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ACKNOWLEDGEMENTS

I would like to acknowledge the support of many individuals and organisations that have been

critical to this research. First and foremost, acknowledgement needs to be given to Dr Karen

Manley, my Principal Supervisor, for her invaluable insight and commitment to my research. Her

advice, support, constructive feedback and patience have been a guiding light through this PhD

journey. She has taught me a great deal about academic inquiry and has instilled confidence in

my ability as a researcher. Karen was always accessible to discuss my research progression - a

true reflection on her professionalism. I am proud to have had the opportunity to undertake my

doctoral studies under her guidance.

Professor Keith Hampson also unselfishly gave his time to discuss my progression and review

ongoing thesis chapters as my Associate Supervisor. Keith has always been extremely positive

about my research and his energy, good nature and optimistic outlook kept me motivated.

The Cooperative Research Centre for Construction Innovation and Queensland University of

Technology (QUT) deserve special mention for their financial support. Without this support it is

unlikely that I would have been able to undertake my full time doctoral studies and I thank all

those involved. It was a privilege to have been involved with Construction Innovation, as the

leading construction research and development centre in Australia. I have made many valuable

academic and industry contacts and good friends through my association with Construction

Innovation. I have seen first hand, the significant value that can be achieved through the close

collaboration and knowledge sharing between research and industry and I look forward to a long

association with Construction Innovation in my future professional career. Similarly, I feel

fortunate to have undertaken my PhD at QUT – a well-respected and world renowned University.

Thanks to all my QUT colleagues who have provided valuable input and encouragement during

my studies.

To Ms Michelle Coillet and Ms Lindy Spindler who gave their time generously to edit my work and

provide me the advice I needed to ‘spit polish’ the final product.

The research would not have been possible without the ongoing support of the Queensland

Department of Pubic Works, particularly Mr Max Smith, Mr Don Allan, Mr Dayv Carter and Mr

Ross Smith who generously provided me with the time off from my position to undertake my PhD.

Also, thanks to Don for his valuable insights and providing access to extensive industry contacts

during my early research development.

I would also like to convey my appreciation to the case study organisations and their

representatives for their willingness to share their opinions with me, as honestly and frankly as

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possible. Without their enthusiasm and willingness to speak their mind, I would have lost my

direction many times. Also, special thanks must go to state government client representatives

who provided me with the support and contacts I needed to gain access to the ‘inner circle’ of

project participants.

To all my friends who remained steadfast and supportive despite my absence from many social

events – thank you! Particular thanks go to: Linda Gava & Luke Dennis, Kath Wall, Chris &

Emma Neilson, Sam & Amelia Brown, Sam & Libby Freshney, Richie & Antoinette Rhydderch,

Aaron Binnie, Duncan & Lyn Black, Angus Wyllie; Sam, Siobhan & Damien Greathead, Helen

Bond, Anna & Sally Sexton, Anna O’Gorman, Jen Petrie, Chris & Helen Bayley, Alex Gaboritt &

Bec Cornish, Mark & Michelle McLaughlin, Charles & Shannon Calabro, Ben & Binnie Urban,

Mark & Millie Cotter, Lauren Gubbin, Rachael Wellington and Sugiharto Alwi.

Finally, my gratitude extends to my wonderful family who have been inspirational. To my parents,

Mike and Marian Rose who have always and unconditionally supported me and instilled, from an

early age, the importance of education and a strong work ethic. I couldn’t have asked for better

parents. To Penny, Simon and Jeremy Rose, who each in their own unique way have enriched

my life and have assisted in making this journey all the more worthwhile. Thank you.

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TABLE OF CONTENTS ABSTRACT .................................................................................................................................................... v

ACKNOWLEDGEMENTS...............................................................................................................................vi

TABLE OF CONTENTS................................................................................................................................ viii

LIST OF FIGURES ....................................................................................................................................... xiii

LIST OF TABLES .........................................................................................................................................xiv

LIST OF ABBREVIATIONS ...........................................................................................................................xv

CHAPTER 1: INTRODUCTION........................................................................................................... 1

1.1 BACKGROUND........................................................................................................................... 1

1.2 BASIC CONCEPTS AND DEFINITIONS..................................................................................... 4

1.3 RESEARCH FOCUS ................................................................................................................... 4

1.4 SUMMARY OF FINDINGS AND CONCLUSIONS ...................................................................... 9

1.5 READERS’ GUIDE .................................................................................................................... 10

CHAPTER 2: LITERATURE REVIEW .............................................................................................. 12

2.1 INTRODUCTION ....................................................................................................................... 12

2.2 RESEARCH NEEDS IDENTIFIED IN THE LITERATURE......................................................... 14

2.3 GENERAL DESIGN OF FINANCIAL INCENTIVE MECHANISMS IN CONSTRUCTION.......... 16

2.3.1 Construction Contracts ......................................................................................................... 16

2.3.1.1 Contractual function .................................................................................................... 16

2.3.1.2 Types of construction contracts................................................................................... 17

2.3.1.3 Selecting standard contract type ................................................................................. 20

2.3.2 Financial Incentive Mechanisms in Construction Contracts .................................................. 21

2.3.2.1 Types of financial incentive-based contracts ............................................................... 21

2.3.2.2 Individual and team financial incentives ...................................................................... 33

2.4 FINANCIAL INCENTIVES AND THE PROJECT ENVIRONMENT............................................ 35

2.4.1 Procurement Approaches ..................................................................................................... 35

2.4.2 Project Sources that Influence Performance......................................................................... 42

2.5 MOTIVATION AND FINANCIAL INCENTIVES.......................................................................... 43

2.5.1 Motivation, Effort and Performance....................................................................................... 44

2.5.2 Contributions from Psychological Research ......................................................................... 45

2.5.2.1 Behaviour modification theory ..................................................................................... 45

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2.5.2.2 Cognitive motivational theories.................................................................................... 46

2.5.2.3 Extrinsic and intrinsic motivation and financial incentives ........................................... 49

2.5.3 Using Psychological Theories to Explain Organisational Action ........................................... 51

2.5.4 Contributions from Economic Research................................................................................ 53

2.5.4.1 Principal-agent theory ................................................................................................. 53

2.5.4.2 Experimental incentive contracting literature ............................................................... 56

2.5.5 Motivation Indicators ............................................................................................................. 56

2.6 CONCEPTUAL FRAMEWORK ................................................................................................. 64

2.7 POINT OF DEPARTURE FOR THE RESEARCH ..................................................................... 66

2.8 SUMMARY ................................................................................................................................ 68

CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY ........................................................... 70

3.1 INTRODUCTION ....................................................................................................................... 70

3.2 RESEARCH DESIGN................................................................................................................ 71

3.2.1 Scope of Study ..................................................................................................................... 72

3.2.2 Sample Selection .................................................................................................................. 73

3.2.3 Data Collection ..................................................................................................................... 77

3.2.4 Data Analysis ........................................................................................................................ 83

3.3 VALIDITY AND RELIABILITY.................................................................................................... 88

3.3.1 Validity .................................................................................................................................. 88

3.3.2 Reliability .............................................................................................................................. 90

CHAPTER 4: CASE PROJECT A - LYELL McEWIN HEALTH REDEVELOPMENT STAGE A...... 92

4.1 PROJECT CHARACTERISTICS ............................................................................................... 92

4.1.1 Project Background............................................................................................................... 92

4.1.2 General Procurement Approach ........................................................................................... 94

4.1.3 Contract Risk Profile ............................................................................................................. 95

4.1.4 Management Structure and Engagement Stages ................................................................. 96

4.1.5 Tender Selection................................................................................................................... 97

4.1.6 Relationship Approach.......................................................................................................... 98

4.1.7 Financial Incentive Mechanism............................................................................................. 99

4.1.8 Project Conditions............................................................................................................... 101

4.2 CRITICAL ANALYSIS AND INTERPRETATION OF MOTIVATION DRIVERS ....................... 101

4.2.1 Contract Design .................................................................................................................. 108

4.2.2 Design and Construction Management............................................................................... 108

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4.2.3 Tender Selection................................................................................................................. 110

4.2.4 Relationship Management .................................................................................................. 110

4.2.5 FIM Design ......................................................................................................................... 111

4.3 CONCLUSIONS ...................................................................................................................... 114

CHAPTER 5: CASE PROJECT B - BRISBANE MAGISTRATES COURTS.................................. 118

5.1 PROJECT CHARACTERISTICS ............................................................................................. 118

5.1.1 Project Background............................................................................................................. 118

5.1.2 General Procurement Approach ......................................................................................... 119

5.1.3 Contract Risk Profile ........................................................................................................... 120

5.1.4 Management Structure and Engagement Stages ............................................................... 121


5.1.6 Relationship Approach........................................................................................................ 124

5.1.7 Financial Incentive Mechanism........................................................................................... 124



5.2.1 Contract Design .................................................................................................................. 134




5.2.5 FIM Design ......................................................................................................................... 138

5.3 CONCLUSIONS ...................................................................................................................... 139

CHAPTER 6: CASE PROJECT C – ADELAIDE CONVENTION CENTRE EXTENSION .............. 143











6.2.1 Contract Design .................................................................................................................. 160

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6.2.5 FIM Design ......................................................................................................................... 165

6.3 CONCLUSIONS ...................................................................................................................... 167

CHAPTER 7: CASE PROJECT D – COFFS HARBOUR HEALTH CAMPUS................................ 171











7.2.1 Contract Design .................................................................................................................. 185




7.2.5 FIM Design ......................................................................................................................... 189

7.3 CONCLUSIONS ...................................................................................................................... 190

CHAPTER 8: CROSS-CASE ANALYSIS ....................................................................................... 194

8.1 ANALYSIS OF KEY MOTIVATION DRIVERS......................................................................... 194

8.2 ANALYSIS OF PROJECT SOURCES..................................................................................... 199

8.2.1 Contract Design .................................................................................................................. 199




8.2.5 FIM Design ......................................................................................................................... 206

8.3 SUMMARY .............................................................................................................................. 209

CHAPTER 9: DISCUSSION............................................................................................................ 212

9.1 CONTRACT DESIGN.............................................................................................................. 212

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9.2 DESIGN AND CONSTRUCTION MANAGEMENT.................................................................. 215

9.3 TENDER SELECTION............................................................................................................. 216

9.4 RELATIONSHIP MANAGEMENT............................................................................................ 217

9.4.1 Relationship Workshops ..................................................................................................... 219

9.4.2 Future Work ........................................................................................................................ 219

9.5 FIM DESIGN............................................................................................................................ 221

9.5.1 FIM Flexibility ...................................................................................................................... 222

9.5.2 Goal Opportunities .............................................................................................................. 223

9.5.3 Reward Distribution............................................................................................................. 223

CHAPTER 10: CONCLUSIONS AND RECOMMENDATIONS......................................................... 225

10.1 OVERVIEW ............................................................................................................................. 225

10.2 CLIENT RECOMMENDATIONS.............................................................................................. 228

10.3 ACADEMIC CONTRIBUTION ................................................................................................. 230

10.4 FUTURE RESEARCH ............................................................................................................. 231

10.5 CLOSURE ............................................................................................................................... 234

APPENDIX A: INTERVIEW GUIDE ................................................................................................ 236

APPENDIX B: CASE PROJECT A - DISAGGREGATED DATA.................................................... 239

APPENDIX C: CASE PROJECT B - DISAGGREGATED DATA.................................................... 250

APPENDIX D: CASE PROJECT C - DISAGGREGATED DATA.................................................... 258

APPENDIX E: CASE PROJECT D - DISAGGREGATED DATA.................................................... 269

APPENDIX F: INTER-JUDGE RELIABILITY TEST RESULTS...................................................... 277

BIBLIOGRAPHY ........................................................................................................................................ 278

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LIST OF FIGURES

Figure 1 Australian construction industry productivity .......................................................................... 2

Figure 2 Research activities and expected output................................................................................ 6

Figure 3 Standard cost reimbursable with percentage fee ................................................................. 19

Figure 4 Cost-plus incentive fee contract with 50:50 sharing profile .................................................. 24

Figure 5 Share profile for high risk project, with risk-averse contractor.............................................. 25

Figure 6 Conceptual framework - Motivation on building projects...................................................... 66

Figure 7 The inductive coding process............................................................................................... 85

Figure 8 Weighted frequency model................................................................................................... 87

Figure 9 Project A - Management structure and engagement stages................................................ 97

Figure 10 Project A - Motivation drivers ............................................................................................ 116

Figure 11 Project B - Management structure and engagement stages ............................................. 122

Figure 12 Project B - Motivation drivers ............................................................................................ 141

Figure 13 Project C - Management structure and engagement stages............................................. 149

Figure 14 Project C - Motivation drivers ............................................................................................ 169

Figure 15 Project D - Management structure and engagement stages............................................. 177

Figure 16 Project D - Motivation drivers ............................................................................................ 191

Figure 17 Revised conceptual framework - Motivation on building projects...................................... 228

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LIST OF TABLES

Table 1 Quality scoring system used on the Acton Peninsula project ................................................ 30

Table 2 Summary of differences in key FIM designs.......................................................................... 32

Table 3 Motivation indicators .............................................................................................................. 65

Table 4 Case project characteristics................................................................................................... 75

Table 5 Interviewee details ................................................................................................................. 79

Table 6 Project A - Motivation driver matrix...................................................................................... 103

Table 7 Project A - Motivation driver descriptions ............................................................................ 106

Table 8 Project B - Motivation driver matrix...................................................................................... 129

Table 9 Project B - Motivation driver descriptions ............................................................................ 132

Table 10 Project C - Motivation driver matrix..................................................................................... 157

Table 11 Project C - Motivation driver descriptions ........................................................................... 159

Table 12 Project D - Motivation driver matrix..................................................................................... 182

Table 13 Project D - Motivation driver descriptions ........................................................................... 184

Table 14 Key motivation drivers (Projects A-D)................................................................................. 196

Table 15 Summary of key motivation drivers and project sources (Projects A-D)............................. 199

Table 16 Inter-judge reliability test results ......................................................................................... 277

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LIST OF ABBREVIATIONS

ABS Australian Bureau of Statistics

ACA Australian Constructors Association

ACC Australian Concrete Construction

ACS Actual Construction Sum

AEGIS Australian Expert Group in Industry Studies

AIG Australian Industry Group

APCC Australian Procurement and Construction Council

A$ Australian dollars

BAU business as usual

BP British Petroleum

CBD central business district

CIMA Chartered Institute of Management Accountants

CONQAS Construction Quality Assessment System

CPE Centre for Program Evaluation

DAIS Department for Administrative and Information Services

DAU Defence Acquisition University

DHS Department of Human Services

DPW Department of Public Works

ESD Ecological Sustainable Development

ELT Executive Leadership Team

FFE Furniture, Fixtures and Equipment

FIM Financial Incentive Mechanism

GDP Gross Domestic Product

GCS Guaranteed Construction Sum

HM Her Majesty’s

HRS High Risk/Significant

IMT Integrated Management Team

LMHS Lyell McEwin Health Service

LSTK lump sum/fixed price turn key (contract)

MBA Master Builders Association

MC - D+CM Managing Contractor – Design and Construction Management

MC - CM Managing Contractor – Construction Management

NSW New South Wales

xvi

NT Northern Territory

PASS Performance Assessment Scoring System

PCG Project Control Group

PPP Public Private Partnerships

QDPW Queensland Department of Public Works

Qld Queensland

QSD Queensland State Development

SA South Australia

TCS Target Construction Sum

UK United Kingdom

UNIDO United Nations International Development Organisation

US United States

WA Western Australia

CHAPTER 1: INTRODUCTION ________________________________________________________________________________________________

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CHAPTER 1: INTRODUCTION

1.1 BACKGROUND

Construction is unquestionably one of the most significant industry contributors to the

Australian economy (Hampson and Brandon, 2004, p.2), with estimates of contribution

to GDP (Gross Domestic Product) reaching as high as 14% (Hampson and Manley,

2001, p.37). It is also fundamental to our quality of life and significantly impacts on

social functioning through the provision of community systems and services such as

health, education, housing, transport and recreation. The ability of the community to

efficiently and effectively secure these buildings and infrastructure relies on procurement

mechanisms that result in designers and constructors working closely with clients to

deliver outcomes at an appropriate balance of time, cost and quality.

In 2005-06, the Australian construction industry (as conventionally defined) accounted

for approximately 6.5% of GDP with close to A$100 billion of construction work done

(MBA, 2006, p.4). As a major sector of the industry, non-residential building accounted

for over 21% of all construction activity in 2005-06 and has experienced significant

growth over the last five years, supported by a buoyant Australian and international

economy (AIG, 2006, p.1).

Despite the growth of this sector, the industry faces significant problems with long-term

performance, competitiveness and productivity. As Figure 1 shows, labour productivity

(gross value added per person employed) in the construction industry over the last 20

years has been disappointing by comparison to the overall economy figures. Although

productivity levels within the industry have improved over the last ten years, partly due

to less adversarial labour relations and greater workforce flexibility (MBA, 2006, p.4),

there remains significant opportunities for improvement and growth, as is the case for

many other labour intensive industries.

Productivity improvements within the construction industry have a significant positive

impact on Australian economic performance (ACIL Tasman, 2005). The construction


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industry has strong multiplier linkages with important industries in the economy,

particularly transport and mining. Using macroeconomic modelling techniques, the

impact on GDP of increased productivity in different sectors can be forecast. For

example, if a one-off sustained 10% improvement in productivity is assumed in each

service sector in the Australian economy, and the impact on GDP is assessed, the

construction sector will have the biggest average annual impact, estimated at 3% over

20 years (2000-2020) (ACIL Tasman, 2005, p.72). These predictions reinforce the need

for industry-focused research and development into improved business, production and

labour practices to decrease costs and improve productivity.

Figure 1 Australian construction industry productivity

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1985

/86

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

Financial year

Gro

ss v

alue

add

ed p

er p

erso

n em

plye

d, A

$

ConstructionIndustry - LabourProductivity

Total Australia -LabourProductivity

Source: Adapted from Master Builders Association (2006, p.5)

According to a large-scale investigation into future directions of the Australian

construction industry (Hampson and Brandon, 2004), there are significant barriers to

change that have impacted on growth, including: a fragmented and adversarial industry

structure, a short-term approach to finance and planning, risk aversion and poor profit

margins. The investigation also identified that future research into improved

procurement models was needed to improve the industry’s performance. The research

associated with this thesis has responded to that need in addition to filling identified


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gaps in the international literature.

As major clients, Australian governments are considered to be in an ideal position to

drive industry growth through promoting advanced procurement approaches. Australian

government projects account for approximately 25% of all non-residential building

activity by value of work done. Within this, the government accounts for 45% of projects

in health, education, recreation and related areas (ABS, 2005a).

According to the Australian Procurement and Construction Council’s (APCC) “Construct

Australia” report, governments should be seen as promoting industry development by

leading the way in their own procurement initiatives, including the use of ‘compatible

incentive regimes’ (APCC, 1997, p.13-16), which the private sector may be encouraged

to emulate. Financial incentives aim to raise efficiency by increasing the motivation to

work harder and smarter through the offer of a financial reward (Sliwka, 2003, p.2).

Australian construction industry reports claim that procurement approaches containing

equitable incentive mechanisms applied across the entire project team will improve

project and industry performance (Sidwell et al., 2002, p.44; Kenley et al., 2000, p.3;

AEGIS, 1998, p19; APCC, 1997, p.16). A more recent study indicates that Australian

clients have the necessary competence to develop such strategies (Manley, 2006,

p.1302), if they have appropriate information.

Despite the heralded benefits of financial incentives, until now there has been little

construction-specific information available to clients on what is required to effectively

implement them. Based on the researcher’s preliminary discussions with government

clients across Australia, there is scepticism about the tangible benefits of financial

incentives and a lack of understanding of what determines their effectiveness (or their

ability to motivate towards stated goals or objectives). The literature review revealed

similar findings internationally. There is little research that has investigated the impact of

incentives on motivation and performance in the context of construction projects;

Bresnen and Marshall (2000) being a key exception. There is thus limited guidance

available to practitioners when they design a financial incentive strategy. It was this lack

of industry-focused information that provided the rationale for an exploration of the key

project drivers impacting on financial incentive goal motivation – where a valuable

contribution to our current knowledge could be made.


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1.2 BASIC CONCEPTS AND DEFINITIONS

Bower et al. (2002, p.38) defined incentivisation as ‘a process by which a provider is

motivated to achieve extra ‘value-added’ services over those specified originally and

which are of material benefit to the user’. In this research, the Financial Incentive

Mechanism (FIM) is the mechanism that aims to motivate project participants through its

goals, measurement processes and distribution. FIMs endeavour to take advantage of a

firm’s objective to maximise their profits by giving them the opportunity to earn a greater

profit if they perform more efficiently (Bower et al., 2002, p.43).

A key objective of this thesis was to explore determinants of effective financial incentives

in the research population (or how effective they are in motivating towards goals). The

Centre for Program Evaluation (US Justice Department) defined effectiveness in the

context of a program or project, as the ability to achieve stated goals or objectives,

judged in terms of both output and impact (CPE, 2007). Therefore, FIM effectiveness in

this thesis refers to the ability to promote motivation towards the achievement of its

above ‘business as usual’ (BAU) goals (or the voluntary goals above the mandatory

contractual requirements).

According to the literature review, financial incentives aim to directly impact the level of

motivation, which strongly influences performance output. To explore the impact of FIMs

on motivation, the drivers within the project that promoted or discouraged motivation

towards the FIM goals (referred to as motivation ‘drivers’) were identified and explored

based on their levels of impact. Four motivation ‘indicators’ were developed from

triangulation of motivational theory principles in the literature review. These indicators

provided a sound framework for empirically identifying the key motivation drivers (or the

drivers with the strongest impact on motivation towards the FIM goals across projects).

Also, to provide guidance and structure in the discussion of common themes and

subsequent recommendations, a set of five project ‘sources’ were developed from the

literature review. These are project areas from which motivation drivers may be derived.

1.3 RESEARCH FOCUS

The research focuses on government large non-residential building projects because of

their significant contribution to the Australian economy and the identified need for


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improved government client guidance in the effective use of advanced procurement

initiatives, such as financial incentives. Also, focusing on a specific project type made it

possible to make more robust generalisations, as the population was narrowly defined.

The aim of this research was to provide rigorous evidence to support government clients

seeking to improve the performance of large non-residential building projects through

the effective use of financial incentives.

In order to provide this guidance, the following research questions needed to be

answered:

Primary Research Question: What are the key drivers impacting on motivation towards

Financial Incentive Mechanism goals in Australian government large non-residential

building projects?

Secondary Research Question: What are the implications for project procurement

design and delivery?

Figure 2 shows the steps that were necessary to answer the research questions. It

details the input, research activities and expected output for each stage of the research.


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Figure 2 Research activities and expected output

The successful completion of each step contributed to the achievement of the research

aim, which involved pursuing each of the following three key objectives:

1a. Develop a conceptual framework for identifying design and delivery drivers impacting on motivation towards above BAU project goals (to answer the Primary

Research Question).

The development of a theoretical conceptual framework was required to guide the

exploration of the project drivers impacting on FIM goal motivation. As the primary

output from the literature review, this conceptual framework guided the fieldwork and

analysis. A major component of the conceptual framework was the development of four

INPUT RESEARCH ACTIVITY EXPECTED OUTPUT

Literature Review

Fieldwork and Analysis

Compilation of Knowledge Critical review of: • FIM design and implementation • Motivational theory • Determinants of

motivation/performance in construction

Develop Conceptual Framework

• Integrated motivational theory approach

Motivation indicators

Project sources

Examine Case Studies

• Four A$90 million+ projects • 32 semi-structured interviews • Triangulation through secondary

data collection • Data analysis (single and cross-

case)

Individual project

motivation drivers

Key motivation

drivers

Research Results

Client guidance

Refine Conceptual Framework

• Identify key motivation drivers

Significant contribution to filling gap in academic

literature


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motivation indicators based on an integrated motivation theory approach. Psychological

and economic motivational theory principles were triangulated to define the four

motivation indicators which were used to assess motivation driver impact. A limited

number of researchers in organisational management have undertaken experimental

research into the performance of compensation systems using integrated economic and

psychological motivational theory principles (eg. Van Herpen et al., 2005), but there

have been no known attempts in the context of a construction project. The literature

review results indicated that there is a lack of guidance into how financial incentives

should be designed and applied in the construction sector. Given the importance of this

sector to the Australian economy and quality of life, it was considered important to

contribute to closing this knowledge gap.

Also as a part of the conceptual framework, five project sources were developed from

the review of literature on determinants of performance in construction projects. The

project sources were the possible areas within the project procurement approach where

motivation drivers may arise, and were used to guide the semi-structured interview

questions, as well as providing structure to the discussion of research results. The thesis

explores the specific drivers that came out of the project sources and drove motivation,

as this information could not be deduced from the literature and required empirical work.

On conclusion of the analysis and discussion of results, the conceptual framework was

revised to reflect the newly discovered key motivation drivers. The framework developed

in this research provides a strong foundation for future investigations into FIMs and

motivation.

1b. Empirically identify key motivation drivers and explore their impact on motivation towards FIM goals in Australian government large non-residential building projects (to answer the Primary Research Question).

The fieldwork and analysis involved exploring the motivation drivers in the context of

four Australian government large non-residential building projects utilising FIMs. As the

research was exploratory in nature, the drivers were identified and analysed using an in-

depth inductive case study approach. The data is qualitative, as the research sought to

understand the perceptions of building project participants in response to the financial

incentives as a part of the overall procurement approach. The research was based on

semi-structured interviews, from four senior stakeholder types – Client, Managing


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Contractor, Consultant and Subcontractor. Triangulation occurred between these types,

across projects and by cross-checking with secondary data, to improve accuracy, depth

and robustness of the analysis.

Once the motivation drivers were identified through manual coding of interview data,

they were ranked according to frequency to obtain a basic measure of impact. Ranking

was based on interviewee weighting and the number of times the driver was noted by

each interviewee across the motivation indicators and case projects. Motivation driver

scores were then tallied and the drivers that were mentioned by two or more

interviewees on two or more case projects, and pertained to characteristics that were

common to all projects, were classed as key drivers. Eight key drivers were identified

and formed the basis for the discussion, conclusions and recommendations of

the thesis.

This research has expanded knowledge of drivers of motivation under procurement

approaches that incorporate financial incentives. It is proposed that future quantitative

research will provide further definition of key motivation drivers and their levels

of impact.

2. Prescribe key areas for attention by government clients to improve the impact of FIMs in the Australian government non-residential building sector (to

answer the Secondary Research Question).

This exploratory research is the first known attempt to identify and explore project

drivers that promote motivation towards financial incentive goals in a large building

project context. The exploration of key motivation drivers, through the collection and

analysis of field data guided by current ‘best practice’ motivation and construction

literature, provided government clients with a series of industry-focused

recommendations to enhance procurement practices that incorporate FIMs. It is

anticipated that the uptake of these recommendations may result in improved project

outcomes for this industry sector. This investigation also provided a foundation for

future research in a number of related areas, offering exciting opportunities to further

enhance the quality of information provided to project clients to assist them in designing

better policies to improve construction project performance.


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1.4 SUMMARY OF FINDINGS AND CONCLUSIONS

This research provides valuable early evidence of the associations between the context

of a large building project and the impact of FIMs on motivation as part of the

procurement strategy. Data collected and analysed suggest a strong positive

relationship between key motivation drivers and motivation towards achievement of the

FIM goals. The most important drivers encouraging project participants to achieve FIM

goals were, in order of importance:

1. Equitable contract risk allocation

2. Future work opportunities

3. Relationship workshops

4. Early contractor involvement in design

5. Value-driven tender selection

6. FIM design flexibility

7. Multiple FIM goal opportunities

8. Equitable FIM reward distribution

These results suggest that the simple existence of FIMs should not be viewed as a

sufficient condition for performance improvement, or even a necessary condition. FIM

design was not the most important determinant of FIM goal achievement. Indeed, the

amount of reward on offer was the least important key motivator identified. These were

surprising findings considering the amount of construction management literature that

has emphasised the strong impact financial incentives can have on project performance.

Nevertheless, clients should not discount the value of including tailored FIMs in their

procurement approaches; by strengthening key areas within the approach, they can

significantly improve how the FIM is perceived and its impact on the motivation of project

participants.

This thesis confirmed the effectiveness of the research framework, as the project

sources appeared to provide a comprehensive structure for capturing sources of project

motivation. The categorisation of indicators proved similarly effective in guiding fieldwork

and overall, the framework proved a useful tool for eliciting information about project

participant motivation.


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1.5 READERS’ GUIDE

Chapter 2 summarises the most relevant literature and establishes the point of

departure for this research. It also provides the evidence for the development of the

conceptual framework that was used to guide the fieldwork and analysis. To accomplish

the objectives of this exploratory research, a method was developed that provided

structure, yet allowed flexibility for the research to evolve. Chapter 3 describes the

research activities that were employed, as well as discussing the methodological issues

identified during the course of the research.

Chapters 4, 5, 6 and 7 present four projects which comprise the case studies for this

research. Each chapter explains project characteristics in detail and provides a critical

analysis of the motivation drivers in the context of the individual project environment.

Individual project motivation drivers that were identified from the fieldwork were ranked

to determine those with the strongest impact in each case. The drivers were then linked

to the five project sources and their method of operation was examined.

Chapter 8 analyses and discusses the key drivers impacting on motivation towards FIM

goals across the four projects. Analysis of the consistencies between the projects

helped identify trends that formed the basis for client recommendations and future

research ideas.

Chapter 9 discusses project design and delivery implications in the context of current

research. This chapter also introduces new literature based on the newly identified key

motivation drivers, building on the literature review findings.

Chapter 10 presents the thesis conclusions, discusses the broad research contributions

resulting from the attainment of the research objectives and presents the refined

research framework. It also provides a summary of recommendations for government

clients to improve motivation and the impact of FIMs in Australian non-residential

building projects. Finally, future research directions are proposed.

Six appendices provide supporting information to the thesis chapters. Appendix A

presents the semi-structured interview guide that was developed from the literature

review findings and was used to guide the interview questioning. Appendices B-E

present example interviewee quotes for all drivers and respondents; randomly selected

to provide evidence in support of individual case project findings. Finally, Appendix F

presents the results of the inter-judge reliability test providing evidence of the reliability


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of the motivation driver categories developed from the interview data.

CHAPTER 2: LITERATURE REVIEW ________________________________________________________________________________________________

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CHAPTER 2: LITERATURE REVIEW

‘There is no better way to induce behavioural change than factoring an incentive

element into the procurement system … the major clients are in an ideal position to drive

for enhancements through this route’.

Honourable Henry Tang,

Secretary for Commerce, Industry and Technology,

Hong Kong, January 2002.

2.1 INTRODUCTION

This chapter reviews the background literature on financial incentives and their

motivational principles, and establishes a starting point for this research. The

effectiveness of financial incentive contracts in construction projects is directly related to

the incentive contracting literature in construction management and to two related

bodies of research on incentive design in organisational management: the economic

and psychological-based motivational theories. This thesis examines the determinants

of effective FIMs and motivation above BAU performance in Australian government

large non-residential building projects, contributing to the incentive contracting literature

in construction management.

Although financial incentives have been a significant component of the delivery strategy

in many large building projects in Australia, there has been little research into the impact

of incentive mechanisms in a construction project context, particularly in relation to their

underpinning motivational principles and their impact on project performance (Bresnen &

Marshall, 2000, p.596). There is also no known research that explores the impact of

FIMs in Australian building projects. Until now, there has been a lack of information to

guide their implementation in this important sector.

A small number of researchers in organisational management have undertaken

experimental research into the performance of compensation systems, for example


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using an integrated motivational theory approach as a basis for their investigations (eg.

Van Herpen et al., 2005; Moers, 2001a). Yet, they have focused on performance

measurement and motivation at an organisational and strategic inter-organisational

level. The existing literature involves little or no discussion of the performance of

financial incentives in a project environment, such as a large building project.

This research has contributed to closing these knowledge gaps by assessing the

performance of FIMs through an investigation into the key motivation drivers impacting

on FIM goal achievement. As the foundation for this investigation, a set of unique

motivational indicators was developed from psychological and economic motivation

theory principles to guide the research fieldwork and to assess the impact of the drivers

on motivation.

The next section in the literature review summarises the research needs established

from the literature. Section 2.3 provides an overview of current financial incentive design

strategies in construction contracts. This section establishes the various incentive

mechanism types and their general motivational objectives, based on financial or non-

financial performance goals, and describes the levels at which financial incentives are

administered (i.e. individual or group) and their potential impact on motivation.

Section 2.4 discusses the general procurement approaches that incorporate FIMs and

the relationship between the FIM and project context. This is followed by the

identification of project sources. These sources represent the project areas from which it

was expected the motivation drivers would arise and were based on general

construction project performance literature. They comprise: the contract, design and

construction management, tender selection, relationship management and FIM design.

It is generally accepted that current incentive types can contribute significantly to the

motivation of contractors in a construction project (Bower et al., 2002, p.38). However,

the impact of financial incentives can depend greatly on how they are implemented in

the motivational environment of the project. This argument leads on to the discussion in

Section 2.5 on motivational theory, as the foundation of incentive contract motivation,

which establishes the motivational principles that will be used to assess current

performance in the context of the Australian non-residential building sector.

Section 2.5 provides an overview of behavioural and economic motivational theory

literature, including a brief review of the experimental incentive contracting literature that

combines the two theoretical streams. Drawing from this, a set of motivation indicators


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was proposed that influence the level of effort (motivation) in financial incentive

contracts.

Section 2.6 describes the conceptual framework (including the motivation indicators and

project sources) that guided the empirical investigation (Rose and Manley, 2005).

Sections 2.7 and 2.8 conclude the literature review with a summary of the major findings

and a point of departure for this research.

2.2 RESEARCH NEEDS IDENTIFIED IN THE LITERATURE

Previous research in construction management and organisational management has

identified a need for this research. Starting with the construction literature, Bresnen &

Marshall (2000) investigated the use of incentives in UK construction partnerships and

alliances primarily from a psychological perspective, as part of a larger study into client

and contractor collaboration. They noted that there has been little research into the

impact of incentive mechanisms on performance in construction projects. Bower et al.

(2002) highlighted the value of research into incentive contracts in construction projects

and acknowledged the influence incentive mechanisms can have on project success.

Lahdenpera & Koppinen (2003) also supported this view.

Howard et al. (1997) highlighted the significant value of research into performance

incentives in construction projects using economic principal-agent theory. They

recommended that incentive pay design be based on the moral hazard problem (or the

tendency of contractors to display self-interested behaviour at the expense of the

principal). However, the focus of this research was on the economic principles of

motivation in incentive contracts, and excluded psychological motivational elements

such as intrinsic motivational factors, limiting the value of their results.

Broome & Perry (2001) discussed profit-sharing profiles in cost-plus incentive fee

contracts and acknowledged the importance of a contract strategy that provides

‘alignment of the motivations of the parties so as to maximise the likelihood of project

objectives being achieved’ (p.65). They recommended that further research be

undertaken on the determinants of share profiles and their impact on the performance of

project parties.

Bubshait (2003) highlighted variations between owners’ and contractors’ perceptions of


Page 15

incentive contracts in industrial projects in Saudi Arabia and showed that most

respondents agreed that incentive contracts improved contractor performance.

Although this study described perceptions of the application of incentives in this industry

and the reasons for their application, it did not suggest how the incentive contracts could

be more effectively applied in individual projects.

Research into incentive systems in organisational management has produced significant

argument for the integration of the economic and psychological motivational theories

that are used to investigate the impact of incentives on motivation. Van Herpen et al.

(2005) identified the importance of the integration of the two motivational theories and

developed a number of indicators that influenced the motivation levels of agents under

various compensation systems (but not in project environments). Gibbons (1998, p.130)

suggested that economic models that ignore psychological concepts are incomplete. He

also outlined the need for field experiments to investigate financial incentives and their

impact on extrinsic and intrinsic motivation. Moers (2001a) also called for the cross-

pollination of the economic and behavioural theory streams to investigate incentive

systems.

This dual approach combining economic and psychological motivational theory

principles has not been used to guide an investigation into the impact of financial

incentives in a construction project environment. The need for such research is clearly

warranted. Although extensive empirical research has been conducted on the effects of

incentives on motivation from an organisational management perspective (eg. Van

Herpen et al., 2005; Fehr & Falk, 2002; Benabou & Tirole, 2003), there has been limited

research in this area from a construction project perspective. This may be due to the

complexity of the motivational environment in a construction project and the potential

difficulties in applying organisation theory to a construction project context. The

increasing use of FIMs in Australian government large building projects (as outlined in

Chapter 1) and the lack of information to assess their impact and guide their

implementation, shows the potential for this research to impact significantly on the future

success of these projects, and potentially all construction projects.


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2.3 GENERAL DESIGN OF FINANCIAL INCENTIVE MECHANISMS IN CONSTRUCTION

This section discusses the contracts used in the construction industry and then

describes the FIMs attached to the contracts. These include profit/loss sharing in cost-

plus incentive contracts, built-in bonus/penalty performance provisions and multiple

financial incentive mixes.

2.3.1 Construction Contracts

A contract is a legally enforceable agreement that outlines the obligations of the parties

involved, and thus has a major impact on the success of a project (von Branconi & Loch,

2004, p.119). A major objective of a contract in a construction project is to ensure that

the motives of contractors/consultants and the client are arranged in such a way that the

client’s objectives are achieved (Bower et al., 2002, p.37).

2.3.1.1 Contractual function

Traditionally, there is a conflict between the level of risk and the motive elements in a

construction contract. Under the basic assumptions of economic theory, if the contract

places risk with the contractor, the contractor will be motivated to minimise their risk in

ways that are potentially detrimental to the client’s objectives. On the other hand, von

Branconi & Loch (2004, p.129) state that if there is an environment of mutual

responsibility towards risk sharing and risk management between the project

participants, this can result in better overall project outcomes.

Within the contract, the output of the contractor is generally based on factors within their

control (eg. level of effort, quality of personnel, management attention) and outside their

control (eg. supplier problems, market fluctuations, weather). The elements outside the

contractor’s control introduce randomness into the contractor’s output and their income,

which may lead the contractor to charge a premium in order to bear these risks (Howard

et al., 1997, p.85).

Due to the complexity of construction projects and the risks associated with them,

contracts should attempt to define the key technical, legal and financial aspects of the

contracting parties’ desired outcomes (von Branconi & Loch, 2004, p.119). According to

Bower et al. (2002, p.37) contracts can be broken down into three main functions: work


Page 17

transfer, risk transfer and motive transfer.

Work Transfer is used in the contract to define the work which one party is to undertake

for the other. This includes the contract program, prices and scope of work.

Risk Transfer is used to define how the risks in doing the work will be distributed

between the parties. The client aims to minimise each party’s exposure to risk by

planning effectively, recognising the commercial aspects of contracting and accounting

for market trends.

Motive Transfer defines the strategies used to motivate the contractor and client to align

their goals. Incentive mechanisms in the contract may serve this function.

2.3.1.2 Types of construction contracts

Construction contracts may provide for labour only, labour and materials, and/or the use

of subcontractors, and usually will include other specialist services such as consultancy

services. The contract should contain at least the basic technical information regarding

the specified conditions of the contract, prices, the contract program and the scope of

work to be undertaken (CIMA, 2001,p.9). Choosing an appropriate type of contract to

suit the project environment (eg. project risk and completeness of information) is

important for motivating a contractor to achieve desired outcomes and aligning project

goals (Zaghloul & Hartman, 2003, p.419; Russell, 2003, p.43). Also, how the project

risks are allocated within the contract has a direct bearing on final project costs

(Zaghloul & Hartman, 2003, p.419).

A broad classification divides general construction contracts into Lump Sum/Fixed Price

contracts, and Cost-Plus or Reimbursable Contracts (Al-Harbi, 1998, p.73).

Lump sum contracts

In the traditional lump sum/fixed price contract, the client will pay the contract sum or a

specified amount of money for a specified amount of work, including any adjustments for

variations and claims (QDPW, 2001, p.12). The contractor bears the full risk of cost

overruns due to the fixed price. According to economic incentive principles, contractors

are generally averse to risk and will usually seek protection through a contingency in

their pricing, to deal with project uncertainties (Al-Harbi, 1998, p.73). Thus, although

these contracts are substantially higher in cost than others due to the added risk

contingency, they provide the client with a predetermined financial outlay as the price is


Page 18

defined at construction commencement (QDPW, 2001, p.12).

There are benefits to the lump sum contract, especially for government-initiated

construction, where price variations are discouraged due to restrictions in funding

allocations. Levine and Rickman (2000) argue that lump sum contracts can be beneficial

as they motivate the contractor to supply optimal levels of cost-reducing effort, due to

the disincentive of cost overruns. They suggest that this cost-reducing effort should be

weighed up against the increased costs of the risk contingencies that are built into the

contractor’s price.

Despite the premise that it is appropriate to financially restrict the contractor in order to

produce an output at a certain price, and to provide incentive to cost-reduction efforts,

there are major disadvantages to lump sum contracts. Levitt (1984) argued that the

contractor, under lump sum arrangements, will tend towards conservatism and is

reluctant to use innovative technologies, due to higher risks. This may lead to

compromises in other deliverables, such as quality. As the contractor may have a

natural tendency to expend effort where the marginal return is greatest (Howard et al.,

1997, p.87), a contractor’s response to high cost risk may be to sacrifice quality in order

to minimise risks associated with cost. Other than cost objectives, there are no

incentives for contractors to achieve other project objectives, such as technical quality or

safety, under a lump sum fixed price contract (Berends, 2000, p.166). Similarly,

Lahdenpera & Koppinen, (2003, p.481) stated that under lump sum contracts the sprit of

client service cannot be developed as the contractor’s margins depend on tight cost-

cutting.

Recently, fixed price contracts with more flexible pricing have emerged. These contracts

are called ‘redeemable fixed price’. They involve a lump sum estimate that is provided at

the tendering stage, but which may be revised once the actual price of the supply can be

accurately defined (UNIDO, 1996). For example, if there are major and unpredictable

market fluctuations which result in increased supply prices, this can be taken into

account through revision of the estimated lump sum

Another type is the lump sum/fixed price turnkey (LSTK) contract. Under this contract,

the client elects to pass all responsibility for project completion to one contractor, who in

turn manages all aspects of project completion, and also assumes most of the

associated risks (von Branconi & Loch, 2004, p.120). This can alleviate some of the cost

pressures experienced by the managing contractor under a fixed price arrangement, as


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it gives them control over the project’s execution, so they can reduce costs by

minimising interfaces, and increasing supply efficiency (eg. the project can commence

before the design is completed) (von Branconi & Loch, 2004, p.120).

Cost reimbursable contracts

The second general form of contract is the cost reimbursable contract (or cost-plus

contract). The contractor is reimbursed their actual project costs, subject to approval,

plus a fee (Berends, 2000, p.166). This fee covers everything that is not covered under

actual costs, such as off-site overheads and a defined profit margin (Broome & Perry,

2002, p.60). This profit margin can either be fixed (called cost-plus fixed fee contract) or

a percentage of actual costs (called a cost-plus percentage of cost contract) (Turner &

Simister, 2001, p.459). The cost-plus percentage is illustrated in Figure 3. In pure cost

reimbursable contracts, the cost risk is completely borne by the client (Berends, 2000,

p.166). It can be argued that this form of contract is ideal when the uncertainties of

performance will not allow for a fixed price to be applied. The cost-plus arrangement will

also ensure that the contractor will receive some amount of profit regardless of

performance (Jaraiedi et al., 1995, p.113).

Figure 3 Standard cost reimbursable with percentage fee

A major objective of the cost reimbursable contract is to reduce the risk that the

Source: Broome & Perry (2002)

halla

This figure is not available online. Please consult the hardcopy thesis available from the QUT Library


Page 20

contractor bears in a lump sum arrangement, allowing them to remove their risk

contingency, which significantly reduces costs. However, the main disadvantage of this

type of contract is the lack of a performance incentive for the contractor to minimise

project costs and meet any other project objectives (Berends, 2000, p.166). Therefore, if

pure cost reimbursable contracts are to be successful, the client must be significantly

involved. However, clients are reluctant to use pure cost reimbursement contracts as

they lack the resources for the level of involvement required (Berends, 2000, p.166).

2.3.1.3 Selecting standard contract type

Turner and Simister (2001, p.460) suggest that the selection of contract type is

determined by the amount of uncertainty in the project, and the process by which it will

be delivered. With high levels of uncertainty in the project and process, pure cost

reimbursement contracts are the most appropriate. However, when the project is certain,

but the process is not fixed, price turnkey contracts are preferred, as these allow the

contractor to take responsibility for finding the best work method for delivering a clearly

defined project and, by managing those risks, to achieve a profit. However, when both

the project and process are not defined, incentive cost-plus contracts (based on

relationship principles) can achieve the best results, as they allow the contractor and

client to share the risks and rewards, and to work together to achieve the best outcome

for both parties (Turner & Simister, 2001, p.462). The cost-plus incentive contracts will

be discussed in detail in Sub-section 2.3.2.1

De Meyer and Loch (2002) examined the effects of uncertainty on the management of

contracts and identified that high uncertainty (and therefore high risk) can make the

contract less useful. The unstable project environment means that the agreement

cannot be appropriately defined in the contract and the project participants’ goals may

not be aligned. After identifying the major types of uncertainty, De Meyer and Loch

recommended that arrangements be flexible during the life of the project to suit

changing uncertainty levels, such as market fluctuations affecting supply.

This supports the notion of hybrid pricing contracts, which may change their form mid-

course, depending on the changing levels of risk, to take advantage of the benefits of

the respective contract types (UNIDO, 1996). For example, a cost-plus contract could be

used at the feasibility stage of a project while information on the project is limited, to

establish a fixed price. It could then be converted to a lump sum contract once the scope

of works and costs are better defined.


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In summary, the standard lump sum and cost reimbursable contract types have

significant problems in promoting motivation to attain client-specified goals above BAU

standards. Despite incentive for cost-reduction efforts, the restrictive nature of the price

in lump sum contracts increases the contractor’s risks and thus increases their price

contingency. This can lead to compromises in other areas of the project such as quality.

Such contracts fail to provide the contractor with incentive to achieve project goals

outside the minimum specification as they rely on minimising financial risks due to the

inflexible price (Berends, 2000, p.166). On the other hand, cost reimbursable contracts

fail to incentivise the contractor to minimise project costs and achieve other project goals

(Berends, 2000, p.166). FIMs built into standard contract conditions aim to alleviate

these problems and direct and sustain contractor motivation towards the achievement of

project goals above BAU standards. The various types of FIMs and their objectives are

discussed in the following section.

2.3.2 Financial Incentive Mechanisms in Construction Contracts

Many contractual arrangements between construction clients and contractors are

confrontational, reflecting considerable mistrust and leading to high contractor premiums

to avert significant risk levels (Zaghloul & Hartman, 2002, p.420). Improved use of

contracting options such as incentive mechanisms can provide balance between the

allocation of risk and reward for performance gains (Howard et al., 1997, p.85). A

primary aim of incentive contracting is to “simply take advantage of a contractor’s

general objective to maximise their profits by giving them the opportunity to earn a

greater profit if they perform the contract efficiently” (Bower et al., 2002, p.43). This can

potentially be achieved by having the contractor/consultants share in the client’s

success from the project. Financial incentives for cost containment can be applied to

either fixed price, or modified cost reimbursable contracts, depending on how the

incentive is structured (Russell, 2003, p.43).

2.3.2.1 Types of financial incentive-based contracts

Financial incentives have the potential to be introduced into any construction project

contract. The incentive mechanism in a contract can motivate the contractor to achieve

the client’s project goals by:


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(a) The method of payment of the contract price, which puts pressure on the

contractor to meet cost expectations, where overruns or delays will cause the

contractor additional expense. Lump sum contracts can inherently act as an

incentive for the contractor to meet fixed costs in order to preserve profit margins

(Levine and Rickman, 2000, p.14).

(b) A performance bonus for meeting performance targets based on one or more

client goals (Bower et al., 2002, p.39).

(c) A profit sharing arrangement, where the actual cost savings are distributed

between the client and the contractor (Arditi and Yasamis, 1998, p.362).

As discussed, a financial incentive built into a construction contract can act as a reward

system based on the contractor’s ability to satisfy specific cost or performance

objectives (Washington, 1997, p.254). Penalties may be substituted for lack of

compliance with contract conditions. It is generally accepted within the incentive

literature that, to ensure that an adversarial relationship does not occur between the

contracting parties, the incentive systems should focus on positive incentives, rather

than penalties (Lahdenpera & Koppinen, 2003, p.489; Bower et al., 2002, p.38). FIMs as

a part of an incentive contract can be classified into cost-plus incentives and

performance incentives (Bubshait, 2003, p.64; Jaraiedi et al., 1995, p.113). They aim to

promote motivation to achieve client-specified project goals by offering either a profit

sharing arrangement or a performance bonus to the contractor for above minimum

performance standards such as schedule and quality performance (see (b) and (c) in the

classification above).

Cost-plus incentive contract

In cost-plus incentive contracts, the client’s target cost is introduced into a reimbursable

contract, and acts as the fulcrum around which the incentive mechanism is driven

(Broome & Perry, 2002, p.60). A cost under- or over-run is split between the contractor

and client in predetermined portions. In this situation, the contractor and client work

together to minimise actual costs; the contractor is motivated to maximise their profit

margin above their specified fee, and the client is motivated to minimise the total cost

paid out (Broome & Perry, 2002, p.60). Thus, the contractor is motivated to take a share

of the benefits of reduced project costs. This arrangement is supported by the literature

on incentive provisions in construction contracts (eg. Arditi & Yasamis, 1998), and can

be formulated in the following way:


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F = (C0 – C) X + F0

where F is the final fee payable to the contractor, C0 is the target cost of the project, C

is the actual cost of the project, X is the income sharing coefficient (i.e. percentage of

profit to be shared), and F0 is the target contractor fee.

Therefore, if;

Target cost (C0) = 1000,

Target contractor fee (F0) = 100,

Negotiated percentage to be shared with the contractor (X) = 40% of savings on

target cost

Actual cost (C) = 800,

then the total contractor fee payable is:

F = (1000- 800) (0.40) + 100

F = 180

In this scenario, the contractor achieves an increase in earnings of 80, above their

contractor fee of 100, due to the savings achieved on the original target cost (200). This

relationship is illustrated in Figure 4.


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Figure 4 Cost-plus incentive fee contract with 50:50 sharing profile

There are many ways to set share fractions when designing a cost-plus incentive

contract. These include capping the client’s share of the overrun risk, eg. capped at 30%

above the target price, where the contractor pays 100% of any further overrun. This can

be balanced by increasing the contractor’s percentage of savings share, assuming the

actual price comes in below the target price. However, capping the client’s commitment

may be dangerous because, as soon as the client perceives that actual costs will

exceed the cap, their motivation to reduce actual costs may be substantially reduced

(Broome & Perry, 2002, p.61). A progressive cap occurs where the contractor

progressively takes a greater share of the cost overrun, until they reach the cap, after

which they take 100% of any further overrun. This approach is ideal when the contractor

has input in setting the target, and in repeat order business where it is very unlikely that

this target will be exceeded (Broome & Perry, 2002, p.61).

It is essential that the risks associated with a project determine profit share fractions.

Broome & Perry (2002, p.62) presented a case study demonstrating this. This civil

project involved directionally drilling a sewerage pipe out at sea. The technology being

used in the drilling was relatively new. It was risky due to the potential for equipment

breakdown and the importance of contractor skill due to the complexity of the project. At

the same time, it could achieve the desired result for a quarter of the cost. Due to the

Actual costs

Total paid by Client

TARGET

Constant 50:50 share profile line

Adapted from Broome & Perry (2002)

Contractor share of over/under run

Client share of over/under run

Actual cost + fee line


Page 25

high risk associated with the work, a cost-plus incentive contractual arrangement was

chosen. As the contractor had a high risk of cost overruns, they proposed to charge a

high premium for taking on this risk. However, the client did not wish to pay a high

premium for the contractor’s risk and they recognised that they were in a stronger

financial position to take on the risk of a cost overrun. Therefore, the project involved a

share profile whereby a comparatively small share of the cost overrun was allocated to

the contractor, but enough to motivate the contractor to minimise overruns. The profile

for any savings made was 50:50, giving the contractor the motivation to achieve a large

share of savings if no problems occurred. Therefore, the client minimised their costs

(without the built-in contractor premium), and the contractor was motivated to increase

their profit levels and to minimise problems occurring on the project. This successful

share fraction is illustrated below in Figure 5.

Figure 5 Share profile for high risk project, with risk-averse contractor

Broome & Perry (2002) also identified four major determinants that should be

considered when developing a share profile for a cost-plus incentive contract. The

determinants were used as prompts in informal interviews with contract designers to

identify why a certain contract type was chosen and what share profiles were used in the

contract. The points considered were:

Total paid by Client

Actual costs

TARGET

Contractor : Client share ratio

50 : 50 20 : 80

Adapted from Broome & Perry (2002)

Contractor share of over/under run

Client share of over/under run


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• Alignment of motivations/project objectives: it is argued that the contractor’s

primary aim is profit, which is generally supported by principal-agent theory

discussed in the next section, while the client’s aim is a combination of

performance and quality, cost and time, depending on their objectives. The

primary considerations in determining the share ratio in cost-plus incentive

contracts are how a ratio assists the client to minimise cost, and for the

contractor, how it helps them maximise their profit margin (Al-Harbi, 1998, p.79).

• Constraints: this can be time, quality, or cost. Cost-plus incentive contracts infer

a cost constraint. Cost constraints may be associated with client budgetary

restrictions (client’s cost risk aversion), which may lead to capping overruns

above the target price.

• Risks: Share profiles partially reflect the degree of risk perceived by the client

and the contractor. If risks are included in the target cost, then they are shared in

the cost-plus incentive contract. In contracts, risks are associated with the

chance of exposure to financial loss and gain, and will directly determine how the

client and contractor allocate share fractions to best manage this risk.

• Strengths/Weaknesses of the parties: This relates to the level of risk that each

party should manage, and therefore the breakdown of share fractions. In a cost-

plus incentive contract, this can be determined from the ability to manage an

aspect of a project’s process (eg. the contractor is better suited to dealing with

the technical aspects of construction and their associated risks), and the relative

financial strengths of the parties to cope with risk factors in the contract.

Performance bonus incentives

The second type of incentive mechanism used in construction contracts is the

performance bonus incentive. These can be used in fixed price and cost-plus contract

types but, depending on the project goals, have been argued to work best when used in

cost-plus incentive contracts (Berends, 2000, p.166).

The main purpose of bonus performance incentives is to motivate the contractor by

providing them with a financial bonus that is additional to their prescribed fee for

exceeding minimum acceptable levels of performance, as defined in the contract

(Washington, 1997, p.255). This award distribution is generally based upon evaluations

undertaken after performance has been achieved, and has been argued to be effective


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in improving the performance of contractors (Washington, 1997, p.255).

‘Bonus’ financial incentives can be used to motivate the contractor in many areas of the

project other than cost, which is primarily managed in the cost-plus incentive contract

mechanism (where the risk of cost under- or overrun is split between the contractor and

client in predetermined portions). Occasionally, bonus incentives have been used to

motivate contractors to stay below target labour costs or price levels of average direct

worked hours (Lahdenpera & Koppinen, 2003, p.486).

Important to the success of bonus incentives are specific, mutually agreed and

measurable performance targets. If the output deliverables cannot be well defined, then

an incentivised contract should not be pursued (HM Treasury, 1991, p.3). However,

such targets can be time-consuming and difficult to apply due to the potentially

subjective nature of assessment (Washington, 1997, p.255). ‘Bonus’ incentives can be

schedule incentives and technical incentives, which include operation, non-disturbance,

safety, quality and design integrity.

Schedule performance incentives

In the past, schedule (time) disincentives have been used to penalise contractors for

completion after a desired date (Bower et al., 2002, p.39). Currently, time bonus

incentives are used more often, offering a bonus to the contractor for completion earlier

than the target dates. Time performance incentives are usually based on a day unit rate

of measurement, such as a predetermined amount paid for each day of early

completion, and are closely linked to project costs, since time delays usually increase

costs (Arditi & Yasamis, 1998, p.362). Therefore, time incentives should be negotiated

concurrently with cost incentives, as incentives encouraging early completion will reduce

construction costs. Time risk can be very high if the scope is likely to change during the

project and if the impact of these changes cannot be predicted with reasonable

accuracy. The level of contractor risk in committing to the time objectives should be

consistent with the reward offered (DAU, 2001, p.28).

Technical incentives

Technical bonus incentives may also be applied. These may pertain to:

• Operation – A bonus incentive is offered for efficient operation based on the

premise that improved operational performance would increase the chances for


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project success. Operation rewards can include site and project management,

subcontractor management, quality and timeliness of reporting, cooperation and

problem solving skills (Lahdenpera & Koppinen, 2003, p.484).

• Non-Disturbance – A bonus incentive is offered for minimising the disturbance

caused by the project. This may include minimising the disturbance to clients,

third parties, the environment or existing buildings. Assessment criteria may

include the number of interruptions to operations, noise levels, the use of

surrounding spaces during construction and external impact of traffic

(Lahdenpera & Koppinen, 2003, p.485).

• Safety – A bonus incentive is offered to minimise the risk of accidents on the

construction site, as the direct and indirect cost of accidents to the contractor and

client can be significant (Lahdenpera & Koppinen, 2003, p.485). The evaluation

of accident levels is relatively basic, but the direct ability of bonus incentives to

reduce the level of accidents on a construction site is difficult to determine.

Research does support the use of safety bonuses to improve the level of safety.

However, their use cannot guarantee the success of safety measures on site

(Davies, 1990).

• Design Integrity – Bonus incentives can be provided for maintaining design

integrity on a project, and are suited when major changes and variations may

weaken design integrity during the project (Hampson et al., 2001, p.123). Design

integrity means the honourable representation of the original design intentions.

Design integrity incentives have been used on iconic public projects such as the

Acton Peninsula (National Museum of Australia) project described below. An

independent body can be employed to monitor changes in design that might

affect the level of integrity against established design benchmarks (see

Hampson et al., 2001, p.124-144).

• Quality – A quality performance bonus works on the premise that contractors are

offered additional profit if they are able to achieve predetermined performance

levels. When assessing quality, standardised systems should be used, and

should be applied selectively to the most important aspects of the work

(Lahdenpera & Koppinen, 2003, p.486). However, a major problem with quality

assessment is that it is subjective and can be difficult to measure (Washington,

1997).


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Quality performance measurement tools have been developed by public clients

with a high level of repeat construction, such as those used by Singapore’s

Construction Quality Assessment System (CONQAS) and Hong Kong’s

Performance Assessment Scoring System (PASS) for public housing (Tam et al.,

2000). Criteria may include quality of workmanship, flaws and defect rectification,

functioning of design and implementation and amount of rework (Lahdenpera &

Koppinen, 2003, p.486). It is argued that measuring standards should be based

on objective measurements rather than relying on subjective assessments (Tam

et al., 2000) to ensure that there is a clear definition of performance

requirements and units of measurement.

An example of an innovative system of quality measurement was the Acton

Peninsula project in Canberra, Australia, completed in March 2001. As this

project involved the procurement of the National Museum of Australia in

Australia’s capital, a high level of quality was identified as a major requirement of

the project. The quality incentive system, used under an alliancing procurement

approach, involved the assessment of quality levels throughout the project by a

panel of industry experts. Their task was to advise on, measure and monitor the

quality of the project, and to counterbalance alternative contract incentives such

as time and cost. At the commencement of the project, all parties agreed on this

quality assessment strategy, working on the assumption that quality would be

assessed throughout the project. In this way, the contractors would have time to

improve the levels of quality before the final assessment upon completion

(Hampson et al., 2001, p.170). This gave them a greater chance of achieving the

bonus. The quality incentive pool, totalling A$3 million was to be provided to the

alliancing team if they achieved outstanding quality in all areas and would be

fairly distributed amongst the alliance team members through a gain-share

approach.

On this project, the quality incentive measures for building and site works, with

weightings based on defined project goals, included quality of built finishes, non

conformances and defects. Other areas that were assessed included:

exhibitions, environment, indigenous employment opportunities, and safety. The

quality scoring system used on this project, as illustrated in Table 1, was

designed to address the agreed standards and to be transparent (Hampson et

al., 2001, p.170).


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Table 1 Quality scoring system used on the Acton Peninsula project

Source: Hampson et al. (2001)

Hence, technical bonus incentives can be usefully applied to operation, non-disturbance,

safety, design integrity and quality aspects of a project.

Multiple financial incentive mix

In the previous sub-sections the structure and objectives of individual financial

incentives were discussed. A major argument outlined in the construction literature is

that the use of multiple financial incentives may counteract any imbalance in the

contractor’s priorities, in order to attain all incentive goals (eg. Lahdenpera & Koppinen,

2003, p.489; Arditi & Yasamis, 1998, p.362). Similarly, organisational management

literature has also raised issues with the selection and measurement of incentive goals

relating to what Kerr (1975) refers to as ‘the folly of rewarding A, while hoping for B’.

Kerr reinforced the importance of ensuring a reward system is specific and measurable

so that performance goals can not be distorted to promote the wrong behaviour. In the

construction project context, the balance of incentive goals should be devised according

to the client’s objectives, experience and any critical project issues requiring attention

halla

This figure is not available online. Please consult the hardcopy thesis available from the QUT Library


Page 31

(Bower et al., 2002, p.43). For example, if the incentive contract is purely focused on

motivating the contractor to meet objectives within a fixed or target price, this may lead

to poor performance against the client’s other goals, such as quality. Also, measurement

processes should be as objective and verifiable as possible to prevent effort distortion

(Baker, 2002, p.750).

A multiple incentive arrangement aims to motivate the contractor to attain all of the

desired goals. If they are unable to achieve this, they are encouraged to take a trade-off

position that is in the best interest of the client (Bower et al., 2002, p.39). A multiple

bonus incentive mechanism is a multi-objective system, where the total bonus awarded

to contractors is the sum of the partial bonuses, and the partial loss of one of the

bonuses does not affect the opportunity of attaining the other bonuses (Lahdenpera &

Koppinen, 2003, p.490). The following table summarises differences between the key

FIM designs.


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Table 2 Summary of differences in key FIM designs

Profit sharing incentives Performance incentives Multiple incentive mix

How performance is measured

Incentive measurement is based on construction cost savings around a target construction sum - i.e. if actual construction sum (ACS) comes in below target construction sum (TCS), savings are distributed amongst participants. Usually the share of savings is capped.

Incentive measurement is based on achievement of set performance criteria (key performance goals). Performance can be assessed throughout the project or at completion.

Incentive measurement can be based on: 1) cost savings made below a TCS; and 2) achievement of set performance targets that determine the allocation of incentive pool.

How rewards are allocated

Share ratio determined by straight percentage (%) agreement or distribution function – eg. the greater the savings, the greater the percentage share on offer.

Incentive allocation sourced from a separate bonus pool (usually built into the project budget). It can be allocated based on a single goal or on Incremental goals.

Incentive allocation is usually based on a share of cost savings and an incentive pool amount for the achievement of set performance goals (single or incremental goals).

Incentive options

Profit sharing is based on a wide range of share profiles (eg. 50/50 percentage capped) aligned with project risks and opportunities.

Performance incentives can include benchmarks in areas such as:

- schedule performance - operation - non-disturbance - safety - design integrity - quality

There are many variations in the application of this FIM type.

Many variations in the combination of both profit sharing (cost outcome) incentives and performance incentives. However, the client should ensure that goals do not conflict.

Positives Provides motivation for the client and contractor to work together and minimise actual project costs. Can be relatively easy to manage due to an objective measurement system and distribution at the conclusion of the project.

A wide range of incentive goals can be used to align project priorities and improve contractor performance. Argued to be best used in cost-plus incentive contracts.

Maximises the opportunities to incentivise all areas of performance based on project priorities. Multiple incentive goals should be balanced to reflect project priorities.

Negatives Potential for ‘moral hazard’ problems in other project performance areas (i.e. contractors prioritising cost savings to the potential detriment to other areas such as quality and safety.

Requires ongoing management and potentially high upfront costs to develop and measure incentive performance. Care must be taken not to over-emphasise a particular goal to prevent imbalances in contractor priorities.

Can be complicated to administer. Requires ongoing management and upfront costs to develop and measure the performance incentives.

When designing financial incentives, consideration should also be given to their levels of

application across project participants. The following sub-section discusses the

application of financial incentives across individual entities and teams and how their

level of application can influence performance in a project.


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2.3.2.2 Individual and team financial incentives

The level at which the financial incentive is administered (i.e. individual or group) can

influence levels of effort and output performance. For example, under smaller group

incentive plans, group rewards can promote mutual monitoring and ‘concertive’ control

encouraging collective performance as long as participants have influence over

performance measures (Zenger & Marshall, 2000, p.7).

A major problem in determining an appropriate incentive system to motivate at project,

organisational and/or individual level is that, in environments where team members’

tasks are interdependent such as in a construction project, individual output may be

almost indistinguishable from group output (Howard et al., 2002, p.252). Organisational

research findings argue that a team member’s commitment and cooperation towards a

shared goal is significantly related to the level of task interdependence amongst team

members (Howard et al., 2002, p.260; Wageman & Baker, 1997, p.141). Simply, when

incentive goal achievement is dependent only on the effort of an individual, then an

individual-based incentive is best, while when the completion of an incentive goal

requires the collective effort of multiple parties, a team-based incentive suits. Therefore,

team-based financial incentives are suited to a construction project, where there is a

high level of sequential and mutual interdependence.

When collective input is required, the major benefit of a team-based reward system is in

providing an incentive for cooperation and teamwork. The more highly interdependent

the tasks of a team are, the more important it becomes that each team member has the

requisite skills for effective teamwork (Howard et al., 2002, p.253). This suggests the

importance of a strong relationship between project team members when implementing

a group-based FIM in a construction project.

One unfortunate drawback to group-based incentives is the potential to induce what

economists call ‘free riding’ behaviour – or the reduction of effort due to the reduced

accountability in group performance. For tasks that require very little cooperative

behaviour, group-based rewards will produce lower levels of performance than with

highly interdependent tasks due to potential for free riding behaviour (Wageman &

Baker, 1997, p.142). Therefore, in a highly interdependent context such as a

construction project, free riding behaviour under incentive systems may be not as

prevalent as other contexts. Team member contribution is very interdependent and

therefore highly visible to the entire team, making cheating difficult.


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There are positive implications for the motivational level of individual team members

when rewards are given at organisational or team level. It can help unify the focus on

multiple goals among team members, encouraging mutual cooperation and increasing

the level of commitment to their individual goals. Financial incentives have the potential

to be offered at all levels of a project, including incentive rewards to subcontractors and

individuals.

An example of the success in ‘driving down’ financial incentives and rewarding individual

team members via an organisational incentive mechanism in a project context was the

US Air Force’s Peace Shield Project. The Hughes Aircraft company was awarded the

ground/air defence systems contract, which was based on a mixed cost-plus

incentive/fixed price incentive contract, with cost (profit sharing arrangement) and time

‘bonus’ incentives built in (Kausal, 1996, p.23). Due to the scheduling pressures of the

contract, Hughes decided to set aside 20% of the contract’s incentives for the workers

and subcontractors, which would then be distributed pro rata down the supply chain.

The results for the client were significant, including a final product of extremely high

quality, which was delivered more than six months ahead of schedule, and below cost.

This success was largely attributed to the distribution of financial incentives down to the

individual workers (Kausal, 1996, p.23).

Incentives need to be tactical and strategic to motivate individual workers, and may

include short-term incentives to meet interim milestones, and long-term completion

bonuses. The ‘Peace Shield’ case study demonstrates that, when rewards are

distributed to individual workers on a project, overall motivation can be increased – thus

improving the possibility of achieving the client’s goals (Kausal, 1996, p.23).

In summary, there are many powerful financial incentive options available to a client to

motivate the contractor to achieve client-specified project goals above BAU standards.

These include profit sharing arrangements in cost-plus incentive contracts, built in

bonus/penalty performance provisions and multiple financial incentive mixes. Also, there

is the option of individual- and team-based incentives to consider, based on the level of

task interdependence and individual impact on organisational performance.

It is important to understand how project participants’ evaluation of rewards impacts on

motivation and commitment. Due to the high number of variables that influence the

evaluation of incentive rewards in a construction project, an investigation into effective

incentive mechanisms would be incomplete without examining the project context in


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which the incentive is applied. The next section discusses how financial incentive

performance may be influenced by the project environment.

2.4 FINANCIAL INCENTIVES AND THE PROJECT ENVIRONMENT

The performance of an FIM is determined by its ability to motivate an agent (eg.

contractor/consultant) to increase their effort towards attaining client-specified incentive

goals above minimum standards. Incentive mechanisms have the potential to improve

motivation within a construction project if implemented correctly (Bower et al., 2002,

p.43). The major objective of this thesis was to identify and explore the drivers within the

project that promoted or discouraged motivation towards the FIM goals (referred to as

the motivation ‘drivers’).

In reviewing previous work to prepare for this investigation, it has been important to

examine not only the characteristics and objectives of each FIM, but also to establish

the impact of the project environment on financial incentive effectiveness. Incentive

impact is determined by both the design of the mechanism and the context into which it

is introduced.

To provide guidance in identifying the drivers that impact motivation in the project

environment, it was necessary to explore the areas within the project procurement

approach and project context that could potentially give rise to the motivation drivers. In

this thesis, these areas are referred to as the ‘project sources’ and are based on current

construction management literature. Project sources are modes of project delivery and

management and are conceptualised here as; i) contract, ii) design and construction

management, iii) tender selection, iv) relationship management, and v) FIM design.

These project sources provide the breeding ground for the motivation drivers and they

formed a starting point for the interview questioning and provided structure to the

discussion of results.

2.4.1 Procurement Approaches

A procurement approach is a means (either contractual or non-contractual) by which ‘the

objectives of a construction project or program are achieved’ (NSW DPW, 2002, p.4).


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The contract is closely aligned with the procurement approach and defines the

obligations and responsibilities of individual project participants in achieving the project

objectives. The procurement approach chosen in a construction project has a decisive

impact on the ability of clients and contractors to control the alignment of goals and to

manage the shared project risks and therefore, has a significant influence on the

success of an incentive mechanism (Lahdenpera & Koppinen, 2003, p.482). It has been

argued that motivation and commitment induced by an incentive are influenced by how it

is aligned with other project systems and practices (Bresnen & Marshall, 2000, p.597).

Thus, the context in which the financial incentive is implemented may directly influence

its impact on motivation. This suggests that if a financial incentive is to be effective it

requires careful implementation into the overall procurement approach, including the

agreed contracts. This was indicated earlier in the discussion of broad contract types.

The discussion now moves to a more detailed examination of the main procurement

approaches (and their associated contractual arrangements) used in Australian

government non-residential building projects.

Fixed Price Lump Sum

Under a traditional ‘lump sum’ procurement approach, the government client appoints

design consultants for the full extent of design and documentation. Once documentation

is complete, a contractor is engaged by the government client under a lump sum

contract and through a competitive tender process, to construct the building based on

the completed design. This procurement approach is suited to less complex projects

where construction commencement and completion is not as critical as cost and quality

(QDPW, 2001, p.12). As the government client has full responsibility for design, they

are able to control design quality, but also hold the risks for design discrepancies.

Variations can be higher due to buildability issues arising from design discrepancies.

FIMs have the potential to be applied in a traditional lump sum building procurement;

however, due to the high upfront costs in setting the incentive goals and monitoring

incentive performance, they are unlikely to be cost effective in low cost, less complex

building projects.

Design and Construct

In a ‘design and construct’ procurement approach, the contractor is engaged by the

government client through a competitive tendering process to design, document and


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construct the project as a single point of contact (usually under an LSTK contract). The

contractor appoints design consultants to develop the design in collaboration with the

contractor, and then submits a contract sum and design development proposal.

Generally, the government client is guaranteed that the construction cost will not exceed

the tendered lump sum, adjusted by variations and claims. This procurement approach

is suited to more complex projects where commencement and completion times are

required earlier than for projects under traditional lump sum contracts (QDPW, 2001,

p.14). The contractor is usually given the freedom to appoint whoever they wish for

consultancy services and subcontractor packages. Under this approach, the contractor

carries the design development and construction risks, while the government client has

less control over design outcomes than under a traditional lump sum approach.

Managing Contractor (D&CM and CM)

The primary procurement approaches employed in Australian government large non-

residential building projects are the ‘Managing Contractor’ approaches. These can be

broken into two types: 1) Managing Contractor (MC) – Design and Construction

Management (D+CM), and 2) Managing Contractor (MC) – Construction Management

(CM). The major difference between MC – D+CM and MC – CM is that under MC –

D+CM, the managing contractor is contracted to manage the design development and

construction trade packages, while under the MC – CM, the managing contractor has

input in the development of design, but is primarily responsible for only the management

of the construction phase. Managing contractor procurement approaches are as follows:

Managing Contractor – Design and Construction Management (Guaranteed Construction Sum) (MC – D+CM (GCS))

Under the MC-D+CM (GCS) procurement approach, a managing contractor is appointed

by the government client, through a competitive tendering process (with price and non-

price selection criteria) to manage the design documentation and construction of the

project. The tender is usually based on the conceptual brief and drawings developed by

the client agency. Once the managing contractor is appointed, they take on the

responsibility to manage the design and documentation through the design consultants.

The government client has the ability to appoint the design consultants prior to the

appointment of the managing contractor, and then arrange for the design consultants to

be re-engaged under the same conditions by the managing contractor as a part of their


Page 38

tender requirements (novation). This process can benefit the government client as it

provides the ability to shape the design during the conceptual and early schematic

design stages.

Once design is complete, the managing contractor manages the construction trade

packages and provides ongoing management to the consultants’ production of

construction documentation. The managing contractor takes on the risks associated with

design documentation and as such, is usually not entitled to reimbursement of costs

associated with design discrepancies during construction (QDPW, 2001, p.14).

The managing contractor is usually engaged under a cost-plus contract and paid on an

open-book fee basis for their management services; however they have a contractual

obligation to ensure that actual construction costs do not exceed a negotiated target

cost. This is called a Guaranteed Construction Sum (GCS). If actual costs exceed the

target cost, then it is the responsibility of the managing contractor to absorb these cost

overruns. This procurement approach requires the managing contractor to have efficient

cost management skills, as in most cases the contractor bids on partially completed

documents to propose to the client a construction sum that will not be exceeded

(Hampson et al., 2001, p.349).

Managing Contractor – Construction Management (MC – CM)

The managing contractor is usually appointed under a competitive two-stage tender

arrangement (via price and non-price selection criteria), provides input into design and

documentation and is contracted to manage the construction process. They do not take

on the risks associated with construction documentation, but still provide input into the

design process as a consultancy service. This is sometimes called a ‘junior’ managing

contractor role, as the government client appoints the design consultants for the full

extent of their services, but they are not ‘novated’1 to the managing contractor prior to

construction. During the first stage of tender, the managing contractor advises the

government-appointed design consultants on buildability and logistical issues, and is

then paid a fee for their services.

1 ‘Novated’ refers to the transference of responsibility of the design consultancy team from the Client to the Managing Contractor. Consultants are generally novated to the Managing Contractor under the same contractual conditions as they had with the client.


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Once design development and documentation is complete, the managing contractor is

responsible for the construction trade packages, which are managed through an open-

book tender process. Generally, the managing contractor is appointed under a cost-plus

contract that includes a construction management fee arrangement (CM professional

fee), where actual cost risks are managed by the client, but can be appointed under a

GCS to prevent budget cost overruns. As it is a two-stage tender, if cost agreements

cannot be made between the client and the managing contractor after design is

complete, the client agency has the option to terminate the managing contractor’s

contract at the end of stage one and progress to the open market for competitive

tenders on the completed design (QDPW, 2001, p.26).

Under this procurement approach, the government client maintains complete control

over design, but also bears the risk of design inaccuracies. FIMs are suited to this form

of procurement because of the requirement to motivate the managing contractor and

consultants to deliver performance beyond their professional management fee and

minimise project costs below a Target Construction Sum (TCS), through value

engineering processes.

Alliance

The alliance approach to project delivery was originally developed in relation to gas and

oil projects by British Petroleum (BP) in the early 1990’s (Sakal, 2005, p.67; Manley,

2002, p.48). Australia has been one of the first countries globally to apply the approach

to building and road project delivery (Walker and Hampson, 2003; Manley, 2002). Under

an ‘alliance’ procurement approach, all key project participants are appointed directly to

the client to manage all phases of the project. Usually, key participants are appointed

from the conceptual design phase and are required to work as an ‘alliance team’ to

develop the design and progress to construction. An alliance procurement approach is

suited to large scale and complex construction projects. Under an alliance procurement

approach, project participants have a joint, rather than a shared commitment to the

project goals, and work as a quasi joint venture because they operate as a single entity,

but do not merge their companies in a legal way (Walker & Hampson, 2003, p.53). The

key participants work towards joint goals that are measured through agreed key

performance indicators and share project risks and rewards to an agreed formula.

The selection of alliance team members is usually based purely on non-price criteria

i.e. other than project cost estimates. A major criterion for the selection of alliance


Page 40

members is their suitability to the ideals of the alliancing arrangement, including their

commitment and capacity to deliver the project. The selection process involves the

evaluation of submissions outlining tenderer experience levels and performance in past

projects. It is also an opportunity for the tenderers to present potential innovations for

the project. The selection process also involves intensive relationship workshops to

evaluate tenderer suitability. Once the alliance team members have been selected, they

jointly agree to target project costs and gain-share/pain-share models. This process is

generally facilitated by external consultants who monitor value for money and probity on

behalf of the client (Walker & Hampson, 2003, p.59). The key performance indicators

are measured throughout the project according to agreed processes.

FIMs are suited to an alliance procurement approach as they motivate the alliance team

to perform beyond the performance expectations and meet key performance indicators

above BAU standards. As a major objective of this approach is to share risks and

rewards, incentives can be applied in both cost and project performance areas to

maximise motivation through gain-share.

There has been only one major alliance in the Australian government building sector

(Acton Peninsula Project, as discussed previously), while there have been several major

project alliances in the Australian government road sector. Despite the demonstration of

significant benefits on the building project, Australian state governments have not

followed the Commonwealth Government’s lead in using full alliances on building

projects. Although no literature was found that identified the reasoning behind this

phenomenon, this is possibly due to a perceived unwillingness to take the ‘leap of faith’

required by the client agency to appoint a full alliance team at the conceptual stage of a

project, and/or concerns about probity which appear to impact more heavily at state-

level. The risks associated with an alliance relationship may be considered to be

potentially higher in building projects, in comparison to road and bridge construction

projects, perhaps because building projects usually have more participants who

influence project outcomes, combined with greater cost risks associated with market

fluctuations.

Public Private Partnerships (Package Deal)

A Public Private Partnership (PPP) is a form of procurement where the government

agency enters into a contractual arrangement with a private sector consortium to design,

construct, operate and maintain a government building for a set duration. The primary


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characteristic of a PPP is that the private sector provides project funding as an

investment in exchange for access to an ongoing rental and building operations revenue

stream. The government agency maintains control over the procurement deliverables by

monitoring the performance of a consortium through key performance requirements. The

government agency provides ongoing payments to the consortium based on the

achievement of the deliverables over a set period of operation. Usually under a PPP,

payments do not commence until the building is ready for operation and continue for the

period of the contract. The design, construction and operation of the building are solely

managed by the private consortium until the responsibility for the building is handed

back to the government agency. This process is beneficial to the government agency in

that the risks associated with design, construction and maintenance are held by the

private consortium and the government agency is able to control the building

performance through the project agreement requirements, which determine ongoing

payment. If the consortium does not meet the agreed service standards, the government

agency have the option to terminate the contract and take over control of the building

under the project agreement (QSD, 2002, p.53). For the private consortium, these

agreements have ‘set revenue raising opportunities during the period of operation

sufficient for a return on investment to be generated on the loan capital’ (Harris &

McCaffer, 2001, p.188). The consortium manages the risks associated with design

construction, operation and maintenance for the duration of the contract.

The arrangement by which the private consortium designs and constructs the building is

its responsibility and can involve engaging external consultants and contractors to

develop the design and manage the construction process through subcontractor trade

packages. However, the design and construction management services can come from

within the consortium, to minimise design and construction risks. For example, in a

recently completed Australian PPP project, the Southbank Education and Training

Precinct in Brisbane Queensland, the private consortium included ABN Amro

(investment banker), John Holland Construction (who managed the construction in-

house) and Spotless Facilities Management (who managed the operation and

maintenance in house). This PPP contract involved the design, construction, and

facilities management of the buildings for a total duration of 34 years. FIMs have the

potential to be applied in any PPP project; rewarding long term performance above

BAU, based around set deliverables, and may encourage high levels of performance

(QSD, 2002, p.8).


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2.4.2 Project Sources that Influence Performance

Despite the significant differences in the procurement approaches described above, a

number of common project sources can be identified for the purpose of the motivation

analysis which is to follow. These sources give rise to the drivers that impact on

motivation toward FIM goals, and comprise part of the conceptual framework that is

presented in Section 2.6.

The five project sources represent areas within the procurement approach and project

context that potentially impact on motivation and hence project performance. Each of the

five project sources are complex variables that represent the key project conditions that

frame the potential for a wide range of motivation drivers.

The project sources are:

1. Contract

2. Design and construction management

3. Tender selection

4. Relationship management

5. FIM design

In this thesis, each project source is given a separate label, which helped to guide

fieldwork and discussion of results. However, they are not treated as independent

variables. The following literature provided justification for conceptualisation of the five

project source categories:

• Chua et al., 1999, used similar sources in identifying critical success factors in

construction projects according to specific project objectives. The success

factors were grouped into: contractual arrangements, project participant

selection, and interactive processes; combining the design and construction

management and relationship management processes under project

characteristics.

• Chan et al., (2004) also applied similar sources in their evaluation of factors

affecting project success. Their factors included the tendering methodology (as a

project procedure factor), the project management actions, and human related


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factors such as project team leadership and team building. They also

categorised factors in relation to the project scope and the external environment.

• Rahman & Kumaraswamy’s (2004, p.151) research into the benefits of joint risk

sharing and relational contracting identified five areas in the project that a client

organisation can effectively control to influence collaboration and teamwork.

They were contractor and consultant selection, governance structures, contract

content and the forming of the project organisation (relationship management).

• Nicolini’s (2002) research into the determinants of good ‘project chemistry’

between project parties similarly grouped findings into commercial and business

practices and task design (that align with design and construction management

and contract sources), team selection and composition (tender selection) and

management of team development process and leadership (relationship

management).

The variables noted by the above authors were shown to impact on project performance

and have thus formed the basis for the development of the typology of five project

sources which shape the development of motivation drivers, and consequently impact

project outcomes. Although the previous research has grouped performance drivers into

the contractual arrangement category (such as Chua et al., 1999, p. 148), it is argued

here that the financial incentive should be considered separate to contractual

obligations, as financial incentives encourage voluntary action to achieve above BAU

goals set out in the contract. Construction incentive literature has emphasised the

design of the FIM as important to motivation (eg. Bower et al., 2002).

2.5 MOTIVATION AND FINANCIAL INCENTIVES

The previous section outlined the fundamentals of incentive design and the objectives of

the various FIMs that are used in government non-residential building projects. It also

discussed the close relationship between financial incentives and the project

environment, the various levels of incentive application and identified the project sources

that may influence the impact of FIMs on motivation. This section provides background

understanding of the underpinning motivational principles of a financial incentive

strategy and identifies the motivation indicators that are argued here to reflect the impact

of a motivation driver. These indicators are based on economic and psychological


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motivational theory principles and were used to guide the empirical work of this thesis.

As discussed in Section 2.3, FIMs aim to increase the motivation and commitment of the

contractor/consultant/supplier (agent). The ability of an FIM to induce motivation is

founded on principles of human motivational theories from various economic and

psychological perspectives. This section outlines the current psychological and

economic streams of motivational theory. It then discusses current efforts to integrate

these theories. Section 2.5.1 outlines how motivation relates to effort and performance.

Section 2.5.2 introduces the contributions made from psychological motivational theory

literature. Section 2.5.3 justifies the use of psychological motivational theories to explain

organisational motivation and behaviour, reinforcing their applicability to the current

topic. Section 2.5.4 introduces the economic motivational theory contributions. Finally,

Section 2.5.5 responds to a gap in the literature and develops a set of motivation

indicators that influence the performance of incentive contracts based on ‘best practice’

motivational theory research, which will be integrated into the research conceptual

framework.

2.5.1 Motivation, Effort and Performance

Pinder (1998, p.11) defines work-motivation as a set of external and internal energetic

forces that initiate work-related behavior and determine its form, intensity, direction and

duration. This definition acknowledges the influence of both environmental forces (such

as financial incentive rewards and the nature of the task) and inherent forces (such as

intrinsic motives) on behaviour that is work-related (Ambrose & Kulik, 1999, p.231).

Rewards affect motivation, which in turn determines effort and ultimately impacts on

performance (Van Herpen et al., 2005, p.306). Mullins (1996, p.480) argues that

performance is a product of motivation, ability and the environment. Similarly, Howard et

al. (1997, p.85) argued a construction contractor’s (agent’s) output (or performance) is a

function of factors within their control (ability and effort) and external factors outside their

control (environment). These external factors are referred to as ‘noise’ elements in the

economic literature (Van Herpen et al., 2005, p.308; Baker, 2002, p.738) and introduce

randomness into agent performance. Combining these ideas, agent performance is

determined by ability, motivation (effort) and external factors.


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2.5.2 Contributions from Psychological Research

This section is organised as follows. Sub-sections 2.5.2.1 and 2.5.2.2 briefly review the

key psychological motivational theories comprising of behavioural and cognitive

theories. Sub-section 2.5.2.3 introduces the notion of intrinsic motivation and presents

studies investigating its effects on financial reward systems.

2.5.2.1 Behaviour modification theory

Behaviour modification theory is a major contributor to assumptions about motivation

under incentive mechanisms. Skinner’s (1974) operant conditioning principles are

central to this theory. Skinner identified that while an organism is ‘operating’ in its

environment, it encounters a stimulus, and the consequences of its interaction with this

stimulus determine the organism’s future behaviour. Therefore the behaviour is followed

by a consequence, and the nature of the consequence modifies the organism’s

tendency to repeat the behaviour in the future.

Behaviour is modified by eliminating undesirable behaviour (by removing the undesired

reinforcing stimulus) and inducing desirable behaviour through an appropriate reinforcer.

Skinner argued that if the reinforcing stimulus ceases, the operant behaviour is likely to

cease. This is referred to as the ‘extinction’ of the operant behaviour. Skinner also noted

that adverse stimuli or ‘punishment’ can act as a reinforcing stimulus, decreasing the

probability of undesired behaviour occurring in the future. This is also known as negative

reinforcement. However, if negative reinforcement is removed, the action can be

regarded as a positive reinforcer, that is, behaviour followed by the removal of adverse

stimulus can result in an increase in the probability of that behaviour occurring in the

future. Skinner recommended against using negative reinforcement because he found it

did not remove the undesired reinforcer, which can rather be achieved through positive

reinforcement.

Another significant finding from Skinner’s work was the evolution of behaviour ‘shaping’,

which was suited to achieving more complex desired behaviours. This concept involved

reinforcing a desired behaviour by a succession of minor variations similar to the one

desired, and by building on each variation over time until achieving the desired

behaviour. For example, offering smaller incremental rewards until the desired

behaviour is attained.

Skinner’s theory that rewarding a particular stimulus-response pattern will condition an


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individual to respond as desired is still accepted by contemporary economic literature as

a method for promoting effort. However, Skinner’s behavioural approach fails to take

into account that humans perceive reinforcement stimuli subjectively and therefore place

different values on rewards and punishments. Argument within the psychological

literature that individuals are motivated as a result of weighing up the positives and

negatives, rather than as a reflex response to external stimuli, led to the development of

the cognitive ‘process’ theories, which are now established as the major contemporary

theories of motivation in psychology.

2.5.2.2 Cognitive motivational theories

The understanding that an individual’s cognitive responses to reinforcers determine their

level of motivation led to the development of ‘process’ theories. These endogenous

theories explain the mediating variables of motivation, and they assist in determining

how an agent will react, based on their expectations of an interaction (Katzell &

Thompson, 1990, p.145). Prominent process theories include expectancy theory

(Vroom, 1964), equity theory (Adams 1963), goal setting theory (Locke & Latham, 1984)

and attitude theory (Fishbein, 1967). These cognitive theories have been used to

empirically test the motivational impact of reward systems (eg. Lawler, 1971).

Expectancy theory

The concept of expectancy is the cornerstone of the cognitive school of motivation and

forms the general framework for a wide variety of motivation research (Ambrose & Kulik,

1999, p.248). Expectancy theory (Vroom, 1964) outlines how individuals and groups

make behavioural decisions according to various alternatives. It is based on the principle

that individuals will adapt their behaviour to achieve a desired outcome and will select

the behavioural option with the greatest motivational force. Expectancy theory has been

applied to incentive/compensation studies in the organisational management field (e.g.

Lawler 1971). Expectancy theory states that when an individual determines the

motivational force (MF) of the behavioural option, they consider three perceptions.

These perceptions are Expectancy (E), Instrumentality (I) and Valence (V).

MF = E x I x V

If any of the perceptions equal zero, then the whole equation equals zero because the

motivation force is the product of all three perceptions.


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Expectancy is the perception of the probability that one’s effort will attain desired

performance goals.

Instrumentality is the perceived probability that, if performance goals are met, the

desirable outcome (reward) will be received.

Valance is the perception of relative attractiveness or value an individual places on the

desired outcome or reward. This perception depends on the individual’s values, goals,

needs, preferences and other sources of motivation.

Justice and equity theory

As the basis of justice theory, equity theory, originally developed by Adams (1963),

argues that individuals/groups are motivated by their need for fair treatment and will

develop comparisons between one another (referents) in determining what is fair, just

and reasonable. For incentive systems, the valance of the reward is determined by how

fairly the required input is balanced against the outcome (eg. money), and how this

compares to the input/outcomes of others. If the input/outcome balance is not equal, it

will lead to a loss of motivation, resulting in a potential loss of productivity.

The perception of fairness (or justice) regarding how and what decisions are made

about outcome affects motivation. Agents who feel they have been unjustly treated via

their pay system may have reduced intrinsic motivation (Osterloh et al., 2001, p.236).

Similarly, the perceived fairness of a monetary incentive has a significant relationship

with extrinsic motivation (Van Herpen et al., 2005, p.325), or the motivation induced by

external rewards. The concept of justice and its impact on behaviour and motivation has

received a great deal of attention over the last three decades – initially focusing on the

justice of decision outcomes or distributive justice and more recent work focusing on

justice of the decision-making processes that lead to decision outcomes, or what is

termed as procedural justice (Colquitt, 2001, p.386).

Procedural justice is delivered by adherence to fair measurement criteria such as clarity,

consistency, correctability (flexibility), representativeness, accuracy, bias suppression

and ethicality (Leventhal, 1980, p.53). Similarly, Merchant (1989, p.26) identified the

importance of measurement accuracy in use of performance measures. Measurement

accuracy depends on verifiability (it can be duplicated and confirmed) and objectivity

(free from bias or external influence). If the agent believes the measurement procedures

are inaccurate, it can impact on the effectiveness of an incentive system (Moers,


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2001a), p.7). Also, research undertaken by Colquitt et al. (2002), argues that team

effectiveness is significantly influenced by a favourable justice climate and this can be

achieved by providing team members more involvement in key decisions, providing

opportunities to appeal decisions and ensuring decisions are consistent and unbiased.

From the development of the two factor conceptualisation of justice, a third type was

identified and first introduced by Bies & Moag (1986). This is interactional justice, or the

fairness of interactive treatment received as decision-making processes are undertaken.

This third type of justice is fostered when decision-makers treat those who are being

decided upon with sensitivity and respect and provide them with the rationale behind

their decisions. This type of justice is aligned with the economic reciprocity theory, which

states that an agent prefers an environment of fairness, where the principal’s incentive

intention is perceived to be honourable.

Although there are still questions in justice research about the applicability of a three-

factor conceptualisation of justice, where some researchers have argued interactional

justice is a subset of procedural justice (eg. Moorman, 1991, p.853), a recent meta-

analysis (Cohen-Charash & Spector, 2001) has found clear distinctions in the three

justice types arguing they are each worthy of merit. Colquitt & Shaw (2005), argue that

overall justice perceptions from multiple events can be assessed using indirect

questioning around each of the justice types.

Attitude theory

Attitudes are defined as a mental predisposition based on evaluation of a particular

entity from a positive or negative perspective (Ajzen & Fishbein, 2000, p.178). Attitude

theory states that an individual’s or group’s motivation will depend on their attitudes (or

their perceived beliefs) towards their environment. In a work environment, those who

have favourable attitudes towards their work and their organisational setting will be more

highly motivated to perform and remain in their job (Katzell & Thompson 1990, p.145).

Major work-related attitudes cover job involvement (the importance of the job) and job

satisfaction (the affect of the job), which are influenced by the beliefs and values of the

agent.

Goal setting theory and goal commitment

According to Locke & Latham’s goal setting theory (1984), individuals or groups make

calculated decisions about their desired goals, and once the desired goals are identified,


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the goals themselves can act as a motivational force. For an individual to be committed

to set goals, the goals must be challenging but realistic, clearly understood and

meaningful.

The theory also argues that for goals to promote effort, timely and accurate feedback is

also required at appropriate intervals. Feedback will inform an individual that progressive

goals have been attained, thus maintaining effort levels. Under certain conditions,

specific but difficult goals can lead to higher levels of motivation than vague or easy

goals, as expressed in task goal theory (see Locke & Latham, 1990).

Recent literature on goal setting has emphasised the importance of goal commitment as

a critical construct in understanding the relationship between goals, motivation and

performance (Klein, 1999, p.885). Hollenbeck & Klein (1987), as with Locke et al.

(1981), used an expectancy theory framework to identify the antecedents of goal

commitment. They argued that the major antecedents of goal commitment can be split

into two categories: those that impact on the attractiveness of goal attainment and those

that impact on the expectancy of goal attainment (Hollenbeck & Klein, 1987, p.213).

Further research undertaken by Klein et al. (1999) confirmed a positive relationship

between goal commitment, expectancy and attractiveness of goal attainment after

analysing the results of 174 published articles relating to goal commitment.

2.5.2.3 Extrinsic and intrinsic motivation and financial incentives

This sub-section will discuss the relationship between extrinsic and intrinsic motivation

founded in the psychological motivational theories, such as the principles that underpin

justice perceptions. A discussion of the impact of extrinsic rewards on intrinsic

motivation is also presented.

In psychology, there is a great deal of literature covering the effect of financial incentives

on intrinsic and extrinsic motivation. Extrinsic motivation refers to motivation induced

from indirect external needs, most importantly through monetary compensation, and

dominates conventional economic theory, such as principal-agent theory (Frey &

Osterloh, 2005, p.101). Intrinsic motivation refers to the motivation to perform a task or

activity for its own sake, when there is no apparent reward except for the activity itself

(Deci, 1971, p.105). Such motivation is induced by internal needs such as honour, pride,

decency and satisfaction.

A major criticism of the use of financial incentives is the ‘crowding out’ effect they have


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on intrinsic motivation. It is argued that monetary rewards decrease task-specific

intrinsic motivation, leading to a reduction in intrinsic effort (Osterloh et al., 2001, p.234;

Deci, 1971, p.114). The major theoretical argument supporting this claim is cognitive

evaluation theory, which assumes humans have a psychological desire for self-

determination and competence (Ryan et al., 2000, p.70). This argument suggests that

external rewards will undermine intrinsic motivation if they are seen as controlling, in

which case the desire for self-determination is less satisfied (Osterloh et al., 2001,

p.234). On the other hand, if the external rewards are seen as informative feedback and

reinforcement, and are predicted to satisfy the need for competence, they will enhance

intrinsic motivation. Since incentive mechanisms are contingent on engaging in a task

and completing it to a high standard, they may be regarded as controlling, and,

according to the ‘crowding out’ effect, may undermine intrinsic motivation (Fehr & Falk,

2002, p.715).

There is much controversy regarding this ‘crowding out’ effect, especially from the

economic perspective. One of the major problems with this theory is that the

experiments that attempt to prove it can be interpreted in different ways (Fehr & Falk,

2002, p.718). Deci’s (1971) experiments suggested that intrinsic motivation decreased

when a monetary incentive was offered, based on changes to the unit of time spent on a

task before a financial reward was offered and after it was taken away.

However, the work of experimental economists Fehr & Falk (2002, p.717) identified that

a subject’s reaction to a financial reward being offered and then removed could also be

due to the ‘disappointment effect’. This effect is caused by self-serving biases; people

will believe that they are entitled to a previously paid reward, and if that reward is

removed, loss aversion and disappointment will affect their motivational force. Fehr &

Falk also suggest that the ‘crowding out’ effect may not be as prevalent in economic

interactions because the ‘crowding out’ experiments investigated subjects who were not

typically expecting to receive a monetary incentive, that is, the experiments were

contextually inappropriate. They argue that in economic interactions crowding out rarely

occurs.

There is still a great deal of scepticism concerning the ‘crowding out’ effect, and many

argue that financially acknowledging and rewarding exceptional competency is

consistent with designing intrinsically rewarding work and that the use of extrinsic

reinforcers has yet to be shown to be highly detrimental to the total motivation of work


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(Katzell & Thompson, 1990, p.149).

Despite the arguments against the severity of the ‘crowding out’ effect on intrinsic

motivation by financial incentives, the motivational theory literature does highlight that

there is the potential for counterproductive applications of monetary incentives on

motivation. Reliance primarily on extrinsic rewards as a motivator can emphasise a

‘calculative’ approach, where parties are deemed to be motivated by short-term

economic self-interest (Bresnen & Marshall, 2000, p.590). Therefore, it is very important

to understand the perceived limits of financial incentives to motivate agents and to be

aware that financial incentives may provide limited ability to generate more intense

forms of trust and cooperation (Fehr & Falk, 2002, p.695). Financial incentive systems

can fail if their intentions are perceived to be suspicious (Benabou and Tirole, 2002,

p.516). The role of other intrinsic motivators, such as encouragement, praise, and

acknowledgement can be used to foster cooperation between principal/agents, and

have the potential to complement explicit financial incentives. The management of both

extrinsic and intrinsic motivation is a crucial task when production is knowledge-

intensive (Osterloh et al., 2001, p.231), such as in a large/complex building project. The

following section presents the key argument for using individual psychological

motivational theory principles to explain organisational motivation and action in an inter-

organisational building project context.

2.5.3 Using Psychological Theories to Explain Organisational Action

In the past, researchers have used psychological motivational theory principles to

investigate the impact of incentive structures on individuals within an organisation (eg.

Van Herpen et al., 2005). There is currently an argument to incorporate psychological

theories into inter-organisational research. This argument assumes that macro-actions

of organisations are a combination of micro-actions of key personnel within the

organisation. This argument is used to justify the use of psychological motivational

theory principles to help explain organisational motivation.

Staw (2003) provided evidence of the value of psychological theories to explain

organisational actions, especially when individuals have influence on the actions taken

by organisations. He argued that organisations, as utility-maximising entities, share


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many behavioural tendencies with individuals, such as self-interest. He also argued that

most jobs have a degree of discretion, where rules do not specify behaviour; therefore

much of the organisational behaviour is a collection of autonomous individual behaviour.

This is true in a project environment where key management personnel have a lot of

discretion and can heavily influence the organisation’s direction in a project. Staw (2003,

p.14) refers to organisational behaviour as a collection of decisions and actions by a set

of ‘quasi-independent actors’, but acknowledges the individual’s position in the structure

of the firm influences the level of individual autonomy and thus, the level of individual

influence on the organisational action. Finally, he emphasises the complementary nature

of organisational and psychological motivation theories that represent, in many ways,

the same concepts, highlighting the strong influence individual behaviour has on

organisational actions.

Recently, experimental economists have argued traditional economic motivational

theory (focusing on organisational action) does not acknowledge the impact of ‘social

preferences’ of senior agents (Fehr & Falk (2002). This work introduces the possible

impact of key individuals on motivation at an inter-organisational level and reinforces the

argument that the psychological complexities of an individual (or a group of individuals)

may have a significant impact on inter-organisational behaviour and decision making.

Although these findings require further validation, such work provides justification for the

use of psychological motivational theory principles (that include the impact of ‘social

preferences’) to assess inter-organisational behaviour.

Further to this, construction project team managers can be seen as ‘key actors in a

dominant coalition’ and may have strong levels of autonomy as representatives of their

organisation in the project environment. Turner and Muller (2003) argue that

construction projects should be viewed as ‘temporary organisations’ and as such could

be managed by organisational approaches. This is due to a strong influence of project

team members on project direction and performance. Their work also stresses the

importance of aligning the goals of the individual team members as project participant

representatives. Similarly, Eccles (1981) proposed an individual construction project

might also be regarded as a ‘quasi-firm’ or a loosely coupled inter-organisational form.

Despite the individual emphasis placed on behavioural motivation theories, many

construction management researchers have applied behavioural theories to investigate

complex construction management issues (eg. Leung, et al., 2004; Lingard and

Rowlinson, 1998; Liu & Walker, 1998), again suggesting their validity in this area of


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research. In this thesis, psychological motivational theory is taken to provide insight into

organisational motivation (through the perceptions of senior management personnel) in

a construction project environment.

By investigating organisational behaviour purely through the perceptions of senior

management, the thesis does not consider the motivations of individuals ‘on the ground’

- who potentially play a significant role in organisational performance. It is recommended

that future research investigate the impact of organisational financial incentives on site

workers and their influence on organisational behaviour and performance. Although the

research sample did not include site workers, it did include the perceptions of

subcontractor managers, as an integral part of the construction supply chain.

2.5.4 Contributions from Economic Research

Sub-section 2.5.4.1 briefly reviews the literature on the classic principal-agent

relationship as the major economic theory of motivation. In the study of motivation,

economists have taken a different approach from that of psychologists outlined

previously. These differences include the concept of self-interest, the agent’s aversion to

risk and the irregularity of information in a principal-agent exchange. Sub-section 2.5.4.2

introduces the experimental economic literature on social preferences and reciprocity in

principal-agent relationships.

2.5.4.1 Principal-agent theory

From an economic perspective, incentives are founded in principal-agent theory, which

is characterised by a principal (employer or client) who hires an agent (employee or

contractor) to undertake actions on behalf of the principal (and delegates some decision-

making authority) to advance the principal’s objectives (Jensen & Meckling, 1976,

p.307). Principal-agent theory aims to explain how best to organise the relationship

between principal and agent. There are three main assumptions in principal-agent

theory; the agent is self-interested, the agent is risk-averse, and the agent possesses

knowledge and information that is not available to the principal. These three

assumptions lead to what principal-agent theorists call ‘moral hazard’.

Agent self-interest

Principal-agent theory is based on the assumption that agents only do what they


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perceive to be in their self-interest, and that parties are amoral in their undertaking to

fulfil their personal gain (Howard et al., 1997, p.84). Fehr & Falk (2002, p.687-688)

argue that this is a ‘narrow and empirically questionable view of human motivation’, due

to the principal-agent theory’s assumption that behaviour of the agent is rational and

self-interested.

According to principal-agent theory, the relationship between the principal and the agent

is conflicting (i.e. they have conflicting interests), and when aspects of the agent’s

performance are not observable or completely specified, there is a potential for self-

interested behaviour (Howard et al., 1997, p.84). Principal-agent theorists rely solely on

extrinsic rewards such as financial incentive systems as a stimulant for desired action.

Principal-agent theory does not take into account the intrinsic psychological effects on

motivation which contradict the classic economic assumptions of self-interest (Van

Herpen et al., 2005, p.306-307).

Agent risk aversion

The second assumption of principal-agent theory is that agents are risk-averse.

Therefore, the agent will expect additional financial compensation if they are to hold the

principal’s risk. The assumed risk-aversion of the agent will lead to their attempt to

minimise risk and maximise compensation. The theory also assumes that contractors

rationally consider risk-aversion during contracting decisions and any factors outside

their control that impact on the achievement of incentives will load contractor prices or

change their behaviour in order to avert this risk (Howard et al., 1997, p.86). For

example, if a contractor is allocated the full risk of cost overruns in a construction

project, it is predicted by principal-agent theory that they will attempt to minimise, or if

possible, avoid these risks, to the potential detriment of other project attributes such as

quality and workmanship.

Irregularity of information

The final assumption of principal-agent theory is that irregularity of information can occur

in the principal-agent relationship. The agent possesses knowledge and information that

is not possessed by the principal. Therefore, the principal has limited information on

their agent’s actions, and the level of their effort. This theory argues that under

conditions of uncertainty and incomplete information (a characteristic of all contracts),

problems arise from the agent’s self-interested behaviour.


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According to principal-agent theory, the principal’s objective is to manage the agent to

act in the principal’s best interests. A major goal of incentives is to maximise the

alignment of their conflicting goals and to prevent moral hazard. Performance-based

rewards are recognised as appropriate incentives for the agent to align their goals with

that of the principal, when the principal cannot monitor the agent’s behaviour (Howard et

al., 1997, p.85). This approach is consistent with behaviour modification principles,

where a reward reinforces the induction of desired behaviour, that is, alignment with the

principal’s goals.

Social preferences and reciprocity theory

Reciprocity theory and the acknowledgement of ‘social preferences’ in the economic

literature have been used to challenge the ‘self-interest’ principle of principal-agent

theory (Fehr & Falk, 2002, p.687-688). Reciprocity theory states that agents prefer a

condition of fairness in the exchange relationship with the principal (Van Herpen et al,

2005, p.308). Depending on the behaviour of the principal, the agent perceives the value

of the material incentive as positive or negative. If the agent views the incentive’s

intention as ‘calculative’ or hostile, the agent may view the incentive negatively, which

can lead to a hostile response (Fehr & Falk, 2002, p.695). This assumption is similar to

justice theory as discussed in the psychological literature, where the incentive

mechanism should be fairly applied so that rewards and measurement processes illicit

their desired behaviours.

‘Reliable agents’ can also affect the success of an incentive mechanism. Reliable

agents adhere to the goals of the principal, even if their fulfilment is not verifiable in the

contract relationship. This concept also conflicts with classic principal-agent theory

because it suggests that reliable agents will downplay their self-interest for the sake of

adhering to the principal’s goals. Sliwka (2003, p.4) argues that when dealing with

reliable agents, incentive mechanisms may be less effective, as the agent is already

motivated to achieve the principal’s goals due to their reliable nature.

Other theories of motivation do not completely discount principal-agent theory principles,

as agents may be driven to some extent by self-interest. This reasonable level of self-

interest is often seen as socially legitimate, but not the only determinant of motivation

(Hendry, 2005, p.57). The founders of principal-agent theory now acknowledge the

importance of considering the impact of social preferences on behaviour when designing

incentive mechanisms in a work setting (Jensen, 1994, p.44).


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2.5.4.2 Experimental incentive contracting literature

As discussed previously, there has been a move in organisational research to integrate

economic and psychological motivational theories to assist in predicting behaviour,

notably in response to financial incentives. Both economic and psychological theories

include predictors of extrinsic motivation, but economists have neglected intrinsic

motivational drivers, which have the potential to affect the impact of an explicit incentive

system (Benabou & Tirole, 2003, p.516).

Katzell & Thompson (1990, p.2) identified a need for integrating motivational theory

principles to improve their empirical applicability. Recently in experimental incentive

contracting literature, serious attempts have been made to integrate the key theoretical

concepts across disciplines to investigate the impact of incentive systems on motivation.

For example, Van Herpen et al. (2005) used principal-agent theory and cognitive

evaluation theory to study the motivational effect of a compensation system in a Dutch

manufacturing company. Fehr & Falk (2002) combined principal-agent theory and

intrinsic motivation principles to identify the non-financial motives in the economic

environment, such as the desire to reciprocate. Benabou & Tirole (2003) combined

economic and psychological motivational theory streams to investigate the impact of

intrinsic motivation on an explicit incentive system in an economic interaction. Similarly,

Moers (2001a) used principles from economic and behavioural literature to empirically

investigate the role of performance measure characteristics in the design of incentive

systems for subordinate managers.

Indeed, Kunz & Pfaff (2002) have identified an urgent need to incorporate intrinsic

motivational principles into principal-agent theory. Although they acknowledged the

difficulties in defining and measuring the effect of intrinsic motivation on financial reward,

they argued that financial rewards do impact on intrinsic motivation and voluntary

cooperation. Fehr & Gächter (2002) discovered similar results in their evaluation of

incentive contracts from a modified principal-agent theory perspective.

2.5.5 Motivation Indicators

The above discussion indicates that to fully explore the role that financial incentives play

in motivating individuals and organisations, both psychological and economic principles

should be taken into consideration. There has been a call within the motivation theory


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literature to integrate basic motivational theory concepts into ‘broad yet accurate

conceptual frameworks applicable to organisational settings’ (Kanfer, 1991, p.151). This

has already occurred in a number of contexts, as demonstrated. However, there

appears to be no major work published in key journals that investigates such issues in a

construction project environment. Such efforts can be usefully extended into the context

of a construction project, where motivation is influenced by both economic and

psychological drivers of semi-autonomous project teams.

It has been suggested in the construction management literature that, if implemented

correctly in a suitable environment, incentives can positively promote motivation in a

construction project (Bower et al., 2002, p.37-38) and hence project performance. HM

Treasury’s (UK) Central Unit on Procurements (1991, p.2) devised a set of benefits that

can be achieved through the incentivisation of a construction contract. These benefits

include: lower cost through the appropriate allocation of risk and greater price stability;

timely delivery of service without compromising quality of workmanship; enhanced

achievement of desired outcomes; and improved management, control and monitoring

of contract deliverables.

However, despite these potential benefits, there is currently a lack of understanding of

how the context of a construction project can influence motivation and thus the efficacy

of FIMs. There is a lack of direction in the literature as to the effective implementation of

FIMs in construction project environments. Due to the unique and complex nature of

construction projects, it is expected the results may vary in comparison to previous

experimental studies into financial incentives from an organisational perspective. This

thesis aims to fill this gap by exploring the impact of FIMs in Australian government large

non-residential building projects.

A limited number of organisational management researchers have undertaken

experimental research into the performance of compensation systems from an

integrated economic and psychological motivational theory perspective (eg. Van Herpen

et al., 2005). This thesis presents a four-fold classification of the key motivation

indicators; argued to represent motivation in a construction project context.

Each of the indicators was defined by specific measured items based on empirical

research from economic and psychological perspectives. In defining the four-fold

classification of motivation indicators, the the key motivational theories were integrated

by identifying overlap in the theory principles, and then sorting into them into four groups


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given patterns evident in the data. A similar approach was taken by Moers (2001a), who

used principles from economic and behavioural literature to empirically investigate the

role of performance measure characteristics in the design of incentive systems for

subordinate managers. The classification system chosen represents ‘a line of best fit’ in

terms of combining the motivation theory principles to measure the impact on motivation

in a project context.

Initial research undertaken for this study revealed eight key theoretical streams of

interest (see subsections 2.5.2 and 2.5.4). These were expectancy, goal setting,

attitude, incentive intensity, distributive justice, process fairness, interactive justice and

reciprocity. After a review of each of the theory principles, it was identified that there was

overlap and specific streams could be aligned, reducing the number of indicator

dimensions that were used in the research.

Firstly, expectancy theory (Vroom, 1964) could be integrated with goal setting theory via

goal commitment (through the expectancy and attractiveness (or valance) of goal

attainment - providing a direct link between goal commitment, motivation and

performance (Locke et al., 1981). Both expectancy and valance (as key cognitive theory

constructs of motivation) fit easily into the goal commitment theory framework. This

integration of expectancy theory and goal setting theory principles was been employed

previously by Klein et al. (1999).

Similarly, attitude theory principles (Ajzen & Fishbein, 2000) have significant impact on

project commitment (i.e. project participants’ attitude towards the project will impact on

the attractiveness of attaining the FIM goals) as a measured item of goal commitment.

Also, group attitude and behavioural interdependence (social influence) impacts on

expectancy of goal attainment (Klein & Hollenbeck, 1987).

The rationalisation described above resulted in one of the four indicators employed in

this thesis: goal commitment.

Distributive justice, as defined by Leventhal (1976), focuses on the justice of decision

outcomes and the equity between rewards (as an incentive outcome) and recipients’

contributions (Adams, 1965). Incentive reward intensity and an agent’s assessment of

risk and reward outcomes (Zenger, 2000) (derived from economic incentive theory) was

has close similarities with distributive justice principles and was integrated under this

stream as a measured item. The relationships described here resulted in definition of the

second motivation indicator employed in this thesis: distributive justice.


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Procedural Justice, as defined by Leventhal (1980), was determined through a direct

comparison with a process and several generalisable procedural rules. Therefore, the

procedure was determined to be just if the rules were upheld. Leventhal also

acknowledged a distinction between the fairness of the outcome (distributive justice) and

the fairness of the process that arrived at the outcome (procedural justice). Similarly,

Colquitt (2001) acknowledges procedural justice is promoted through voice through the

decision-making process and should be viewed as an independent measure in the

evaluation of fairness. Acknowledgement of these relationships resulted in definition of

the third motivation indicator employed in this thesis: process fairness.

Initially, the suitability of interactional justice as the fourth motivation indicator for the

thesis appeared questionable - as some authors have argued interactional justice is a

subset of procedural justice (Moorman, 1991, p.853). However, after review of the

motivation literature, clear distinctions between interactional and procedural justice were

justified, supported by a recent meta-analysis (Cohen-Charash & Spector, 2001). Also,

interactional justice (Bies & Moag, 1996) and reciprocity theory (Fehr & Falk, 2002) were

identified as having marked parallels in relation to an agent’s expectations of fair and

honourable treatment. Such an approach is supported by Van Herpen et al., (2005,

p.325), and was adopted in this thesis to form the fourth motivation indicator:

interactional justice.

Through the refinement process, the initial seven steams were rationalised down to the

final four indicators (goal commitment, distributive justice, process fairness and

interactional justice) and were split into several measured items used to structure the

research questionnaire. Refer to Table 3 for the breakdown of measured items and the

key literature associated with the measured items.

There remains disagreement within the organisational management literature on the

applicability of integrating economic and psychological motivational theories to measure

organisational motivation. On one hand, traditional organisational psychologists argue

that there are difficulties in integrating psychological and economic motivational theories

because their unit of analysis is different (i.e. economic theory can be applied to

organisational interaction, while psychological motivational theory is focused on

individual interaction). On the other hand, experimental economists have recently

argued that traditional economic motivational theory (eg. principal agent theory) does

not acknowledge the impact of ‘social preferences’ of agents (see sub-section 2.5.4).


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This experimental economic research introduces the potential impact of behavioural (or

psychological) motivation principles (eg. an agent’s need for reciprocal treatment and

conditions of fairness) into economic transactions between organisations (see Fehr &

Falk, 2002). Although work is still required to further validate these findings, it provides

justification that psychological motivational principles can be compatible with economic

theory principals at an organisational level.

The four motivation indicators to emerge from the preceding discussion of economic and

behavioural motivational theory are discussed below. These indicators are incorporated

into a conceptual framework to assess motivation impact levels in the empirical work

undertaken in this research.

Motivation Indicator 1: Goal Commitment

Financial incentives can enhance goal commitment. However, goals and incentive types

closely interact, so to gain the motivational benefits of financial incentives, the agent’s

belief that goals can be achieved needs to be maintained. If it is perceived that the

financial reward is out of reach, it can result in a significant drop in performance (Locke

& Latham, 2002, p.708).

Goal commitment refers to the determination and motivation to try for a goal, in the case

of this research, the above BAU financial incentive goal. Commitment implies extension

of effort over time toward the achievement of a difficult goal, culminating in its

attainment. Leung et al. (2004, p.710) argue that behavioural theories can be used to

analyse goal commitment amongst construction project participants. To clearly define

this indicator and its elements, Hollenbeck & Klein’s (1987) model of goal commitment

was used. They applied an expectancy theory framework (with goal-setting theory

principles) to study goal commitment and determined a set of antecedents and

consequences of commitment to difficult goals.

They argued that goal commitment is determined by the attractiveness of goal

attainment (or how attractive it is to the agent to achieve the goal) and the expectancy of

goal attainment (or how likely is it that the goal can be achieved). These perceptions are

further delineated by whether they are intrinsic or situational in nature. For example,

ability is an intrinsic factor, while task complexity is a situational factor that influences the

expectancy that the incentive goal can be achieved. Similarly, incentive and contract

design are situational factors, while relational quality and need for achievement are


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intrinsic factors that influence the attractiveness of goal attainment. These categories

provided useful direction in investigating the drivers impacting on motivation towards the

attainment of FIM goals. Without goal commitment (and thus without expectancy that

goals can be achieved and a desire to achieve the goals), it is predicted that incentive

goals may not be attained.

Hollenbeck & Klein’s (1987) goal commitment model (reinforced in the meta-analysis

conducted by Klein et al. 1999) provided direction for the author in identifying motivation

drivers impacting on goal commitment. As supported by Hollenbeck & Klein’s (1987)

model of goal commitment, goal-setting literature emphasises goal difficulty as a major

influence on the expectancy for goal achievement. Locke (2000, p. 52) stresses that

goals need to be achievable and if no account is taken of the difficulty of a goal - and no

credit is given for the partial success of a goal - striving for an unrealistic goal can result

in a risk-averse, cynical and demoralised stance, that can have a detrimental effect on

motivation. Therefore, incentive goals need to be perceived as achievable to ensure that

the expectancy of goal attainment remains high. Goal difficulty was a key area of

investigation in this research and was linked to economic principal-agent theory in that

risk-averse agents will assess the risk of undertaking a task based on the difficulty of

attainment and the reward on offer. Thus, it may not be solely the reward on offer that

motivates, but the perception of the reward in relation to the desired performance

requirement (eg. assessment of situational factors such as task complexity, performance

constraints etc).

Moers (2001a) shows that an agent’s perceived ability to control performance (which

influences their expectancy of goal attainment) is dependent on the degree of

‘sensitivity’ (the effect the agent has on performance) and the level of ‘noise’ (the

environmental uncertainties outside the control of the agent that affect performance).

The greater the noise, the less control the agent has on performance. The psychological

literature refers to this relationship as the ‘controllability principle’ and its interpretation is

almost identical to the principal-agent concept of noise and sensitivity (Moers, 2001a),

p.6). In summary, goals that can be adequately controlled by the agent should be the

target of FIMs, so the agent perceives their increased effort will translate into goal

attainment.

In this thesis, the measured items of goal commitment adapted from Hollenbeck and

Klein (1987) were: goal-setting process, goal clarity/explicitness, goal attainment


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valance, project commitment, social influence (group), controllability/performance

constraints, task difficulty and ability/experience.

Motivation Indicator 2: Distributive Justice

A financial incentive should be set at an appropriate intensity to fairly compensate for

the agent’s risk and to promote effort. Incentive intensity, according to economic

principal-agent theory, is a major determinant of an agent’s level of effort in an incentive

contract (Moers, 2001(b), p.3). This is because higher intensity increases the agent’s

margin in response to their increased effort (Zenger, 2000, p.4). The reward must be

appropriate enough to motivate the agent (based on the effort/cost to achieve the

bonus), but should not exceed the value of the benefits to the principal (DAU, 2001,

p.29). This is also supported by distributive justice and equity theory, where, if the size

of the incentive mechanism does not fairly equate with the desired level of performance,

it can fail to motivate. Washington (1997, p.256) recommended allowing the agent to

significantly contribute to the development of appropriate rewards for specific goals. This

ensures the reward is established at a level that is perceived as worthy by the agent. In

this thesis, the measured items of distributive justice were adapted from Colquitt (2001),

incorporating the findings of Leventhal (1976). Also, economic incentive intensity

(Zenger, 2000) was incorporated in the distributive justice measured items and aligned

with the appropriateness of the reward offer in view of risk. They comprise: incentive

intensity, fairness of outcome given the required effort, and the justification of outcome.

Motivation Indicator 3: Process Fairness

According to justice theories, process fairness focuses on the fairness of the procedures

that are used to make distribution decisions. Procedural fairness is closely linked to

distributive justice and it is argued to be a necessary precondition for the establishment

and maintenance of distributive justice (Greenberg, 1987, p.59). Therefore, if

perceptions of procedural fairness are low, it can result in distributive injustice because

outcome decisions were unjustified. Commitment and the formation of trust are also

substantially related to procedural justice (Cohen-Charash & Spector, 2001, p.278). In

the context of this thesis, process fairness refers to the fairness of the financial incentive

measurement process that determines the distribution of the financial reward.

Procedural fairness perceptions in groups need to be stronger as task interdependence

increases (Colquitt, 2004, p.642). Therefore, as task interdependence between project


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participant entities is high in a large complex building project, it is predicted that

procedural justice may be a very important requirement for maintaining motivation and

commitment towards financial incentive goals.

In the principal-agent relationship, there is also potential for ‘distortion’ of the

performance measurement process, that is, the process can be manipulated to promote

the wrong behaviour due to self-interest (Baker, 2002, p.729). The distortion of

performance measures in an incentive contract depends on the types of measurements

used to evaluate the agent’s performance. For example, in a ‘noisy’ environment (with a

large volume of uncontrollable factors), the inclusion of subjective performance

measures (with objective measures) can minimise the chance of distortion. However,

despite the significant benefits of subjective performance measures in lowering

distortion, they require a large amount of time and effort to manage (Baker, 2002,

p.750).

In this thesis, the measured items of process fairness were adapted from Colquitt

(2001), incorporating the findings of Thibaut & Walker (1975) and Leventhal (1980).

They comprise: process control, consistency, bias suppression, accuracy of information,

correctability, and ethicality.

Motivation Indicator 4: Interactional Justice

Interactional justice relates to the aspects of the communication process between

decision-makers and recipients, such as honesty and respect (Cohen-Charash &

Spector, 2001, p.281). This can relate to treatment from a supervisor or source of justice

such as a client representative. Interactional justice predicts a negative reaction to poor

treatment by a client representative and to the process by which decisions are made

(linking back to process fairness). Interactional justice principles are closely supported

by economic reciprocity theory, which states that the agent prefers an environment of

fairness, where the principal’s (client’s) incentive intention is perceived to be honourable.

Where creativity and agent discretion is important, structuring incentives as a symbolic

gesture of trust can promote reciprocal behaviour and restriction of opportunistic

instincts (Kreps, 1997, p.363).

Incentive intention is judged in relation to the environment in which it is administered. If

there is a lack of trust and cooperation in the working environment and the agent is

questioning the principal’s honesty, they will be likely to perceive the reward offer as


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hostile (Fehr & Falk, 2002, p.689). This indicator is also linked with distributive justice

and process fairness. Whether an incentive is perceived as hostile or friendly will be

influenced by how it is administered and measured and the fairness of the reward payoff

(Fehr & Falk, 2002, p.689).

A financial incentive has also the potential to be a sign of recognition for the

achievement of goals and exceptional performance. The psychological and recent

economic theories of motivation emphasise the importance of recognition through goal

achievement (which would include above BAU incentive goals). The recognition of goal

achievement and its celebration are important rewards in themselves (Locke, 2000,

p.53). Similarly, in a profit-sharing incentive context, if the incentive is a reflection of the

principal’s desire to treat agents fairly and an opportunity for input to overall success, it

can induce higher levels of commitment (Coyle-Shapiro et al., 2002, p.434).

Therefore, based on interactional justice and reciprocity principles, the respectful and

honourable treatment of contractors/consultants and their representatives can promote

the good intentions of the incentive and capture the positive motivational affects of

recognition as a reward outcome. In this thesis, the measured items of interactional

justice and reciprocity were adapted from Colquitt (2001), incorporating Bies & Moag

(1996) and Shapiro et al.’s (1994) measurement criteria. A measure of incentive

intention was also included, based on the reciprocity theory findings of the experimental

economists, Fehr & Falk (2002). These items comprise: respect, intention, truthfulness,

justification (process explanations) and timeliness and responsiveness.

2.6 CONCEPTUAL FRAMEWORK

The development of a conceptual framework was required to explore the project drivers

impacting on FIM goal motivation. As the primary output from the literature review,

Figure 6 presents the conceptual framework that guides the empirical work associated

with this thesis. The framework outlines the relationships that impact on motivation in a

building project context, focusing on the impact of FIMs on effort (as a proxy for

motivation). The conceptual framework uses the motivation principles described in

Section 2.5 to provide an indication of motivation driver impact from a construction

project context. The motivation indicators employed are 1) Goal Commitment,

2) Distributive Justice, 3) Process Fairness and 4) Interactional Justice. The measured


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items for each indicator are presented in Table 3.

Table 3 Motivation indicators

MOTIVATION INDICATOR MEASURED ITEMS

Goal Commitment

(Hollenbeck and Klein, 1987; Locke et al., 1981)

Expectancy of Goal Attainment • social influence (group) • controllability/performance constraints • task difficulty • ability/experience

Attractiveness of Goal Attainment • goal-setting process • goal clarity/explicitness • goal attainment valance • project commitment

Distributive Justice

(Zenger, 2000; Leventhal, 1976)

• incentive intensity • fairness of reward outcome • the justification of reward outcome

Process Fairness

(Colquitt, 2001; Leventhal, 1980; Thibaut & Walker 1975)

• process control • consistency • bias suppression • accuracy of information • correctability • ethicality

Interactional Justice

(Fehr & Falk, 2002; Colquitt, 2001; Bies & Moag, 1996)

• respect • intention • truthfulness • justification (process explanations) • timeliness and responsiveness

These items shaped the semi-structured questionnaire that was used in the interview

program for this thesis. The conceptual framework also shows five project sources

which comprise the different areas within the building project context that can potentially

give rise to motivation drivers. The project sources were discussed in Section 2.4.2. The

project sources comprise (i) Contract, (ii) Design and Construction Management,

(iii) Tender Selection, (iv) Relationship Management, (v) FIM Design.

FIM effectiveness refers to the ability of the incentive system to promote the level of

motivation required for achievement of above BAU goals (or the voluntary goals above

the mandatory contractual requirements). According to the conceptual framework, the

motivation drivers to be identified in the empirical work (research gap) directly impact on

motivation (through the motivation indicators 1-4). Motivation then translates into (A)


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effort as the consequence of motivation. Finally, effort will directly influence (B)

performance (achievement of FIM goals). Although participant ability and factors

external to the project (eg. market prices) also influence performance outcomes, these

indirect factors are beyond the scope of this thesis.

Figure 6 Conceptual framework - Motivation on building projects

This conceptual framework provides a strong foundation for this and future

investigations into FIMs by disaggregating motivation indicators and the project sources

that impact them, via the drivers which are the focus of this thesis. In Chapter 10, the

conceptual framework is re-examined and revised to reflect the newly discovered

motivation drivers identified by the empirical analysis for this thesis.

2.7 POINT OF DEPARTURE FOR THE RESEARCH

This literature review established the need for aligning the motivation of project

B. Performance

Motivation

1. Goal Commitment

2. Distributive Justice

3. Process Fairness

4. Interactional Justice

A. Effort (Motivational Force)

MO

TIVA

TIO

N D

RIV

ERS

(Res

earc

h G

ap)

PROJECT SOURCES

i. Contract

ii. Design and Construction Management

iii. Tender Selection

iv. Relationship Management

v. FIM Design


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participants to achieve common goals in a construction project through incentivisation.

In the past, public sector construction clients - often out of a misguided objective to

justify value for money – have applied restrictive contractual arrangements that enforce

the return of all cost savings, resulting in a conflicting and adversarial project

environment which in turn results in increased project costs (Turner & Simister, 2001,

p.462). More recently, financial incentives have been seen as an appropriate

mechanism to invigorate motivation towards above BAU project goals and provide the

contractor with the opportunity for higher profit margins if exceptional performance is

achieved. Despite its potential benefits, the literature review suggested it was important

to consider the suitability of the FIM and the associated procurement arrangements, to

achieving maximum motivation.

The review of the literature has identified a need in construction management research

for further guidance in the implementation of financial incentives on construction

projects. There is a distinct lack of empirical evidence about the drivers that impact on

the performance of FIMs. This lack of research in the construction management

literature may be a result of the complexity of the motivational environment in which

construction projects operate. However, it is the author’s view that such complexity only

reinforces the need for detailed research into FIM performance.

This has been a multi-disciplinary literature review. It combines the areas of construction

management, organisational management, business, economics and psychology to gain

insight into financial incentive design, motivation and the building project context.

Although a few researchers in organisational management have undertaken

experimental research into the performance of compensation systems using integrated

economic and psychological motivational variables (eg. Van Herpen et al., 2005; Moers

2001a), these investigations have focused on performance measurement and motivation

at an organisational and strategic inter-organisational level and have involved little or no

discussion of the performance of financial incentive systems in a project environment.

On the other hand, construction management researchers have looked at motivation in

a project environment, but only from either an economic perspective (eg. Howard et al.,

1997) or a psychological perspective (eg. Leung et al., 2004), and never

comprehensively in relation to FIMs. There appears not to have been an integrated

theory analysis of construction project motivation from any discipline, let alone any

previous work of this type related to FIMs, building projects, or the Australian context.


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Hence, there is no previous literature on the impact of FIMs in the Australian

government non-residential building sector.

With guidance from organisational management literature, and drawing from the

significant literature on psychological and economic motivational theories, this literature

review has identified a set of indicators that can be used to assess the impact of

motivation drivers and has provided justification for their selection in reference to the

research context.

These indicators are located in a conceptual framework that was used to guide the

investigation of key drivers that impact on motivation towards FIM goals. Also, a set of

five project sources were developed from construction management literature on

determinants of project performance, which are argued to represent areas that influence

motivation and hence project performance.

The above constructs are new to the literature and proved instructive during the

empirical phase of the research. In contributing to filling the gap in the literature

described above, this thesis is responding to the many authors who assert that there

has been limited research into the impact of incentives on motivation and performance

in construction (Lahdenpera & Koppinen, 2003; Broome & Perry, 2001; Bresnen &

Marshall, 2000; Howard et al., 1997). This suggests that the assumption often held by

construction clients globally, that the promotion of motivation is assured if FIMs are

introduced is misguided. Gauging from the literature in other disciplines, harnessing the

power of motivation through reward systems is difficult and requires comprehensive

understanding of the context in which the reward is being applied, especially in complex

social environments like construction projects.

2.8 SUMMARY

This literature review has provided the background information required to explore the

impact of FIMs in the context of Australian government non-residential building projects.

This has involved: 1) an overview of current financial incentive design strategies in

construction contracts, 2) discussion of the general procurement approaches that

incorporate FIMs and the relationship between the FIM and project context, 3) the

identification of five broad project sources of motivation, 4) an overview of psychological

and economic motivational theory literature in relation to FIMs, 5) the identification of


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four motivation indicators and finally, 6) the development of a conceptual framework

based on the literature review findings, incorporating the motivation indicators and

project sources.

Nowhere in the literature is there a comprehensive framework for exploring the impact of

FIMs in a construction project environment. However, triangulation of motivational theory

principles, achieved by discovering the theoretical similarities across disciplines,

provided insights into the motivation indicators that influence the performance of FIMs,

an excellent starting point for this research. The conceptual framework will be used to

guide exploration of the key drivers that impact on motivation towards FIM goals in

Australian government large non-residential building projects.

CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY

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3.1 INTRODUCTION

This chapter outlines the research design and methodology adopted in this research.

The research was exploratory in nature and examined the research questions using an

in-depth inductive case study approach.

The main empirical objective of this study was to identify the key drivers that impact on

motivation towards financial incentive goals in Australian government large non-

residential building projects and to explain their characteristics in terms of

contract/incentive design and project context. The data was primarily qualitative, as the

research sought to understand the perceptions of key project participants in response to

the incorporation of FIMs in the procurement approach.

According to the Australian Productivity Commission report on ‘Work Arrangements on

Large Capital City Building Projects’, Australian large building projects are characterised

by ‘one-off’ designs that are constructed in a unique location with a wide variety of

project stakeholders (APC, 1999, p.11-12). Major Australian building projects are also

characterised by a complex array of contractual relationships between project

stakeholders (Cole, 2002, p.25). As each project from the study population is unique, its

specific context was central in explaining the drivers impacting on motivation towards

the FIM goals.

In studying the impact of financial incentives on motivation in large building projects

there was a need to identify what were the motivation drivers and explore how and why

project participants were motivated towards FIM goals. In this case, a pure quantitative

approach was unsuitable due to the complexity of the research context and the inductive

nature of the enquiry.

Trochim (1990) discusses the methodological differences between qualitative and

quantitative approaches. He states that qualitative research is exploratory and inductive,

while quantitative research is confirmatory and deductive in nature. Quantitative


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researchers aim to confirm and control the research phenomenon, while qualitative

researchers aim to interpret and understand what is happening by investigating the

relationships between variables in the phenomenon. Qualitative approaches rely on the

interpretation of data, by collecting information and experiencing the research

environment. Quantitative research methods limit personal interpretation of the raw data

by using statistical analysis. Qualitative methods can used to form the initial stage of

investigation, while qualitative methods are typically employed for more mature lines of

inquiry. Therefore, this exploratory investigation is not easily suited to a quantitative

approach, which requires structured and standardised quantities, but is very much

suited to a qualitative case study approach.

Based on the objectives of this research, an inductive case study approach was chosen

given the complexity of the project environment, and the absence of any substantial

research into this topic area. According to Robert Yin’s definition (Yin, 2003, p.4), the

case study method is empirical inquiry that investigates a contemporary phenomenon

within its real-life context; when the boundaries between phenomenon and context are

not clearly evident; and in which multiple sources of evidence are used. The case study

approach allowed the development of detailed and holistic descriptions of the case and

its context and employed multiple methods of data collection.

Also, according to Yin (2003, p.6), the exploratory case study approach is ideally suited

to areas where there has been minimal research, as in the case of this research topic.

This is supported by Gummesson (1991, p.75), who stated that data gathered and

analysed in exploratory case studies provide the basis for more precise research

directions in the future. There were two methodological characteristics of a case study

approach that are relevant to this study. It was possible firstly, to arrive at various

conclusions about individual cases according to their contexts and secondly, to refine

these and derive general conclusions across the case projects through triangulation.

3.2 RESEARCH DESIGN

The research design issues cover the scope of the study, the collection and analysis of

the data and the development of conclusions and recommendations.


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3.2.1 Scope of Study

The study population defines the limits from which the research sample is drawn by

controlling extraneous variations (Eisenhardt, 1989, p.537). This study population was

defined to hold industry sector, client type, procurement approach, project size and time-

line constant, while providing variability in incentive design and project context in order

to examine their impacts on FIM goal motivation. The study population was defined as

projects which were:

• from the Australian government non-residential building sector.

• large in scale - ranging from A$91.2 million to A$135.5 million. In Australia, a

large government building project is defined as being over A$10million (e.g.

QPDW, 2000). The population was limited to ‘large’ projects because it was

revealed in industry discussions that the majority of projects that were using

FIMs within the chosen sector were large.

• complex and significant with high risk (e.g. QDPW, 2000, p.20).

• commissioned by state government agencies, as discussions with industry

practitioners showed that the majority of Australian government large non-

residential building projects are the responsibility of the state governments

(Queensland (Qld), New South Wales (NSW), South Australia (SA), Northern

Territory (NT), Western Australia (WA), Victoria (Vic) and Tasmania (Tas).

Therefore, it was decided that the population would be limited to this major client

group.

• procured under a ‘Managing Contractor’ approach with FIMs and relationship

management initiatives. The initial plan was to select case projects from a wide

variety of procurement approaches from traditional lump sum to non-traditional

alliance approaches. This was dismissed when it was discovered through early

industry discussions that the majority of Australian government large non-

residential building projects that were using FIMs were being procured under a

‘Managing Contractor’ type approach. The population was therefore redefined to

include only ‘Managing Contractor’ type projects. Inherent in the ‘Managing

Contractor’ type procurement approach are relationship management

arrangements including initial and ongoing relationship workshops and the

selection of team members based on their capabilities to commit to the project


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relationship.

• completed no more than five years prior to data collection. It was determined that

this would maximise interviewee recollection of the project, and limit the

population to a specific period to provide some stability in the external

environmental factors, such as economic cycles (eg. major interest rate

fluctuations) and their impact on FIM performance. As with all project-based case

studies, the research findings represent a ‘slice in time’ with regards to external

environmental influences, in this case during a major economic ‘boom’ period.

By keeping these dimensions consistent and thus ‘scoping down’ the size of the study

population, it was possible to make more robust generalisations about the key

motivation drivers. The research was focused on a narrowly defined population of

government non-residential building projects, driven by the the need to limit

heterogeneity within the population to maximise the value of conclusions. Research

results may apply to a wider range of project types. Future research is recommended to

capture a larger cross-section of project sizes, contract types, ownership models and

application areas to extend findings beyond the current scope. It is expected that these

variables will impact the motivation environment of project participants. However, it is

unclear as to whether the broad conclusion of this thesis would change, i.e. that project

relationships are more important to motivation than financial rewards.

The study scope selected was also influenced by the previous experience and interests

of the researcher, who had access to an extensive network of state government client

colleagues and was able to assess case projects that were proposed by such contacts.

The sector was also chosen because it is an important economic contributor to the

Australian construction industry (see subsection 1.1).

3.2.2 Sample Selection

The unit of analysis is an Australian state government large non-residential building

project, commissioned under a Managing Contractor procurement approach with FIMs

and relationship management initiatives, completed five years prior to data collection

(2001-2005). Four such projects were selected as in-depth case projects.

The identification and refinement of case projects was conducted during August and

September 2004. The process began with informal discussions with the researchers’


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colleagues from the Queensland Department of Public Works, Australia. These

discussions identified several senior public sector managers from various state

government jurisdictions who could provide information on potential case projects. Each

manager was then contacted by phone to discuss the research and potential projects.

These phone calls led to the identification of seven projects that fit the requirements of

the study sample.

The researcher then conducted an extensive desktop review of documentation available

for each of the seven projects (eg. web pages, project and news briefs, contract

documentation). Once the desktop review was complete, client managers (who were

associated with each project) were contacted and a phone interview was organised to

elicit specific project details including: project type; project size and complexity;

commencement and completion dates; contractual arrangements; FIM designs; and the

willingness of the project participants to take part in the research.

One project was subsequently identified to be unsuitable for research due to the

unwillingness of the project participants to take part, despite reassurance that

interviewee details would remain confidential. This was an unfortunate setback, as the

project met all sample selection requirements. On the other hand, this project

experienced significant politically sensitive outcomes and it was therefore unlikely that

the interview data would be reliable.

Of the remaining six potential case projects, two were nearing the end of their design

stages at the time of review. During the early discussions with the senior public sector

managers, the researcher was advised that these two projects would be completed by

the time of data collection. However, it was later identified that, due to unforseen

circumstances involving project funding and scope agreements, the timetables for these

projects were to be extended beyond the end of the PhD candidature and were

therefore unsuitable for inclusion. This consultative process led to the selection of the

final four projects.

It was considered that there would be enough variability amongst these four to provide

useful insight into the research questions, while at the same time keeping the scope of

the research manageable. There was a risk that if more case projects were attempted

within the time frame, there would be insufficient data from, and analysis of, each study

to provide robust findings.

Four case projects were sufficient to derive cross-case conclusions in this study.


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Kathleen Eisenhardt’s influential paper “Building Theories from Case Study Research”

(1989) recommends that between four and ten case studies is sufficient to draw robust

cross-case conclusions. She states that with fewer than four case studies, the empirical

grounding of the research is likely to be unconvincing and with more than ten cases it

can be very difficult to manage the complexity and volume of data (p.545).

Each of the four studies is substantial, as eight extensive interviews were conducted

across four different stakeholder types. The primary data amounted to approximately

32,000 words contained in interview transcripts across all case projects.

The sample of four studies was selected in a purposive manner so that they would

represent major differences in incentive design and project context. The following table

summarises the case projects.

Table 4 Case project characteristics

Lyell McEwin Health Redevelopment

Stage A

Brisbane Magistrates Courts

Adelaide Convention Centre Extension

Coffs Harbour Health Campus

Code Project A Project B Project C Project D

FIM type Mixed Performance bonus Mixed Share of savings

Geographic location

McGregor, SA Brisbane, Qld Adelaide, SA Coffs Harbour, NSW

Building type Hospital redevelopment

Court complex (greenfield)

Convention centre redevelopment

Hospital campus (greenfield)

Contractual arrangement

Managing Contractor (Construction Management)

Managing Contractor (Design and Construction Management)

Managing Contractor (Construction Management)

Managing Contractor (Design and Construction Management)

FIM outcome Majority of FIM goals achieved

Failure to achieve FIM goal

Majority of FIM goals achieved

FIM goal achieved

Final cost (A$) 91.2 million 135.5 million 92 million 80 million

Completion date

May 2005 November 2004 September 2001 October 2001

The four types of differences that distinguish the case projects were:

FIM design

The case projects selected cover key FIM design types, comprising (1) share of savings

(2) performance bonus and (3) financial incentive mixes. The performance

measurement systems also varied across case projects. They covered (1) self-reporting

performance benchmarks, (2) exponential measurement based on extra scope


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completed and (3) percentage of cost savings below a Target Construction Sum. Project

participants eligible for the financial incentive reward on each of the case projects also

varied, involving combinations comprising: (1) client representatives and the managing

contractor, (2) client representatives, managing contractor and key subcontractors, (3),

managing contractor and consultants, and (4) the managing contractor, consultants and

key subcontractors.

Geographic location, building and project type

The geographic location of the case projects covered Qld, NSW, and SA. The case

projects comprised two inner-city projects and one outer-suburban project in capital

cities of similar sizes (approximately one million persons each) and, a regional project in

a smaller country town. Case projects also included a mixture of greenfield (built on a

freshly cleared site) and redevelopment (additions to an existing complex) projects. The

building types also varied, comprising a convention centre, two hospitals, and court

complex, each with their own unique project goals.

Contractual arrangements

The case projects selected varied in their contractual arrangements under the managing

contractor procurement approach. Two of the case projects were procured under a

Managing Contractor (Design and Construction Management) contract with a GCS,

while the other two involved a Managing Contractor (Construction Management)

contract without a GCS. These contractual variations influence project relationships,

particularly the levels of risk held by the various project participants (QDPW, 2000,

p.19). There was also variation in the management structure and tender selection

processes.

Incentive Outcome

Project participants in three of the four case projects achieved the majority of FIM goals,

while in one project they failed to achieve any of the FIM goals and thus the financial

incentive reward was not distributed.

The purposive sampling methodology set out to cover key categories of difference as

described above, to allow comparisons which would highlight the key motivation drivers.

However, another factor influencing final selection was the willingness of the major

project participants to take part in the study and commit to ongoing feedback tasks.


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3.2.3 Data Collection

The research used two major data sources: semi-structured interviews and secondary

sources including project and contractual documentation, industry publications and site

visits.

For each of the case projects, extensive preliminary data were collected, which helped

shape the interviews. Secondary data included all contractual documentation between

the project parties, project briefs and minutes from project meetings. It also included

minutes from state government parliamentary sittings, and industry magazine and

newspaper cuttings. The four project sites were also visited before the interviews to

observe the end results of the projects. These were evaluated according to the

researcher’s knowledge of construction and design quality, gained from experience

working in a government client department. Secondary data provided background to the

case projects and allowed the researcher to evaluate the validity of the interviewee

responses through triangulation.

Preliminary discussions were then undertaken with project participants to grasp the full

extent of the research context and confirm the suitability of the case projects. Collection

of the core field data occurred during October 2004 – June 2005, with follow up data

collection during July 2005 – January 2006. Interviews were conducted with eight senior

management representatives from each of the four case projects, including two from

each of the following four stakeholder types:

• Managing Contractors – responsible for the management of the construction

process and input to the design process

• Consultants – responsible for specific design areas such as architectural and

engineering design development and management

• Client managers – responsible for project management, risk management and

budgetary management - providing the link between governance and project

management decisions

• Subcontractors – responsible for management of various trade packages on the

projects.

All key stakeholder types on the project were interviewed to gather a holistic picture of

motivation drivers and the project context. Table 5 lists the interviewee position,


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interview details and classification of the interviewee. The ‘interviewee class’ is split into

those project participants eligible for an FIM reward (‘reward participants’), and those

who were not eligible, but contributed to achievement of FIM goals (‘non-reward

participants’). The drivers impacting on motivation towards the FIM goals are determined

from the perceptions of both the reward participants and the non-reward participants in

each case project. There were 20 reward participants and 12 non-reward participants

interviewed across the four case projects. These interviewee classes and their

weightings are discussed further in Section 3.2.4.


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Table 5 Interviewee details

Interviewee Position Interview Date

Interview Location

Interview Duration

Interviewee Class

Project A

Senior Risk Manager/Superintendent Representative - Government (Client Representative One)

12/04/05 Adelaide City, SA

1.5 hours Non-reward participant

Senior Client Manager – Government (Client Representative Two)


1 hour Non-reward participant

Project Director (Managing Contractor Representative One)

13/04/05 Netley, SA 1.5 hours Reward participant

Construction Manager (Managing Contractor Representative Two)

13/04/05 Netley, SA 1.5 hours Reward participant

Senior Architect (Consultant Representative One) 13/04/05 Kensington, SA

1 hour Reward participant

Senior Engineer (Consultant Representative Two) 15/04/05 Adelaide City, SA


Senior Subcontractor (Subcontractor Representative One)

13/04/05 Klemzig, SA 1 hour Non-reward participant

Senior Subcontractor (Subcontractor Representative Two)

14/04/05 Brompton, SA 1 hour Non-reward participant

Project B

Senior Project Manager/Superintendent Representative - Government (Client Representative One)

14/10/04 Brisbane City, Qld





Project Director (Managing Contractor Representative One)


1.5 hours Reward participant

Design and Contracts Manager (Managing Contractor Representative Two)

6/12/04 Milton, Qld 1.5 hours Reward participant

Senior Architect (Consultant Representative One) 19/10/04 Brisbane City, Qld


Senior Engineer (Consultant Representative Two) 21/10/04 Brisbane City, Qld


Senior Subcontractor (Key Subcontractor Representative One)

6/12/04 Southport, Qld 1 hour Reward participant


21/10/04 Salisbury, Qld 1 hour Reward participant


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Interviewee Position Interview Date

Interview Location

Interview Duration

Interviewee Class

Project C

Senior Risk Manager/Superintendent Representative - Government (Client Representative One)






Construction Manager (Managing Contractor Representative One)






Senior Architect (Consultant Representative One) 11/04/05 Adelaide City, SA


Senior Engineer (Consultant Representative Two) 15/4/05 Adelaide City, SA



13/4/05 Kemzig, SA 1 hour Reward participant


15/4/05 Melrose Park, SA


Project D

Senior Project Manager/Superintendent Representative - Government (Client Representative One)

9/12/04 Coffs Harbour, NSW



9/12/04 Coffs Harbour, NSW


Construction Manager (Managing Contractor Representative One)

5/1/06 Melbourne, Victoria



5/1/06 Melbourne, Victoria


Senior Architect (Consultant Representative One) 3/1/06 St Leonards, NSW


Senior Engineer (Consultant Representative Two) 15/12/04 Brisbane, Qld 1 hour Non-reward participant


10/12/04 Sawtell, NSW 1 hour Non-reward participant


11/12/04 Taree, NSW 1 hour Non-reward participant

All interviewees were senior managers with relative autonomy in initiating major actions

on behalf of their organisations in the case projects. Where possible, interviewees were

chosen who had extensive experience in the sector. All interviewees were involved in

the case project from engagement to completion of works. The interviewees were

purposely selected based on their positions on the project and within their organisations,

and the knowledge they had to represent the collective view of the stakeholder group.

The interviewees were also selected based on the researcher’s assessment of their


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predisposition to provide a reliable, honest and frank account of behaviour on the

projects in retrospect. Preliminary discussions with each interviewee also provided the

researcher some insight into the interviewee’s attitude towards the research and their

willingness to take part. To improve the robustness of the interview data, two managers

were interviewed from each stakeholder group and the interview data was then

triangulated to check for consistency. Follow-up discussions were conducted to clarify

dissonant views, where possible.

The subcontractor interviewees represented the key subcontractor groups on each case

project. As there were a large number of subcontractor organisations in each case

project (generally more than 10), it was important for the researcher to identify the key

subcontractors who undertook the majority of subcontractor work. To identify the ‘key’

subcontractors, the researcher contacted the client and managing contractor

representatives to determine the most important subcontractors on the project. The

researcher also selected subcontractor representatives based on their expected

reliability, honesty, frankness and ability to represent the collective view of their

subcontractor group. Although it was impractical to interview all subcontractors, the

focus on key subcontractors improved the reliability of the interview data in comparison

to a random selection. As with all stakeholder groups, interview data was cross

referenced to check for consistency.

Interviews across all stakeholder types were set up via phone or email and included an

introductory account of the research and what it set out to achieve. All potential

interviewees on selected projects were made aware of their ethical rights and had the

option not to take part. None of the potential interviewees declined and all were very

generous with their time. This appeared to reflect the interest the industry practitioners

had in the research. Once they had agreed to participate, interviewees were sent a brief

on the goals of the research and a general introduction to the areas of questioning.

The interviews ranged from 60 to 90 minutes and involved both structured and un-

structured questions to comprehensively examine the full range of motivation drivers.

Probe tactics were used during the semi-structured interviews. This involved adapting

questioning to elicit further detail if issues needed to be clarified. This minimised the

discussion of irrelevant information and notes were taken during the interview to assist

in this process.

Interview data was captured by note-taking and digital recording that was transcribed


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verbatim in order to develop a comprehensive database. Interviewees consented to the

recording of their interviews, however requested that their names would not be revealed.

No interviewee mentioned any difficulties with recollection or declined to answer the

questions that were asked during the interview.

The semi-structured interview questions were based on the motivational theory

principles identified through the literature review’s cross-theory triangulation. The

interview questions were also focused around the project sources or the potential areas

within the project from which motivation drivers were expected to emerge. Refer to

Appendix A, for the general interview questioning employed, based on the motivation

indicators.

The first part of the interview sought background information, revealing in part the

interviewee’s level of understanding about the FIM and their involvement in its operation.

The second part focused on discussing motivation towards the FIM goals and the

perceived project drivers that impacted on this motivation. The final part of the interview

focused on learnings that could be taken from the project in retrospect, including the

interviewee’s perception of the FIM outcome.

The interview data was retrospective in nature as the interviewees were questioned

about behaviour on a project that had been completed up to five years ago. In these

circumstances post hoc rationalisation, involving differences between actual behaviour

and the verbal justification of that behaviour, needed to be addressed. To minimise the

impact of post hoc rationalisation, triangulation of individual case data was undertaken

by cross-checking and augmenting it with secondary data.

Also, during the data collection stage, informal field notes were taken that included

observations during the interviews, summaries of secondary data and ‘hunches’ about

relationships that were arising from the interview responses. Such field notes helped

neutralise post-hoc justifications and provided the researcher with a head-start in the

data analysis, by noting themes that emerged during data collection (Eisenhardt, 1989,

p.539).

Where possible, the researcher transcribed the data and did the preliminary analysis

within two weeks of the interviews, to maximise the reliability of the qualitative analysis.

Once the transcriptions and preliminary notes were taken, follow-up discussions were

conducted over the phone with three of the interviewees, to clarify apparent

discrepancies and improve the reliability of their personal accounts.


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A common criticism of the use of interview versus observational data is that perceptions

of actions and effort are being measured, as apposed the observations of the actual

behaviour. There is the possibility that interviewees may provide inaccurate information

due to difficulties in recollection or a lack of understanding. Yet the use of perceptual

data is very common in the social sciences and is largely accepted as a valid research

method. Indeed, many authors have argued that purely ‘observational’ data is

exceedinly rare because the researcher will usually play a role in the interpretation of

observations (Savenye & Robinson, 2004; Patton, 2002). Nevertheless, to minimise the

negative effects of solely relying on interview data, the research analysis was

strengthened through triangulation across four data types - interviews/recordings,

feedback, observations and secondary data.

3.2.4 Data Analysis

Once data collection was completed, analysis involved examining and categorising the

subjective responses from the semi-structured interviews and the secondary data to

identify the key motivation drivers. Each case project was treated as an independent

study leading to the progression of the cross-case analysis. As discussed in Eisenhardt

(1989), the process of firstly analysing ‘within case data’ allows the researcher to identify

unique patterns within each case as a ‘stand alone entity’ before progressing to

generalise patterns across case studies. As an additional contribution, individual case

project results can be used as a teaching aid in the discussion of FIMs in specific project

contexts. In this thesis, the individual case project results are supplemented by example

interviewee quotes presented in Appendices B-E. Appendices B-E present interviewee

quotes for all motivation drivers and all respondents who identified and discussed the

driver. One example quote was randomly drawn from the coded comments of each

respondent for each driver across the four indicators. The examples provide the reader

with an overview of the evidence that arose from the raw interview data to support the

development of the motivation drivers for each case project.

Raw interview data was reviewed using content analysis. Content analysis can be

defined as ‘the systematic, objective quantitative analysis of message characteristics’

(Neuendorf, 2002, p.1). In this case, it involved manually aggregating themes and

categories from the large volume of interview transcripts, and discriminating between

them. The identification and refinement of driver categories was achieved by inductive


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coding. The data coding followed the process outlined in Thomas (2003) and is

illustrated in Figure 7. Inductive coding is not a straightforward or simple process

(Marshall, 2002, p.57). In this case, it began with close readings of the transcriptions to

familiarise the researcher with their content and to gain appreciation of meanings within

the text. The readings were undertaken in combination with the interview notes and

secondary data. This was followed with the separation of text into motivation indicator

and project source categories, to help in identification of motivation drivers.

The coding process involved interpretation of each interviewee’s transcript, organised

around the four motivation indicators. The transcripts move sequentially through the four

indicators following the order of questions asked at interview (see Appendix A). The

questions revolved around the measured items pertaining to each indicator, which are

listed in Table 3. Interview notes and secondary data provided additional input to the

interpretation process. Such data was analysed through the lens of the five project

sources. These sources contain the antecedents for motivation drivers and thus guided

the manual sorting of research data. Key themes were initially allocated to one of the

five sources. Once all project data had been allocated in this way, collecting together the

views of all the respondents, augmented by interview notes and secondary data, each

project source was revisited and patterns of dynamism within it were identified. Distinct

patterns were allocated motivation driver labels.

Each of these label categories were revised and refined until clear lines could be drawn

between each of the motivation drivers and their association with the motivation

indicators. The goal was to define driver categories that captured the breadth of

interview experience, whilst limiting the categories to a manageable number. Care was

taken to identify categories that: covered all instances, were limited in number and were

mutually exclusive.


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Figure 7 The inductive coding process

Initial read through text

data

Identify specific segments of information

Label segments of information to create categories

Reduce overlap and redundancy

among categories

Create a model incorporating

most important categories

Approx 8,000 words per interview

Hundreds of text segments per

interview

30-40 categories 15-20 categories 5-10 categories

(Adapted from Thomas, 2003, p.6)

The ‘constant comparison’ technique was employed to analyse the relationships forming

within the data. This involved taking one piece of data and ‘comparing it with all others

that may be similar or different in order to develop conceptualisations of the possible

relations between the various pieces of data’ (Thorne, 2000, p.69). This inductive

process required the researcher to make subjective coding judgements in the

interpretation and comparisons across interview data. Due to the subjective nature of

content analysis and reliance of the interpretative skills of the researcher, an ‘expert

panel’ was formed to test content analysis accuracy and ensure inadvertent bias was

minimised (see subsection 3.3.2).

Once the motivation driver categories were identified from each of the interviewee

responses through the coding process described above, they were compared across

interviews and the frequency with which each driver category was mentioned and coded

across the entire case project was tallied. A driver matrix was developed to assess how

many times a driver was mentioned and coded in the transcripts for each case project;

this was assessed both across interviewees and across each of the four motivation

indicators that were discussed with each interviewee. The total score for each driver is a

summation of the interviewee driver scores (presented in each case project’s driver

matrix). An additive approach was used regardless of whether the driver had a negative

or positive impact on motivation. For instance, negative and positive references do not

cancel one another out; they are simply added together and make the driver more

important. The dynamics surrounding associated circumstances are explored in Section

8.1.

The reliability of the manual coding method was reinforced by the results of an inter-


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judge reliability test conducted after the analysis was completed. This test showed there

was 91.6% agreement between allocation of interviewee quotes to driver categories by

the researcher and by a panel of experts. Refer to Section 3.3.2 for further explanation

of this test, the results of which are shown in Appendix F.

In this study, coding of the data using qualitative analysis software was minimal. It was

found that computer-generated coding restricted the analysis of subtle information and

could not adequately accommodate a wide range of data sources (including secondary

data). It was concluded that, in this case, a computerised approach would be less useful

than manual in-depth analysis which involves the benefits of intuitive insight during

coding. If the database had been larger, such an approach would have been

unmanageable, and computer-aided approaches would have been more valuable.

Following the individual case analyses, cross-case triangulation was undertaken to

identify the most common motivation drivers. As supported by Eisenhardt, (1989), the

tactic used to draw cross-case conclusions was to evaluate key motivation driver

categories across all of the case projects and ‘look for within group similarities coupled

with inter-group differences’ (p.540).

A simple quantitative analysis was undertaken to assess the relative impact of the

identified drivers. This involved a weighted count of the number of times a driver was

mentioned by interviewees. The use of this weighted frequency data to derive driver

rankings was devised after data collection to assist in prioritising client action arising

from the research.

Weightings were assigned to the results to reflect the fact that there were two classes of

project participants – those eligible for an FIM reward, and those who were not eligible,

but contributed to achievement of FIM goals. To gain a comprehensive understanding of

the motivational environment within each case project (and improve the researcher’s

ability to triangulate interview data), it was important to include the perceptions of all the

key project participants - as they all impacted on achievement of FIM goals, even if

some of them were not rewarded through the FIM2. Nevertheless, there was a stronger

2 The fact that some project participants interviewed weren’t eligible for FIM rewards did not mean that they had less interest in FIM design as a source of motivation compared to other sources. All non-reward participants were aware of the existence of the FIM prior to contact with the researcher, so that their exclusion was potentially a very important FIM design issue.


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reliance on reward participant perceptions, as these participants were more closely and

directly involved in the function and operation of the FIM. As the perceptions of the

reward participants were considered more important to the primary research question,

their observations received double the weight of non-reward participant observations. A

weighted frequency model was adopted to count the observations, as shown over the

page.

Figure 8 Weighted frequency model

Sensitivity analysis was conducted to examine the effect of removing the interviewee

weighting from the reward participants. Application of this unweighted frequency model

resulted in the same ranking of key motivation drivers as that derived from the weighted

model shown in Figure 8. This result improves the validity of driver rankings shown in

Chapter 8.

The literature contains no guidance to assist in determining the relative importance of

these four indicators. In the absence of any established relativities it was assumed that

the four indicators are of equal importance in indicating the existence of motivation

(hence the weighted frequency model involves no weightings between indicators). It is

also assumed that each motivation driver is independent. These are clearly important

assumptions and it is an indication of the lack of research in this area that the

researcher was unable to find guidance to either support or refute them.

Also, as the focus of the research was to identify and measure the relative impact of the

motivation drivers, determining the relative importance of the motivation indicators was

outside the scope of the empirical work. Once the relative motivation driver data was

determined from the individual case analyses, the indicators were excluded from the

cross case analysis to concentrate on the drivers and their interrelationships. The data

will be revisited in future work to determine the relative importance interviewees placed

on each of the motivation indicators. It is expected this will result in a further refinement

Interviewee Motivation Driver Score = Number of indicators impacted (1-4) ×

Interviewee weighting (Reward Participant = 2, Non-reward Participant =1)

Total Motivation Driver Score = Sum of interviewee driver scores.


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of the conceptual framework.

In the meantime, once the key motivation drivers were identified, they were analysed in

light of recent construction and inter-organisational management literature to explore the

results’ implications for future project design and delivery. Further discussion of cross-

case analysis methods appears in Chapter 8.

3.3 VALIDITY AND RELIABILITY

Patton (2002) argues that validity and reliability are the two areas that qualitative

researchers should be focused on when seeking to maximise the quality of their studies.

As this research was primarily qualitative, it was important that the research methods

were credible and replicable. The use of triangulation was the key method to test and

maximise validity and reliability and strengthen the robustness of the research results.

3.3.1 Validity

Research validity simply refers to the correctness or credibility of the research findings

(Maxwell, 1996, p.87). Patton (2002, p.247) advocates the use of triangulation in

strengthening validity by combining several data sources. Similarly, Golafshani (2003,

p.604) states that engaging multiple methods and data sources will lead to ‘more valid,

reliable and diverse construction of realities’. The validity of the research results

reported here were strengthened through triangulation across 32 interviewees, four case

studies, four stakeholder types, four data types - interviews/recordings, feedback,

observations and secondary data - and two frequency models. According to Yin (2003,

p.34), exploratory case studies involve two areas of validity; construct and external

validity.

Construct validity refers to the assertions about the effectiveness of the operational

measures used in a study (Sackett & Larson, 1992, p.430). Deriving perceptions of

multiple interviewees concerning the same themes, as an example of triangulation,

improves the representativeness of the data collected (Jick, 1979, p.603). For this

thesis, observations were collected from eight project interviewees on each case project

along the same themes, thus improving construct validity – in this case the driver

categories. The inclusion of two interviewees from each stakeholder type, the use of


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secondary data to cross-check (triangulate) interviewee responses, and the use of a

feedback loop to manage interviewee discrepancies provided further construct validity to

the study.

Similarly, the validity of the theoretical assumptions that formed the research conceptual

framework was strengthened through a ‘cross-theory’ triangulation approach during the

literature review. The literature review discovered many similarities in the economic and

psychological motivational theories, and the triangulation of the key theory principles

improved the validity of the motivation indicators. In turn, the validity of these indicators

increased the credibility of the driver rankings assigned during empirical analysis.

External validity refers to aspects of study that can be generalised. There are

acknowledged challenges with a case study approach in terms of external validity due to

the small and selective sample. Generally, the aim of case study research is to derive

analytical generalisation and not statistical generalisation. Data from multiple in-depth

case studies can be generalised in this way (Yin, 2003, p.32-33). This suggests it is very

useful to draw out general themes and patterns, which might later form the background

for future statistical research.

To improve the level of external validity in this study the following tactics were employed:

• researching multiple case studies - the use of multiple case studies can help

avoid the weaknesses of generalising from a single case source (Yin, 2003,

p.46)

• narrowly defining the study population to improve the robustness of the study

conclusions

• selecting a range of case studies that represent the variances present in the

defined population

• using multiple evidence sources to gain in-depth knowledge of the case study

context.

Further, although the research is based on a case study approach, 32 responses were

achieved overall so that it was possible to improve the robustness of the qualitative work

via statistics generated from the weighted frequency model.


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3.3.2 Reliability

Reliability can be defined as the extent to which a method can be replicated by others

under similar conditions (Grummesson, 1991, p.80). Case study research methods

encompass risks associated with researcher subjectivity which may negatively impact

replication. These risks can be minimised with a strong case study protocol (Yin, 2003,

p.67-69). The protocol used to guide this study included a conceptual framework (see

Figure 6), case study field notes (notes on ongoing themes and secondary data

sources), a clear definition of the study population and a semi-structured data collection

and analysis process that allowed the research methods to be redefined to reflect the

deepening understanding of the case projects.

This research examines motivation perceptions of project participants in a specific

context at a specific time. This obviously makes it difficult for future researchers to

repeat the results exactly. However, as the fundamental motivation principles are

expected to remain relatively stable over time, it is predicted that the key motivation

drivers identified in this study would be similar under similar study conditions.

Another issue relating to the subjectivity of case study research was inter-judge

reliability. This is a measure of homogeneity. To ensure that the content analysis of the

primary interview data was reliable and inadvertent bias was minimised, an ‘expert

panel’ was formed to test the reliability of the key motivation driver categories derived

from the raw interview data. The ‘expert panel’ comprised of three persons (following

Magub, 2007) – two senior academics and one senior building industry manager.

Each panel member was given a broad outline of the research, but not specific project

details. A sample of 16 interview quotes was randomly selected for them to allocate to

the eight key driver categories, from the database of 201 key driver quotes that were

allocated by the researcher.

The degree of convergence (providing the level of confidence in driver categories) was

determined by comparing the expert panel’s allocations with the researcher’s to

determine a reliability percentage score. It was assumed that if the categories created

by the researcher were reliable, there would be a high level of consistency in responses.

An agreement of over 80% is sought to confirm a level of confidence in categories in an

inter-judge reliability test (Cope, 2004, p.9). The allocations of each of the three panel

members reflected over 80% agreement (with an average of 91.6% across the three).


________________________________________________________________________________________________

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With this high level of agreement, further consultation with panel members was not

required. The results provide evidence of the reliability of the driver categories.

Appendix F provides more details.

CHAPTER 4: CASE PROJECT A ________________________________________________________________________________________________

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CHAPTER 4: CASE PROJECT A - LYELL McEWIN HEALTH

REDEVELOPMENT STAGE A

4.1 PROJECT CHARACTERISTICS

The following discusses Case Project A (the ‘project’) characteristics in detail. This

information has been sourced from interviewee accounts, project contract

documentation and government and project reports (Carr & Exton, 2005; LMHS, 2004;

LMHS, 2002; LMHS, 2001; PSA, 2000; DHS, 2000). The analysis of the FIM motivation

drivers follows in Section 4.2.

4.1.1 Project Background

The Lyell McEwin Health Redevelopment Stage A project involved the design and

construction of a A$91.2 million redevelopment of one of South Australia’s largest acute

care hospitals. The original site comprised some newer (circa 1987) and some older

(circa 1958) buildings, with over 50% of the floor space in single storey buildings.

Common features of the building stock included asbestos roofing, extreme wear of the

non-durable surfaces, inadequate ventilation and climate control, very little acoustic or

vibration control and non-insulated walls and ceilings.

The Department of Human Services (DHS), Government of South Australia (the ‘Client’)

determined that the buildings were not meeting their operational requirements and

health service delivery models. A master planning proposal to redevelop the site was put

forward to the South Australian Parliament. After approximately five years of

deliberation, in February 2000, Cabinet approved initial funding of A$87.5 million for

redevelopment (a further A$3.7 million was approved during construction due to

changes in scope). Approximately A$83 million was allocated for construction and the

procurement of Furniture, Fixtures and Equipment (FFE). This project included the


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demolition of much of the outdated infrastructure and replacement of all wards, including

the Women’s Health Centre, Administration and Education Unit, Critical Care and

Emergency Unit, Imaging, Intensive Care Unit, Palliative Care Unit, High Dependency

Unit and operating theatres. It was also proposed that the hospital design should

consider future growth. The hospital was working throughout the construction stage and

the project required the flexibility to meet changes in operational requirements and

ongoing commissioning of new wards. The project was completed in two major stages,

with a minor completion stage for finishing off the buildings, including the construction of

the front entrance and forecourt. A unique aspect of the delivery approach was that FFE

procurement was assigned to the Managing Contractor as well as construction

management; traditionally FFE would be out-sourced to a specialist contractor.

Due to its large size and complexity (DHS’s largest capital works project to date), the

project offered the opportunity to implement a relationship-based procurement

approach. It also allowed the Client to ‘showcase’ innovative procurement processes

and implement advanced ‘value for money’ initiatives. According to the project team

agreement (LMHS, 2001, p.5) the visions of the project were:

1. ‘Build an exceptional hospital through working as a highly motivated and

integrated team in close collaboration with the health service and the

community.’

2. ‘The team will focus on the journey, (i.e. the process of delivering on the

objectives), the deliverable outcomes and the legacy that the delivery process

and outcomes leave for the future.’

3. ‘The project team will be committed to achieving maximum value and quality for

capital funds, achieving outstanding community relations and training

opportunities, achieving completion on time with outstanding industrial relations

and workplace safety, as well as minimum disruption to the operating

environment; and, to innovate and set new standards in all aspects of the project

including the delivery process.’

Design development and construction documentation commenced in February 2001 and

the project was practically completed in May 2005, meeting all major project objectives

including program, after the allowance for extensions of time.


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4.1.2 General Procurement Approach

The general procurement approach on the project was a Managing Contractor –

Construction Management (MC-CM) arrangement. See Chapter 2 for detailed

information on this form of procurement approach.

At the master planning stage, the project had been ‘earmarked’ as a standard lump sum

contract. A team of consultants including the architect (primary consultant), mechanical

and civil engineers (secondary consultants) and a cost planner had been appointed

under a lump sum arrangement to do master planning work. After several months, the

client representatives identified the project as high risk and it was decided that a

relationship-based MC–CM procurement approach would be better. This approach

allowed the Client to control design and construction and manage construction costs

through variation payments. However, under this form of procurement approach, the

Client took on the majority of cost overrun and design discrepancy risks. The Managing

Contractor was expected to maintain the Client’s budget, provide input into the design

process and manage the construction trade packages. It was anticipated that their input

would improve design constructability, thereby decreasing construction risks.

Cabinet approved this procurement approach and it was implemented in 2001. The

earlier project team had set objectives for the project, which included the standard

objectives to provide a functional health facility on program and budget, and also to

deliver the project under ‘best for project’ priorities. These included Ecological

Sustainable Development (ESD), community relations and training objectives and were

integrated into the procurement approach as the primary FIM performance goals (see

Section 4.1.7).

The procurement approach also included relationship management processes. This

aimed to further mitigate the Client’s design and construction risks, through closer

integration of the project team (the Managing Contractor and consultants were directly

contracted to the Client throughout the project), and to improve decision-making and

problem resolution. The Executive Leadership Team (ELT) and the Integrated

Management Team (IMT) with their workgroups comprised the management structure of

the project. They involved all the major stakeholders and their leaders under a team

management approach. They aimed to promote the ‘best for project’ team culture that

was founded in the so-called ‘breakthrough’ relationship workshop held after the project

teams were appointed.


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4.1.3 Contract Risk Profile

A modified Managing Contractor C21 contract was used. The C21 is a New South

Wales Government contract based on the Managing Contractor - Design and

Construction Management procurement approach. For the project, the standard C21

contract was modified to replace the GCS clause with a construction management

professional fee arrangement. This meant that the Client would share the construction

risks with the Managing Contractor and determine a negotiated construction price,

through an open-book tender process. This included a set fee (profits and overheads) to

be paid for management services. The client representatives considered that this

arrangement would provide the Client better value for money if the project was managed

efficiently.

According to Client Representative One, the Client made the decision to avoid placing

all of the construction risk on the managing contractor, in the spirit of a relationship-

based approach.

‘Relationship contracting just doesn’t gel with the idea of GCS type [design and

construction management] contracts. If you expect them [the managing

contractor] to take on all the risk for unforeseen issues they will load their price

accordingly. So you will end up paying for something that may never happen. So

we think that is bad value management. The theory in our state - and I don’t think

it is shared across other governments - is that it is better to pay for it if it happens

rather than pay for it if it doesn’t happen’.

Although the Client was willing to take on risks of cost overrun and design

discrepancies, the Managing Contractor and consultants had a contractual obligation to

maintain the Client’s budget and meet design requirements. They were entitled to

variations for extra work that was approved by the client representatives. The key

subcontractors (mechanical and electrical) also had an obligation under their Stage One

appointment (during design documentation) to provide input to design and conduct

open-book negotiations on an agreed subcontract price. All subcontractors took on the

risk to complete their trade packages for the Managing Contractor within their

tendered sum.


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4.1.4 Management Structure and Engagement Stages

The management structure was a ‘construction management’ arrangement, where the

Managing Contractor and key subcontractors were involved in design development and

documentation. A unique feature of the management approach was the abolition of the

traditional hierarchical structure in lieu of a ‘round table’ approach. The consultants,

Managing Contractor and key subcontractors were appointed directly to the State

Government Minister responsible for the project. This was intended to promote honesty

and openness in project meetings between the major parties.

The management of the project was framed around the ELT and the IMT. The IMT

included the individuals from the major parties who were in charge of the day-to-day

management of the project, while the ELT involved the higher level management

personnel who were responsible for the holistic direction of the project, much like a

steering committee. It was intended that if project issues could not be resolved at the

IMT, they would be delegated to the ELT. When the project goals were further

developed, workgroups comprising specialised ELT and IMT members were formed and

they managed project tasks including:

• cost and procurement

• design

• construction and engineering services

• community relations

• commissioning

• ESD

• project relationships

• training.

The cost and procurement, community relations, ESD and training workgroups also

developed and managed the FIM benchmarks (see Section 4.1.7). These workgroups

were formally established during the design development and documentation stages.

The end-users were involved in the ELT and IMT, to provide their input to the building’s

functionality requirements.

The consultant team was appointed during the conceptual design stage, to take the


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project to the design development stage. The Managing Contractor was appointed

during design development to provide input to the consultants on the design, particularly

concerning constructability. The key subcontractors were appointed during design

documentation to further enhance the design and negotiate their subcontract tender

price. A Relationship Consultant was appointed during the project’s conceptual stage to

establish and formalise the management structure, facilitate relationship workshops and

provide relationship ‘coaching’. The management structure and the stages of

appointment are illustrated in Figure 9.

Figure 9 Project A - Management structure and engagement stages

PROJECT STAGES (not to scale)

4.1.5 Tender Selection

The managing contractor tender process was managed by all members of the initial

project team (client representatives and consultant team including the Relationship

Consultant and Cost Planner) with equal input in selection. In Stage One of this tender

Concept and

Master Planning

Project Approval

Schematic Design

Design Development

Design Documentation

(DD)

Construction

Project Completion

Client and Client Representatives

Managing Contractor and consultants (IMT, ELT)

Other Subcontractors

Key Subs

Design Consultant Team

Stage Two (a) Design Development and Documentation

Stage Two (b) Construction & Commissioning

Managing Contractor and consultants (IMT, ELT)

Key Subcontractors

Stage One Initial Design

Managing Contractor engaged

DD cont.


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process, the tenderer’s construction cost estimates were assessed against the Client’s

budget estimates. If the tenderer’s estimate fell within the client budget, they progressed

to Stage Two. This second round involved a non-price criteria assessment, including

past experience and performance, the willingness to work with the team and negotiate

price. As the tender progressed, it was discovered that only one of the tenderers fell

inside the Client’s budget estimate range. This meant that only one tenderer was

considered for the project. After an open-book negotiation process, this tenderer was

appointed as the Managing Contractor.

Once the Managing Contractor was appointed, the consultants were transferred to a

relationship-based contract. As with the Managing Contractor, the consultants were

employed directly to the Client under a professional fee arrangement. Significantly, the

Cost Planner was employed directly to the Client’s risk manager to ensure the Client

had an independent third party to review all cost claims and monitor budget

performance.

The key subcontractors (mechanical, electrical and intelligence/communication systems)

were selected under a two stage tender. Stage One selection was based on non-price

and price criteria. These subcontractors assisted the consultants in the design

documentation and in developing shop drawings. This gave them significant input to the

design and the value engineering process. In Stage Two they were appointed to

complete the trade package for the negotiated tender price. The remaining

subcontractors were appointed to the Managing Contractor under a lump sum price

arrangement.

4.1.6 Relationship Approach

The relationship management processes were intended to promote the project team’s

understanding that the project relationship was a focal point of the project management

strategy with the objective to align the project parties’ commercial objectives with the

project objectives. All of the major project parties including the key subcontractors

attended a relationship workshop, which aimed to identify their expectations and to help

develop common goals for the team. At the first ‘breakthrough’ workshop, the project

team defined the project’s core visions and objectives, and clarified how they would

work together to meet these objectives. This breakthrough workshop was chaired by the

relationship consultant, whose role was to develop the ‘best for project’ culture and


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generate enthusiasm for the project relationship. The objectives were then monitored by

the Relationship Consultant and the relationship workgroup throughout the project. The

workgroup proposed initiatives such as social events and milestone celebrations to

maintain the relational momentum, outside the day-to-day management of the project.

4.1.7 Financial Incentive Mechanism

The FIM was intended to reward the Managing Contractor and consultants involved at

the IMT and ELT levels for efficiently managing the project’s risks and meeting greater

than BAU standards in the key project priorities. The FIM was developed by the ELT

members, who delegated the responsibility of its implementation to the IMT through the

project workgroups. A capped financial incentive pool of A$1.5 million was offered by the

Client and financed through the preservation of contingency amounts, which linked the

Client’s objectives to the cost outcomes on the project.

The two contingency sums were the principal’s contingency and the design and

construction contingency. The client representatives could spend the principal’s

contingency on discretionary items outside the scope of the works, as they saw fit. The

construction and design contingency could be used for project initiatives and for extra

works as determined by the construction and design teams. If the team was able to

preserve the design and construction contingency (cost performance), the FIM would be

allocated at the conclusion of project according to performance in ESD, community

relations, training and program performance. The IMT decided that the financial

incentive reward would be distributed to each team member based on their fee

proportion.

The IMT went through a workshopping process to determine 1) how they could

maximise project savings without impacting on functionality and ‘build’ the incentive

pool, and 2) how the FIM performance would be benchmarked and measured. They

decided that 40% of the incentive pool would be based on project outcomes, and 60%

on cost outcomes. Therefore, if the team managed to secure an incentive pool from

contingency savings while meeting all project objectives, 60% would be automatically

distributed. The remaining 40% was made available if the project team achieved three

out of the four project performance benchmarks. The benchmarks were:

ESD: This ESD benchmarks were measured from energy consumption forecasting and


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recycling (removal of unused materials from the site and recycled). The energy usage

was benchmarked from similar-sized hospitals in South Australia and an overall energy

use/metre state average was determined. A single energy benchmark was agreed upon

for the project (1312Mj/m2/annum), bettering the state average by 30%. Over 25

initiatives were established to achieve this benchmark, such as a rainwater reclamation

and re-use system and a solar hot water system. Measurement occurred throughout the

construction and commissioning stages.

Training: The training goal was to double the normal government training (‘in-skill’)

requirements and the benchmark was to employ at least 10% of the on-site workforce

from apprentices and unemployed people.

Community relations: The community relations goal was to promote the hospital to the

community at large. The benchmark was set according to a shopping centre survey on

the level of awareness of the project throughout its duration. Open days and media

announcements were conducted to promote community awareness.

Scheduling performance: The project was required to finish by the original completion

date of 27th August 2004.

The ELT decided that there would only be positive financial incentives on the project.

Thus, there were no negative incentives such as liquidated damages clauses in the

contract.

Approximately halfway through the project, the FIM capped amount on offer was halved.

This occurred when the Client predicted that the project team would most probably

achieve the A$1.5 million in contingency savings, although at that stage, their final

performance in the benchmarks had not been determined. As there were identified

shortfalls in the FFE budget, the Client asked the reward participants to forgo half of

their share (A$750,000) of the FIM pool and redistribute it to the FFE budget. Although

the Client had a contractual obligation to pay the full incentive pool, the Managing

Contractor and consultants agreed to the redistribution because of their commitment to

the FFE outcomes. As a compromise, the Client agreed to extensions of time, accepting

a revised May 2005 completion date, giving the team a greater chance to meet the

program.

By the conclusion of the project in May 2005, the project participants had achieved the

budget and revised program, the ESD (recycling, water usage and energy), community


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relations and training benchmarks. The reward participants were paid the maximum

A$750,000 incentive according to their fee proportion.

4.1.8 Project Conditions

The Client, Managing Contractor and consultant representatives all recognised that

there would be significant pressure on the initial budget if the objectives of the project

were to be met, especially for FFE. There had been miscalculations in the estimate of

how much of the existing equipment could be reused and of expected market prices at

the time of purchase for new equipment. The original budget estimate for FFE was 6%

of the total project cost (approximately A$4.2 million), but ultimately cost approximately

A$12 million. This budget shortfall placed pressure on the project team to recoup the

required funds in project savings. In the end, the budget shortfall was met by extra funds

from the Client, but also through the savings made by the project team and the agreed

redistribution of half of the incentive pool.

Through an intensive value engineering process, the IMT and ELT workgroups were

able to recoup approximately A$1.7 million from the design with innovative design

solutions. The Managing Contractor, consultant and subcontractor representatives

believed these savings were achieved because the Managing Contractor and key

subcontractors were involved in the design development and documentation stages.

A positive element for the major project parties was their reappointment for Stage B of

the Lyell McEwin Hospital redevelopment, which is in its conceptual stage at the time of

writing. This was intended as a reward for successfully meeting all project goals.

According to the client representatives this ‘strategic’ reappointment was unprecedented

in large state government building projects, but was a valued reward to the Managing

Contractor and consultants for successfully delivering Stage One of the redevelopment

and foregoing half their incentive pool.

4.2 CRITICAL ANALYSIS AND INTERPRETATION OF MOTIVATION DRIVERS

Based on the analysis processes described in Chapter 3, Table 6 shows the positive

and negative motivation drivers, as determined from analysis of interview data. The total


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driver score shown in the extreme right-hand column of the matrix is a summation of the

interviewee driver scores. The motivation drivers are ranked according to their total

driver score from highest to lowest overall impact. The shading of the matrix rows

represents the inclination of the motivation driver (i.e. positive or negative).

Interviewee driver scores are derived from a count of the number of indicators impacted

(for example, ‘3’ if the interviewee mentioned the driver in response to questions about

three different motivation indicators) multiplied by the weighting (‘1’ or ‘2’) attached to

that interviewee (see Chapter 3, Figure 8). In this project, reward participants comprised

the Managing Contractor and the consultants; while the non-reward participants were

the Client and the subcontractors. The maximum score possible for each motivation

driver was 48.


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Table 6 Project A - Motivation driver matrix

Interviewee Motivation Driver

Client Representative One

Client Representative Two

Managing Contractor Representative One

Managing Contractor Representative Two

Consultant Representative One

Consultant Representative Two

Subcontractor Representative One

Subcontractor Representative Two

Total Driver Score

Score

2 2 4 6 4 4 0 0 22 MD1. Monthly formal FIM performance workshops by the project workgroups Indicators

Impacted FP, GC FP, GC FP, DJ FP, GC, DJ FP, GC FP, GC - -

Score

2 2 4 4 4 4 0 0 20 MD2. Potential for future work with Government through the successful delivery of an iconic project

Indicators Impacted

IJ, GC IJ, GC IJ, GC IJ, GC IJ, GC IJ, GC - -

Score

2 2 4 2 4 4 1 1 20 MD3. Monthly ‘round table’ project management meetings at IMT & ELT levels Indicators

Impacted IJ, GC IJ, GC IJ, GC GC IJ, GC IJ, GC GC GC

Score

2 2 4 2 0 4 2 0 16 MD4. Initial relationship workshops facilitated by Relationship Consultant and ongoing relationship workgroup initiatives

Indicators Impacted

IJ, GC IJ, GC IJ, GC GC - IJ, GC IJ, GC -

Positive Motivation Driver Negative Motivation Driver

Motivation Indicators

GC: Incentive Goal CommitmentDJ: Distributive Justice

Key: FP: Fairness of Measurement Process IJ: Interactional Justice


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Total Driver Score

Score

2 0 4 4 2 0 0 0 12 MD5. Multiple goal performance FIM with benchmark measurement system Indicators

Impacted FP, GC - FP, GC FP, GC GC - - -

Score

1 0 2 2 2 2 1 1 11 MD6. Managing contractor and key subcontractors early involvement in design development

Indicators Impacted

GC - GC GC GC GC GC GC

Score

1 1 2 2 2 2 1 0 11 MD7. Inaccurate budget estimate during conceptual stage, resulting in FFE budget shortfalls

Indicators Impacted

GC GC GC GC GC GC GC -

Score

1 1 2 2 2 2 0 0 10 MD8. Unexpected removal of half the financial incentive

Indicators Impacted

DJ DJ DJ DJ DJ DJ - -

Score

1 0 2 2 2 2 0 0 9 MD9. Inflexible FIM benchmarks

Indicators Impacted

GC - GC GC GC GC - -






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Total Driver Score

Score

1 1 2 2 0 0 1 1 8 MD10. Open-book value-based tender selection measured on price and non-price criteria

Indicators Impacted

GC GC GC GC - - GC GC

Score 1 1 2 2 0 0 0 0 6 MD11. Equitable risk profile of contract

Indicators Impacted

GC GC GC GC - - - -

Score

1 1 0 0 2 2 0 0 6 MD12. Consultants suspicious of incentive offer and its intention

Indicators Impacted

IJ IJ - - IJ IJ - -






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The table below describes in further detail the motivation drivers presented in Table 6,

identifies the project source from which each driver arose, and summarises the

indicators which were impacted by each driver.

Table 7 Project A - Motivation driver descriptions

Motivation Driver (Label)

Description Project Source

Indicators Impacted

Driver Score

MD1. Monthly FIM Workshops

Monthly formal FIM performance workshops were conducted as a function of the ESD, community relations, training, and cost and procurement workgroups, and were used to develop the FIM benchmarks and measure the project performance against these benchmarks.

FIM Design GC, FP, DJ 22

MD2. Future Work There was a desire to maintain reputation in the successful delivery of an iconic project, which could translate into future projects with the Government of South Australia (a major client). At the end of the project, the Managing Contractor and consultants were automatically appointed for Stage B of the Lyell McEwin Hospital redevelopment because of their high performance in Stage A.

Relationship Management

GC, IJ 20

MD3. Team Meetings

Monthly round table IMT & ELT meetings were aimed at promoting cooperative team decisions in the management of the project risks and resolving project issues.

Design and Construction Management

GC, IJ 20

MD4. Relationship Workshops

Initial relationship workshops were facilitated by an independent Relationship Consultant to develop and promote a ‘best for project’ culture throughout the duration of the project. This was followed up by ongoing relationship monitoring in IMT workgroups as a project objective.


GC, IJ 16

MD5. Multiple Goals

FIM design comprised multiple goals (cost, program, community relations, training, ESD) in which the project workgroups established benchmarks for the project participants to strive for.

FIM Design FP, GC 12

MD6. Early Involvement

Involvement of Managing Contractor and major subcontractors in the design stages increased the team’s ability to identify constructability issues and recommend cost-saving options.


GC 11

MD7. Budget Inaccuracies

Inaccurate budget estimates during the conceptual stage didn’t reflect actual scope requirements, particularly in FFE. Therefore, a goal on the project became the preservation of the contingency to supplement the FFE budget shortfalls – placing pressure on the funds available for other FIM performance initiatives such as ESD.


GC 11

MD8. Unexpected Removal

As there were identified shortfalls in the FFE budget, approximately halfway through the project, the Client asked the reward participants to forgo half of their share (A$750,000) of the FIM pool and redistribute that amount into FFE for the betterment of the project. This was reluctantly agreed to.

FIM Design DJ 10


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Indicators Impacted

Driver Score

MD9. Inflexible Benchmarks

Once set by the project team, the FIM benchmarks were inflexible. Due to changing project conditions, such as the increased FFE demands, the lesser priority benchmarks became difficult to achieve as they were not changed to reflect the new circumstances.

FIM Design FP,GC 9

MD10. Value-Based Tender

The majority of the tender assessment of the project parties was based on non-price criteria, including a demonstrated commitment to project goals and appointment of a harmonious project management team. Tender submissions and financials were open-book.

Tender Selection

GC, IJ 8

MD11. Equitable Risk

The Managing Contractor managed the Client’s construction risks under the risk reward mechanisms, which was seen to be equitable by the Managing Contractor and the client representatives under the high risk profile of the project.

Contract GC 6

MD12: Consultant Suspicion

The consultant representatives questioned the role of the incentive as they felt, that it implied they would not do their best without it. They felt that their integrity may be compromised by the incentive and were suspicious of its intention. This negatively impacted their motivational response to it.

FIM Design

IJ 6

KEY

Positive Motivation Drivers

Negative Motivation Drivers

As Table 7 shows, there were eight positive and four negative motivation drivers

identified. The positive drivers tended to dominate (the five highest ranked drivers were

positive). These results indicate that the design of the FIM and its development process

(MD1 and MD5) significantly promoted motivation, which was supported by the project

relationship and the management structure (MD2, MD3 and MD4). The successful

achievement of the FIM goals by the end of the project were attributed to the positive

motivation drivers.

An outstanding feature of the results displayed in Table 7, was that the unexpected

removal of half of the incentive amount on offer (MD8) did not significantly impact on

motivation (was assigned a lower driver score of ten). This finding suggests the goal

commitment induced through the project relationship and the FIM development process

had a greater impact on motivation than the financial reward on offer. The motivation

drivers are now analysed in more detail according to the five project sources identified in

Figure 6.


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4.2.1 Contract Design

The form of contract yielded only one motivation driver, which had a relatively low

ranking, of eleventh out of 12 drivers. This driver was ‘Equitable Risk’ (MD11).

Equitable Risk (MD11) According to the client and managing contractor

representatives, the modified MC-CM contract established the framework for an

equitable allocation of risk that gave the Managing Contractor the financial flexibility to

commit to the higher-order FIM goals. Also, the open-book cost negotiation process

allowed the Client and the Managing Contractor to establish accurate construction costs,

which assisted them in managing the project risks - decreasing the potential for

construction cost overruns.

These interviewees believed that this driver improved the Managing Contractor’s

chances of conserving the contingency sums and allocating adequate resources to the

project initiatives. This improved the expectancy that the FIM goals could be achieved.

The client representatives also stated that by not forcing all of the construction risk onto

the Managing Contractor, a less adversarial project environment was achieved. This

supported the ‘best for project’ culture that they were seeking to promote. This

motivation driver was assigned a relatively low ranking score of six, as it wasn’t

identified by the consultants or subcontractor representatives as a motivation driver, yet

it was clearly important to the Managing Contractor.

4.2.2 Design and Construction Management

The design and construction management processes yielded three motivation drivers:

‘Team Meetings’ (MD3), ‘Early Involvement’ (MD6) and ‘Budget Inaccuracies’ (MD7). As

Table 7 shows, the ‘Team Meetings’ driver was ranked equal-second with a score of 20

and ‘Early Involvement’ was a middle ranking driver with a score of 11. Both were strong

positive drivers. ‘Budget Inaccuracies’ was assigned a score of 11 and was the

strongest of the four negative drivers.

Team Meetings (MD3) The monthly ‘round table’ project management meetings were

perceived by all of the interviewees as positively impacting on the project participants’

goal commitment, as they allowed project issues to be efficiently resolved at the IMT

and ELT. The meetings were also seen to promote the expectancy that the team could

achieve the FIM goals as each IMT and ELT member had an equal influence in the


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decisions that were made. The project team’s control of performance was also

increased when the Managing Contractor and key subcontractors were involved in the

design stages.

Early Involvement (MD6) According to four of the eight interviewees, having the

Managing Contractor and key subcontractors involved in the design development and

documentation stages improved the project participants’ ability to manage design and

construction integration and to control construction costs (particularly for the managing

contractor). This promoted goal commitment. This was particularly relevant in the value

engineering exercises, where cost-saving design solutions were required to minimise

contingency spending, in order to build the financial incentive pool and recoup FFE

budget shortfalls.

Budget Inaccuracies (MD7) The client, managing contractor and consultant

representatives stated that inaccuracies in the initial budget estimates resulted in

shortfalls, particularly in FFE. This negative driver placed pressure on the project team,

to recoup the FFE budget shortfalls, making it more difficult to allocate adequate

resources in achieving the FIM benchmarks.

These results suggest that the monthly ‘round table’ management meetings were a

strong motivation driver and were seen to improve the project participants’ ability to

control their performance and achieve the FIM goals. They were also perceived to

complement the project relationships, as they encouraged equal input into project

discussions, promoting the team environment.

Although not having as strong an effect on motivation as MD3, the involvement of the

Managing Contractor and key subcontractors in the design development and

documentation also promoted the project participants’ perception that they could better

control their FIM goal performance through the closer integration of design and

construction.

Finally, the inaccuracies in the project budget (MD7) negatively impacted on goal

commitment, although the potential effect of this driver was offset when the IMT and

ELT workgroups were able to manage this project issue and ultimately achieve the

FIM goals.


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The tender selection process yielded only one motivation driver which had a relatively

low ranking of tenth out of 12 drivers. This driver was ‘Value-based Tender’ (MD10) with

a driver score of eight.

Value-based Tender (MD10) The client, managing contractor and subcontractor

representatives believed that the selection of the Managing Contractor and

subcontractors on non-price criteria was a positive driver that promoted motivation

towards the FIM goals.

According to the managing contractor representatives, this value-based tender approach

gave them a sense of commitment to their client. They hoped to show they had been

rightly selected and to uphold their reputation, thus improving the attractiveness of FIM

goal attainment. They also stated that the open-book tender assessment, which involved

the examination of profit and loss statements from their previous projects, broke down

client misapprehension and helped develop trust. The subcontractor representatives

also said their selection - based on a tentative subcontract price and ability to contribute

to the design – improved the project team’s ability to manage the budget and identify

cost-saving design options, promoting goal commitment.

4.2.4 Relationship Management

The relationship management approach yielded two positive motivation drivers: ‘Future

Work’ (MD2) and ‘Relationship Workshops’ (MD4). As Table 7 shows, the ‘Future Work’

driver was ranked equal second with a driver score of 20 and ‘Relationship Workshops’

was ranked fourth with a positive score of 16. Both drivers were seen to promote the

willingness of the project participants to embrace the project relationships and team

approach, which in turn promoted FIM goal motivation.

Future Work (MD2) The client, managing contractor and consultant representatives

stated that project participants were strongly motivated by the potential for future work

with the Client. Therefore, they were driven to promote their reputation and achieve

successful project delivery, increasing the attractiveness of FIM goal attainment. This

driver was also related to the project participants’ perception that the client

representatives valued their performance by recommending them for future projects,


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promoting interactional justice and reciprocal behaviour.

Also according to these interviewees, this motivation was intensified when it was

suggested that, if they achieved high levels of project performance, the project team

might be reappointed for Stage B of the Lyell McEwin Hospital redevelopment. This

potential reappointment for Stage B was highly valued as a reward by the Managing

Contractor and consultants.

Relationship Workshops (MD4) According to the client and managing contractor

representatives, Consultant Representative Two and Subcontractor Representative

One, the relationship workshops (including the ‘breakthrough’ workshop and the ongoing

relationship reviews) positively supported project relationships and promoted a ‘best for

project’ culture. This motivation driver, in combination with the project management

structure, induced personal commitment to the deliverables on the project, beyond the

organisational goals of each individual participant, therefore increasing the

attractiveness of FIM goal attainment. This commitment was perceived to intensify the

level of motivation induced through the FIM reward.

These results suggest that the potential for future work was a strong motivator on the

project and was reinforced when the key project participants were rewarded for their

performance through their reappointment for Stage B of the Lyell McEwin Hospital

redevelopment. The initial tender and breakthrough relationship workshops, although

not as powerful a motivator as the future work driver, provided a framework that fostered

the project relationships and defined the unified project objectives. This focused the

motivation born out of the desire to improve future commercial opportunities with

the Client.

4.2.5 FIM Design

The FIM design yielded five motivation drivers: ‘Monthly FIM Workshops’ (MD1),

‘Multiple Goals’ (MD5), ‘Unexpected Removal’ (MD8), ‘Inflexible Benchmarks’ (MD9)

and ‘Consultant Suspicion’ (MD12). The five motivation drivers assigned to the FIM

design relate to the process in which the FIM was developed, how the FIM was applied

and the perceived intention of the financial incentive on offer.

As Table 7 shows, ‘Monthly FIM Workshops’ was the highest ranked driver with a


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positive driver score of 22. ‘Multiple Goals’ was a middle ranking driver with a positive

score of 12. ‘Unexpected Removal’ was assigned a negative score of ten and was the

second highest negative driver. This was followed by ‘Inflexible Benchmarks’ with a

negative score of nine. Finally, ‘Consultant Suspicion’ was assigned the lowest ranked

driver score of six.

Monthly FIM Workshops (MD1) The client, managing contractor and consultant

representatives stated that their involvement in the FIM development and performance

measurement process (through the monthly FIM performance workshops) promoted

motivation, as it allowed them input to what the FIM goals were, how performance was

to be measured, and how rewards would be distributed. This process was perceived to

increase the expectancy of project participants that the FIM goals could be attained. The

participants believed in the clarity and consistency in the measurement process,

improving the perception of fairness.

Also, according to the managing contractor representatives, the monthly FIM

performance workgroup workshops had a positive impact on distributive justice, as it

was democratically decided in the workshops that the reward participants would receive

a share of the FIM pool based fairly on their fee proportion. Managing Contractor

Representative Two added that the workshops gave the reward participants a sense of

‘ownership’ of the FIM goals and the measurement process, as they had actively

participated in their development.

The adoption of the multiple FIM performance goal system that was developed in the

monthly workshops was also identified as a motivation driver.

Multiple Goals (MD5) According to Client Representative One, the managing contractor

representatives and Consultant Representative One, having multiple FIM performance

goals provided the reward participants greater control over their performance, as there

was a wide range of opportunities to secure the FIM reward. This increased goal

attainment expectancy. The managing contractor representatives stated that the multiple

goal system allowed them to focus their effort on achieving the relevant goals according

to changing project priorities, while still having the opportunity to secure at least a

proportion of the FIM amount on offer, which was perceived to be fair.

The FIM amount was unexpectedly changed halfway through the project, which

negatively impacted on the motivational power of the FIM reward, but did not result in a


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noticeable decrease in FIM goal performance.

Unexpected Removal (MD8) The client, managing contractor and consultant

representatives believed the unexpected request by the Client to redistribute 50% of the

incentive pool into the FFE budget negatively impacted on distributive justice. The

distribution of the secured financial incentive pool was a contractual requirement and the

Client could not enforce the redistribution. Nevertheless, the reward participants

reluctantly agreed to it because of the desire to maintain a good relationship with the

Client, although they felt it was unfair. These interviewees also stated that the team

acknowledged that, if FFE budget issues were not rectified, it would result in a less than

optimal outcome for the hospital, potentially damaging their reputation - and therefore

they agreed to the redistribution.

Inflexible Benchmarks (MD9) According to five of the eight interviewees, inflexibility in

the FIM benchmarks had a negative impact on the project participants’ perception of

fairness and measurement accuracy. This was because benchmarks that had been set

early in the project did not accurately represent changing project circumstances, making

some benchmarks difficult to achieve, such as the ESD benchmarks. Although this

driver negatively impacted on motivation, the project participants were still able to

achieve these difficult goals by the conclusion of the project.

Consultant Suspicion (MD12) The consultant and client representatives stated that the

consultant organisations were suspicious of the FIM intention, which negatively

impacted on their perception of interactional justice towards the Client. This scepticism

was born out of a cultural belief that they were being paid a reasonable fee to undertake

the work to the best of their ability. They felt affronted by the Client’s financial incentive

offer; because they believed they should have been trusted to do their best without it.

According to the consultant representatives, the FIM amount on offer did not significantly

influence their project decisions, and they were more motivated to achieve the FIM goals

because of the project relationship, a desire to promote their reputation and the prospect

of being rewarded through future work opportunities.

These results suggest that allowing the project participants a voice in establishing the

FIM development process (monthly FIM workshops) was a powerful motivator in

promoting both distributive justice and procedural fairness. It also increased the


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expectancy that the project participants could attain the FIM goals as they had had an

active role in their development and performance monitoring.

Although not having as strong an effect on motivation as the monthly FIM workshops,

the application of a multiple goal system promoted the perception of procedural fairness,

which was seen to improve the reward participants’ chances of achieving the FIM

reward, thus increasing their expectancy levels.

The unexpected removal of 50% of the incentive halfway through the project (MD8) and

the inflexibility of the incentive benchmarks (MD9) did negatively effect motivation.

However, due to the impact of the dominant positive drivers, particularly the relationship

management drivers, this did not translate into a lower performance. The initial negative

impact of the consultants’ unease and suspicion with the incentive intention (MD12) was

also offset by the positive drivers, which led to the completion of the FIM goals by the

end of the project.

4.3 CONCLUSIONS

The project participants achieved all of the incentive goals, including the revised

completion goals (after extensions of time were approved). As Figure 10 shows,

motivation towards the FIM goals was critically supported by:

• an FIM design that involved the participants in the development and performance

measurement process (through the monthly FIM performance workgroups)

(MD1), and the application of a multiple FIM performance goal system (MD5);

• relationship management workshops and ongoing relationship workgroup

initiatives (MD4), with the potential for future work opportunities for high

performance delivery (MD2);

• ‘round table’ design and construction management structure in the IMT and ELT

(MD3) and involvement of the Managing Contractor and key subcontractors in

design stages (MD6); and

• open-book value-based criteria tender selection processes (MD10).

These drivers were perceived to increase the level of goal commitment through

improved expectancy that the team would be able to achieve the incentive goals and the


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greater attractiveness of the goal attainment. They also impacted on distributive and

procedural justice through the perception that the Client was fair in how the incentive

was distributed across the team and how the FIM goals were developed and

performance was measured. Interactional justice perceptions were also strong (three of

the top four drivers positively impacted on this indicator). A major driver of procedural

justice was the involvement of the project participants in the development of the FIM

benchmarks and the monitoring of performance.

Despite the achievement of the FIM goals, there were some negative motivation drivers,

primarily related to the FIM design. These were the inflexible incentive benchmarks

(MD9), the unexpected removal of 50% of the incentive pool halfway through the project

(MD8) and the consultant suspicion of the FIM intention (MD12). The remaining negative

motivation driver was associated with the design and construction management process

– inaccuracy in the initial budget estimate that resulted in FFE shortfalls. Although these

negative drivers affected motivation in the project, their impact was offset by the

dominance of the positive motivation drivers described above, which led to the

achievement of the FIM goals.


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Figure 10 Project A - Motivation drivers

A significant finding was that the project participants’ motivation towards the FIM goals

was not heavily influenced by the actual financial incentive reward on offer. Although,

the managing contractor representatives valued the opportunity to increase their profit

margin through the FIM and they perceived the reward distribution as fair based on their

contractual risk levels, commitment to the FIM and project goals was more strongly

promoted through the project relationships.

According to the consultant representatives, the consultant organisations were also not

heavily motivated by the FIM reward on offer. This was not only due to their concerns

Unexpected Removal

Budget Inaccuracies

Early Involvement

FIM Performance

Achievement of cost, revised program, ESD (recycling, water usage and energy), community relations and training goals.

Multiple Goals

Relationship Workshops

Inflexible Benchmarks

Value-based Tender

Equitable Risk

Team Meetings

(IMT & ELT) Future Work Monthly FIM

Workshops

Consultant Suspicion

Impact on FIM

Goal Motivation

LOW

HIGH

Positive Drivers

Negative Drivers

LEGEND


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about its intentions and implications, but also because of the value they placed on

promoting their reputation by successfully delivering the project, and the relationships

that were developed through the project management processes.

A good example of the strength of the commitment induced through the project

relationships (outside the extrinsic FIM reward motivation) was the reward participants’

acceptance of the redistribution of 50% of the incentive pool (MD8). Although it was

perceived to be unfair and to break the contract, the reward participants agreed to it

because of a desire to strengthen the client/contractor/consultant relationship. They also

realised the importance of adequate FFE funding to the project’s outcome and saw it as

a ‘best for project’ decision to forgo half of the incentive pool.

In summary, motivation towards the FIM goals was significantly influenced by the project

management and the delivery process that promoted a ‘best for project’ culture,

fostering commitment to achieving the FIM goals. This suggests that, within a similar

project environment, the impact of FIMs can be improved if designed within a

complementary suite of project management systems. Detailed recommendations on

project management initiatives that can improve the impact of the FIM, based on the

findings across all case projects, can be found in Chapter 10.

CHAPTER 5: CASE PROJECT B

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CHAPTER 5: CASE PROJECT B - BRISBANE MAGISTRATES

COURTS


The following discusses Case Project B (the ‘project’) characteristics in detail. This


documentation, government reports (QDPW, 2003) and industry publications (ACC,

2005; Rank, 2004; Kendall, 2004). The analysis of the FIM motivation drivers3 follows in

Section 5.2.


The Brisbane Magistrates Courts project involved the construction of a new courthouse

complex within Brisbane CBD (central business district) with a budget of A$135.5

million. This budget was determined based on pre-design studies undertaken by the

original design consultants and the client representatives based on the Government

Client brief. This was a landmark building project for the Queensland State Government

(the ‘Client’) and was intended to rejuvenate the neglected western Brisbane CBD area.

It replaced an existing magistrates courts building which was not meeting its operational

objectives, strengthening the legal precinct in Brisbane. The duration of the project was

28 months, beginning in 2002 and ending in 2004.

The new 14 storey, 31,650 square metre building, is one of Australia’s only custom-built

courthouses and includes 19 magistrate courtrooms, two corner courtrooms, four small

claims courtrooms, day detention facilities, 25 hearing rooms, prisoner transfer facilities

and office spaces. The forecourt area also includes cafes and restaurants. The building

3 As described in Rose, T. M. and Manley, K. (2007). “Effective financial incentive mechanisms: An Australian study.” CIB World Building Congress, Cape Town, South Africa, 14-18 May.


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is a concrete-framed structure with post-tensioned decks and seven lift cores. The

building façade is constructed of curtain wall glazing and precast panels. The roof is a

two level steel structure with an eight metre copper-clad cantilevered element weighing

approximately 12 tonnes.

The building has a design lifespan of over 50 years with the potential to fit-out 14

additional court areas in line with future demand. The courts are fitted out with state-of-

the-art technology including security, teleconferencing and digital recording systems.

The building design included a complex array of circulation systems for moving people

throughout the building, with the intention to maintain security and environmental

efficiency, but still provide a user contact with the outside world to relax users of the

courts. The building design also incorporated sustainability features, including CFC-free

air conditioning systems, rainwater harvesting through two 46,000 litre tanks and solar-

powered cells for water heating.

The project employed over 1,300 on-site workers, which included more than 100

apprentices, with over 100,000 hours of training provided. The major goals on the

project were that the project must be completed on time, meeting all functionality

requirements set out in the client brief and within original client budget. The project team

managed to deliver the project on time and within client budget, meeting quality and

functionality requirements. However, it failed to deliver the stretched-scope work items

that were required to be constructed for the team to receive the incentive pool.


The general procurement approach was a Managing Contractor – Design and

Construction Management – Guaranteed Construction Sum (MC – D+CM (GCS))

arrangement. See Chapter 2 for more information on this general form of this

procurement approach. The ‘Managing Contractor’ procurement approach was not new

to Queensland State Government projects; initial versions were developed in the early

1980’s (QDPW, 2003, p.31).

In this project, the Client had made a political commitment to the original budget prior to

construction and therefore needed certainty in end-costs. This form of procurement was

chosen by the Client as it allowed a high degree of certainty on end-costs through the

appointed GCS (QDPW, 2003, p.31). It also allowed the Client significant control over


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design and quality as they were involved in the design process during conceptual

planning, schematic design and design development and documentation. It was

expected that as the Managing Contractor had input in the design process, it would

improve constructability in the project, rather than using a standard lump sum contract,

where the contractor has very little input in design as they tender on completed

documentation prior to construction.

The major difference in this project’s MC-D+CM (GCS) procurement approach was the

inclusion of relationship management requirements and the provision for two classes of

scope. The scope was split into a ‘mandatory scope’, the essential scope of works that

would make the building operational, and a ‘stretched-scope’, which is an additional

scope of works that were not essential to the current operational requirements, but

would be included if the team were able to make sufficient savings through ‘efficient

management on the project’ (QDPW, 2003, p.32). Therefore, the stretched-scope

became the above BAU standard and acted as the fulcrum for the FIM.


The Managing Contractor held the majority of risks for design and construction cost

overruns as they were not entitled to price adjustments under their design and

documentation management fee, their construction fee or the nominated GCS (TCS plus

construction fees). The Client held the design risk for the early design stages in

accordance with the original project brief, and this risk was transferred to the Managing

Contractor once they were appointed and the design consultants were novated. The

Managing Contractor was required to ensure the design was developed and

documented according to project brief and contract and to ensure that the developed

design was ‘fit for intended purpose’.

The Client also maintained control over the design process. It was a requirement under

the contract that client representatives approve all design changes nominated by the

Managing Contractor in accordance with the original project brief, schematic design,

program and cost plan. The managing contractor representatives said in the interviews

that the Client was in a position to transfer all the risk of the design documentation to the

Managing Contractor under the D+CM contract.

‘The Government is in a position to sell down the design risk. They perceive us,


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as the Managing Contractor, to be able to take on this risk as a major company

with significant assets to guarantee the project. The contract was set up that if

design discrepancies are discovered, the original source documents will prevail -

the client brief – so basically the Government is in a win-win situation with design

discrepancies and we take on that risk when we tender.’ (Managing Contractor

Representative Two)

Under the contractual requirement that all parties ‘act in good faith’, the Client was

obliged to assist the Managing Contractor to improve their business position by

approving cost-saving design and constructability options, as long as the options did not

affect the functionality requirements set out in the contract.

The consultants held their own risk, in that they were required to provide minimum

design consultancy services to the Client and Managing Contractor under set

consultancy fees and were not entitled to adjustments to these fees. Any payments for

consultancy work required outside the minimum consultancy services after the

consultants were novated was the responsibility of the Managing Contractor.

The subcontractors, under the responsibility of the Managing Contractor, were required

to complete their trade packages within a fixed lump sum with variations paid and

approved by the Managing Contractor.


The management structure was a traditional hierarchy with consultant novation,

common to an MC – D+CM (GCS) procurement approach. A detailed explanation on

general responsibilities under this procurement approach can be found in Chapter 2.

Although the project had relationship management requirements, allowing interaction

between the major project parties if required (eg. the Client could communicate with the

consultants directly throughout the project), control and responsibility within the project

was hierarchical. The project management structure, pre- and post-novation, and the

stages of appointment are illustrated below in Figure 11.


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Figure 11 Project B - Management structure and engagement stages


The Managing Contractor was appointed at the conclusion of the schematic design

stage and took on the responsibility of design development and documentation. By the

time the Managing Contractor was appointed, the overall design scope was well defined,

which meant that the Managing Contractor had minimal control over the overall direction

of design, limiting their ability to manage design costs.

‘The architects won the job through a design competition and completed most of

the design, so we didn’t have flexibility to change the design and manage the

design process like we should have. Design was pretty much finished and to call

it a design and construct contract was really false in this case. We documented

it, not designed it. It was really a document and construct which didn’t help us at

all to control our costs.’ (Managing Contractor Representative Two)

The Managing Contractor was also responsible for the consultant team, who were

novated across to them under the same contractual conditions they had with the Client

during concept planning and schematic design stages. This responsibility continued


Design Consultant Team (pre-novation)

Managing Contractor

Novation

Subcontractors

Design Consultant Team (post-novation)

Concept and

Master Planning

Project Approval

Schematic Design

Design Development


(DD) Construction

Project Completion

DD cont.


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throughout the remainder of the project. The subcontractors were appointed near the

end of design documentation and at the commencement of the construction stage. Due

to difficulties in the price negotiations with subcontractors and an intensive value

engineering process during design development, design documentation continued to

occur during the early stages of construction.


The tender selection of the Managing Contractor consisted of:

• pre-qualification review through the Queensland Government pre-qualification

register and invitation to submit a tender for the project

• provision of tender documentation which included an outline of the tender

requirements, design brief, scope specifications and schematic design drawings

• two-stage tender evaluation process - Stage One involved a review of tenderers’

written submissions and a facilitated interview with the representatives who

would be working on the project to shortlist to two tenderers. Stage Two involved

a full-day facilitated workshop with the short listed tenderers to evaluate their

capacities to deliver the project.

• approved appointment of the winning tenderer with the highest evaluation score.

Due to negative experiences with price-only tender evaluations in previous high-risk

projects, the Client decided they would implement a 70% non-price criteria tender

evaluation on the project, with the remaining 30% based on price objectives. The non-

price criteria were:

• support for Government priorities such as local industry involvement (2%)

• proven ability to complete the full scope of works (20%)

• resource strategy (15%)

• project methodology to achieve maximum value for money outcomes (15%)

• demonstrated commitment to achieve project completion within timeframes (5%)

• proven commitment and ability to embrace relationship management (10%)


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• proven ability to deal proactively with stakeholders including the community

(3%).

The consultants were appointed through a design competition and tender evaluation

workshops. The conceptual designs were assessed by the client representatives, which

short-listed preferred designs. The subcontractors were nominated based on a pre-

qualification review and invitations to tender. Their tender evaluations were also based

on price and non-price criteria selection.


This was the first government large-scale building project in Queensland that

incorporated relationship management obligations in its contract. It encouraged the

project participants to act as a single unified team, to foster relationships across

organisational boundaries and to prevent adversarial conditions. The relationship

management process involved an initial relationship workshop to develop team mission

statements and introduce new team members to relationship management principles.

These principles suggested that all team members will act in good faith towards one

another for the betterment of the project.

The contract also set out a clear dispute resolution process to prevent problem

escalation. Monthly relationship reviews were conducted over the remainder of the

project to induct new subcontractors into the team and to assess the overall ‘health’ of

the relationships via key performance indicators set out in the contract. These

workshops also allowed the team to conduct value engineering exercises with input from

major subcontractors to identify cost-saving design solutions. The workshops also

established some valuable project initiatives such as a ‘family friendly’ five day working

week (which was upheld throughout the project) and public liaison plan that included

weekly newsletters, public days and a publicly-accessible web cam tracking the

progress of the project.


The FIM in the project was a performance-based incentive. It involved an incremental

allocation from an incentive pool of A$1.6 million built into the original project budget.

The incentive offer was based on the completion of specific stretched-scope


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construction items outside the mandatory scope of the contract. The stretched-scope

involved the fit-out of ‘shell’ floors: as the building was designed to service future

demand, 14 courtroom areas on four floors were to be left vacant and would be fitted out

once the demand arose. It was decided that fitting-out the shell floors would be

beneficial although not essential, thus defining the stretched-scope FIM goal.

The Client chose to apply this type of incentive because they had experienced some

problems with the traditional share-of-savings FIM in past projects. According to the

client representatives, the Managing Contractor would factor the incentive amount into

their tender price and nominate an inflated TCS, so the project would easily come in

under budget. This resulted in protracted TCS negotiations and scope changes to meet

the Client’s budget. In many cases in the past, the project would come in below the TCS

and the Managing Contractor would gain a large savings share, while reducing the

building scope in the process.

The Client chose to trial the stretched-scope FIM and set aside a separate bonus pool

and ‘reward contractors for building more, not less’ (Client Representative One). The

client representatives said that the project’s scope was ideally suited to this type of FIM

because it had non-essential scope requirements. This mechanism would be less suited

to a standard project design.

Overall, the FIM was intended to motivate the Managing Contractor, the consultants and

subcontractors to construct the stretched-scope work items with financial savings

achieved below the nominated TCS. Thus, if they saved money below the TCS and

redistributed that money into the completion of the stretched-scope, they received a

share of the incentive pool. The incentive pool allocation was based around an

exponential measurement equation:

Z=W [(0.72 x W2) – (0.32 x W) + 0.60)], and

Total amount payable = Z x Incentive Pool Amount

Where:

W= the agreed cost plan value of the completed stretched-scope divided by the

total cost plan value of the stretched-scope

Z= proportion of the financial incentive pool payable

This equation meant that the more stretched-scope items completed, the larger the

allocation percentage, up to 100% of the capped A$1.6 million for all items. Despite


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persistent questioning, the client representatives were unwilling to disclose how they

had come up with this amount. However, they strongly emphasised in the interviews that

it was a reasonable amount offered at the time of development. It was intended that the

FIM be distributed to the Managing Contractor, consultants and major subcontractors,

based on how much each contributed to achieving the stretched-scope.

‘Under a normal ‘Managing Contractor’ arrangement, only the Managing

Contractor gets a share of the savings, but under this version, the theory was

that anyone who played a key part in being innovative or assisting in achieving

the savings for the stretched-scope items could be rewarded. So, the design

team was involved, key subcontractors and so on. As it was a bit of a new

concept, the solution on how it would be distributed was to be workshopped out.’

(Managing Contractor Representative Two)

However, when it was discovered that it was very unlikely that the FIM goal would be

achieved, discussions on how the incentive would be distributed ceased.


The Managing Contractor and their team of consultants and subcontractors experienced

significant financial pressures during the construction stage. The reason for this was a

sharply rising market between the time that the TCS nomination was set and the

subcontractor package pricing was concluded. This market rise was due to an increase

in demand in the larger residential building market, which filtered across to the non-

residential market through the major trades, particularly the key structural and finishing

trades. This resulted in a major challenge for the project team, particularly the Managing

Contractor, to bring the project in within the TCS. To counteract these rising costs, the

project team undertook comprehensive value engineering exercises, which resulted in

approximately A$5 million worth of construction savings with client approval.

The managing contractor and consultant representatives acknowledged that the Client

was under political pressure to preserve their nominated budget and therefore were not

in a position to inject more money into the project to alleviate the financial pressures on

the Managing Contractor.

‘The political impacts of decisions need to be taken into consideration and are an

outcome for a project of this size. I guess particularly relevant in the current


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political climate with many projects running over budget, so I think the

Government is very cautious when it comes to losing their financial control over a

project. For this project, I think at the time it would have been very difficult for

them to go back to Treasury and ask for extra money to help us out of a difficult

position. We just had to find ways to cut costs’ (Consultant Representative One).

Due to the difficulty in completing the mandatory project scope within the TCS, and the

very low expectancy levels that the project participants would be able to achieve the FIM

goal and be eligible for any of the A$1.6 million bonus pool, the stretched-scope work

items were not completed.

‘The escalation of prices was the biggest problem. The trade packages that were

coming in and the Managing Contractor’s costs were going up so fast that they

were battling with pricing in nearly all the major trades. It was a supply and

demand problem with mainly the high rise apartment sector taking all of the

subcontractors – particularly with the key structure trades like the formworkers

and the concreters. The glass manufacturers had so much work across Australia

we had to import from China. This significantly affected the Managing

Contractor’s ability to achieve the mandatory scope under the TCS, let alone the

stretched-scope – making it near impossible for them to achieve the incentive.’

(Client Representative Two)

Despite admirable performance of the project team under crisis circumstances (the

mandatory scope was completed on time and met all functionality requirements) the

Client was unable under the contract to redistribute the incentive pool to reward other

higher performance areas, which negatively impacted on incentive participant FIM

justice perceptions – further lowering motivation towards the FIM goal.



and negative motivation drivers, as determined from analysis of interview data. As

discussed before:

The total driver score shown in the extreme right-hand column of the matrix is a


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summation of the interviewee driver scores. The motivation drivers are ranked

according to their total driver score from highest to lowest overall impact. The

shading of the matrix rows represents the inclination of the motivation driver (i.e.

positive or negative).

Interviewee driver scores are derived from a count of the number of indicators

impacted (for example, ‘3’ if the interviewee mentioned the driver in response to

questions about three different motivation indicators) multiplied by the weighting

(‘1’ or ‘2’) attached to that interviewee (see Chapter 3, Figure 8).

In this project, reward participants comprised the Managing Contractor, consultants and

the key subcontractors, while the non-reward participant was the Client. The maximum

score possible for each motivation driver was 56.


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Table 8 Project B - Motivation driver matrix

Interviewee

Motivation Driver









Total Driver Score

Score 2 2 4 4 4 4 4 0 24 MD1. Inequitable risk profile of Managing Contractor contract under the market conditions experienced on the project

Indicators Impacted

GC, DJ GC, DJ GC, DJ GC, DJ GC, DJ GC, DJ GC, DJ -

Score 0 0 4 4 4 4 2 2 20 MD2. Late involvement of Managing Contractor and subcontractors in design stages Indicators

Impacted - - GC, FP GC, FP GC, FP GC, FP GC GC

Score 1 0 4 4 4 2 0 2 17 MD3. Single incentive performance goal based on the achievement of stretched-scope work items

Indicators Impacted

GC - GC, FP GC, FP GC, FP GC - GC

Score 0 0 4 4 4 4 0 0 16 MD4. Inadequate price negotiation to establish fair and reasonable GCS Indicators

Impacted - - GC, DJ GC, DJ GC, DJ GC, DJ - -






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Interviewee

Motivation Driver









Total Driver Score

Score 0 1 2 4 4 2 0 0 13 MD5. Unfair incentive performance measurement system based on an exponential function

Indicators Impacted

- GC GC GC, FP GC, FP GC - -

Score 1 1 0 0 4 4 0 0 10 MD6. Initial relationship workshops and ongoing relationship reviews Indicators

Impacted GC GC - - GC, IJ GC, IJ - -

Score 1 1 2 2 0 2 2 10 MD7. Potential for future work with Government Client through the successful delivery of an iconic project

Indicators Impacted

GC GC GC GC - GC GC

Score 0 1 2 2 2 2 0 0 9 MD8. Client representatives willingness to approve cost-saving design changes to alleviate financial pressures on Managing Contractor

Indicators Impacted

- IJ IJ IJ IJ IJ - -






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Total Driver Score

Score 1 1 2 2 0 2 0 0 8 MD9. A value-based tender selection process, with a 70% weighting on non-price criteria

Indicators Impacted

IJ IJ IJ IJ - IJ - -

Score 0 1 2 0 2 0 0 2 7 MD10. The incentive reward was to be distributed across all project team members who contributed to performance

Indicators Impacted

- FP FP - FP - - FP






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Table 9 Project B - Motivation driver descriptions



Indicators Impacted

Driver Score

MD1. Inequitable Risk

The risk profile of the Managing Contractor contract was perceived to be inequitable where the Managing Contractor took on the majority of construction cost risks under the GCS. With rising market conditions outside of the project team’s control, risks of cost overruns escalated, resulting in major financial pressures.

Contract GC, DJ 24

MD2 Late Involvement

The Managing Contractor and subcontractors were appointed too late resulting in a failure to predict market movements and prevented their full input in the design process.


GC, FP 20

MD3. Single FIM Goal

The failed single goal incentive (based on cost) did not reward performance in other above BAU project performance areas such as quality or program.

FIM Design GC, FP 17

MD4. Inadequate Price Negotiation

There was very little negotiation allowed for over price between the Client and Managing Contractor to establish a fair and accurate GCS based on market conditions.


GC, DJ 16

MD5. Performance Measurement

The exponential curve system used as the performance measurement function was perceived as unfair under difficult financial conditions.

FIM Design GC, FP 13


Initial relationship workshops assisted the formation of strong project relationships and established a ‘best for project’ team culture, driven by the relationship management requirements of the project agreements.


GC, IJ 10

MD7. Future Work There was a desire to uphold reputation in the successful delivery of an iconic project for the region, which could translate into future projects with the Queensland Government (a major client). For some team members, this Client was their primary source of work.


GC 10

MD8. Client Flexibility

Client representative willingness to approve cost-saving design changes to alleviate the financial pressures on the Managing Contractor under the ‘act in good faith’ contractual obligation.


IJ 9

MD9. Value-based Tender

A value-driven tender selection process, with an unusually high (70%) weighting on non-price criteria, generated a desire by the project team to prove that the system worked and that the Client’s selection of them was justified.

Tender GC 8


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Indicators Impacted

Driver Score

MD10. Reward Distribution

Under a team agreement, the FIM reward was on offer to all major project team members who had input to achieving the stretched-scope work items, including subcontractors.

FIM Design FP 7

KEY



As Table 9 shows, there were five negative and five positive motivation drivers

identified. The negative drivers tended to dominate (five out of the top five highest

ranked drivers were negative). These results indicate that a perception of an inequitable

allocation of risk (MD1) in the base contract arrangement significantly hampered

motivation towards the stretched-scope FIM goal. It not only negatively impacted on goal

commitment as it strongly decreased expectancy that the goal could be achieved, but

also negatively impacted on the perceptions of fairness of the FIM system – particularly

the lack of distributive justice. Motivation towards the FIM goal was also hampered by

the late involvement of the Managing Contractor and subcontractors in design

development (MD2), an inadequate and unfair GCS price negotiation process (MD4), an

inappropriate and unfair single FIM goal and performance measurement process (MD2

and MD5). The combination of these negative motivation drivers in the context of a

project that experienced very unstable market conditions resulted in the failure of the

project participants to achieve the FIM goal or be rewarded in any way through the

incentive mechanism.

Despite the failure of the FIM, there were drivers identified that positively motivated

parties. However, in retrospect, they were not enough to invigorate effort towards the

achievement of the stretched-scope goal due to the counter-strength of the negative

drivers. These comprised the relationship management mechanisms such as workshops

(MD6), the potential for future work opportunities with the Client (MD7), the willingness

of the client representatives to approve cost-saving design changes under the ‘act in

good faith’ contract clause (MD8), the value-based tender evaluations (MD9), and the

FIM distribution offer to all major project team members (MD10). The positive motivation

drivers identified in the project impacted on both goal commitment (improving the

attractiveness of goal attainment) and justice perceptions – particularly through a


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perception of fair treatment by the client representatives. Although these can be strong

motivators, they were insufficient to promote the required level of effort to achieve the

FIM goal. The motivation drivers are now analysed in more detail according to the five

project sources identified in Figure 6.


The form of contract yielded one negative motivation driver, which was ranked first with

a driver score of 24. This driver was ‘Inequitable Risk Profile’ (MD1) and was perceived

to be a strong negative driver in the project.

Inequitable Risk Profile (MD1) Under the financial pressures experienced by the

project team, it was perceived by seven out of the eight interviewees that the MC-D+CM

(GCS) contract risk profile discouraged motivation towards the achievement of the FIM

goal. The managing contractor and consultant representatives believed it was unlikely

that the market changes could have been predicted, but if the construction risks had

been more evenly balanced under the contract, it could have promoted the positive

motivational aspects of the project and improved their FIM performance. The managing

contractor representatives believed they were unable to manage their risks, limiting the

opportunity they had to invest money into achieving the stretched-scope. The perception

that there was an inappropriate contractual risk profile under the market conditions was

the driver with the greatest negative impact on motivation, with a driver score of 24.

According to seven out of the eight interviewees, this motivation driver was associated

with low incentive intensity (the incentive reward amount on offer wasn’t worth the effort

required to achieve the FIM goal) and a low perception of distributive justice.

According to Turner (2004, p.81), a GCS contract is traditionally cost-plus to a target

price and fixed price beyond that, where the contractor unfairly takes on all of the

downside risk, with little in return, which increases the chances for conflict and goal

misalignment. The addition of an FIM can improve the balance between reward and risk,

however, in this case the majority of risk was still held by the contractor and the

incentive intensity was not enough to balance these risks. The contract used in this

project may have been more appropriate in a stable market environment, within which

the project team may have been better able to manage the risks associated with cost

control more efficiently. See Chapter 7 for an example of an MC-D+CM (GCS) project

that was undertaken in relatively stable market conditions with greater levels of GCS


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negotiation, which resulted in more positive FIM outcomes.



‘Late Involvement’ (MD2), ‘Inadequate Price Negotiation’ (MD4) and ‘Client Flexibility’

(MD8). As Table 9 shows, ‘Late Involvement’ was a high ranking negative driver with a

driver score of 20. ‘Inadequate Price Negotiation’ was a middle-ranked negative driver

and was assigned a driver score of 16. Finally, ‘Client Flexibility’ was a lower ranked

driver with a positive driver score of nine.

Late Involvement (MD2) The managing contractor and consultant representatives

interviewed felt that the Managing Contractor was not engaged early enough in the

design stages to adequately tender on the design and come up with buildability options

to save money on the project. They expressed that the Managing Contractor had

difficulty in providing valid cost-saving design options because the building design was

already well established at the end of schematic design stage when they were

appointed, increasing their cost overrun risks. This driver impacted on goal commitment

and process fairness indicators. The managing contractor, consultant and subcontractor

representatives also believed that involving subcontractors in the design stages may

have assisted the project team to identify early cost-saving design options and improve

the accuracy of the TCS through a negotiated subcontractor tender. They believed if the

Managing Contractor had had a greater influence over the direction of design it may

have improved their expectancy that the stretched-scope FIM goal could be achieved,

and may also have improved the fairness of the FIM measurement process.

Inadequate Price Negotiation (MD4) The managing contractor and consultant

representatives believed that the Managing Contractor was under significant pressure

from their client to negotiate and submit their GCS under an unrealistic time frame, in

order to provide timely input to their project budgets. Thus, it was perceived that the

level of negotiation to develop the TCS was inadequate, resulting in inaccuracies in the

estimate to take into account potential market rises (MD4). This driver impacted on the

distributive justice indicator as there was a general feeling of unfairness by these

interviewees regarding the unreasonable financial pressure placed on the Managing

Contractor due to the limited negotiation process. This, in turn, influenced their failure to

achieve the incentive reward. The inadequate price negotiation also impacted on the


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goal commitment because it was perceived by these interviewees that this driver further

lowered their expectancy that they could achieve the FIM goal.

Client Flexibility (MD8) According to five out of the eight interviewees, a positive

motivation driver on the project was the perceived willingness of the client

representatives to approve cost-saving design changes and fairly pay variations to

alleviate the financial pressures on the Managing Contractor. In the project, the empathy

displayed by the client representatives for the financial hardships being experienced,

improved the managing contractor and consultant representatives perception of

interactional justice, which was seen to promote their relationship with the Client.


The tender selection process yielded only one positive motivation driver, which was a

low-ranking ninth out of ten drivers. This driver was ‘Value-based Tender’ (MD9) with a

driver score of eight.

Value-based Tender (MD9) One positive motivation driver in the tender selection stage

was the value-based selection criteria. Five out of the eight interviewees expressed the

view that the emphasis placed on non-price criteria in the contractor and consultant

selection processes (70% of selection was based on non-price criteria), positively

promoted initial motivation towards the FIM goal. This was due to the perception that the

major project parties had been fairly treated in their selection, based on their reputation

and experience rather than just price expectations, which they valued. For the managing

contractor representatives interviewed, this process reinforced the Client’s focus on

reputation as a selection requirement, motivating them to maintain this reputation

throughout the project and meet the Client’s expectations.


The relationship management approach yielded two positive motivation drivers:

‘Relationship Workshops’ (MD6) and ‘Future Work’ (MD7). As Table 9 shows,

‘Relationship Workshops’ was a middle-ranked driver with a driver score of ten.

Similarly, ‘Future Work’ was a middle-ranked driver and was assigned an equal driver

score of ten. Both were the highest ranked positive motivation drivers.


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Relationship Workshops (MD6) Four out of the eight interviewees expressed the view

that the initial relationship workshop and the ongoing relationship reviews were a

positive motivation driver that improved their ability to deal with financial pressures on

the project and contributed to the successful achievement of the Client’s mandatory

time, cost and quality objectives, despite the failure to achieve the FIM goal. This driver

impacted on incentive participant commitment to the Client’s goals and two interviewees

also associated this positive motivation driver with the interactional justice indicator. It

was interpreted that this driver positively impacted on the project relationships, which in

turn improved team motivation towards the project goals.

Future Work (MD7) Another positive motivation driver in the project was the potential

for future work with the Client (cited by six out of the eight interviewees). These

interviewees associated this driver with the goal commitment indicator through a desire

to achieve client goals and demonstrate outstanding performance to improve their

competitive position in future tenders. For the Managing Contractor, this instilled a sense

of commitment to the project, particularly as the Client undertakes repeat work in the

industry, and generates a substantial proportion of the building work in the Australian

state concerned. Further, the Managing Contractor has a history of working with the

Client, creating a strong and direct motivation to protect and extend future work

opportunities through successful delivery of an iconic project. The managing contractor

and consultant representatives were initially driven to complete the FIM goal, not only by

the FIM reward on offer, but by the desire to maintain and improve their reputation with

the Client.

Although all of the project participants felt there were positive aspects of the relationship

that promoted the attractiveness of goal attainment and motivation towards reciprocal

behaviour, the managing contractor representatives questioned if a relationship-based

procurement approach was appropriate under the project’s contract conditions. The

managing contractor representatives felt that their contractual requirements made it

difficult for them to manage their construction risks due to excessive ‘noise’ levels

(external factors outside of their control), and under these conditions it was very difficult

to establish a high level of relational quality with their client. Relational quality

(influenced by the extent that the client and contractors feel confident and have trust in

dealing with one another) is dependent on consistency of each partners’ behaviour

against original expectations, which can be set out in the initial business agreements

(Arino et al., 2005, p.16). As the project was arranged around a relational procurement


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approach, the managing contractor representatives felt that the Client should have been

more willing to alleviate some of their financial pressures by accepting a portion of the

risks associated with unforseen rising construction costs, but this did not occur.

Therefore, difficulty in establishing the highest quality relationship between the Client

and the Managing Contractor impacted on their overall motivation towards the FIM goal.

5.2.5 FIM Design

The three motivation drivers associated with the FIM design related to the nature of the

FIM goal (MD3), the FIM performance measurement system (MD5) and the

development of the incentive distribution plan (MD10). As displayed in Table 9, the

’Single FIM Goal’ was a highly ranked negative motivation driver and was assigned a

driver score of 17. ‘Performance Measurement’ was a middle-ranked negative driver

with a driver score of 13. Finally, ‘Reward Distribution Plan’ was the lowest ranked driver

with a score of seven.

Single FIM Goal (MD3) It was expressed by six out of the eight interviewees that the

Client’s FIM goal was not aligned with the overall project performance expectations, i.e.

they were not rewarded from the A$1.6 million incentive pool for positive project

outcomes outside the stretched-scope FIM goal. These interviewees felt that the

singular stretched-scope incentive target was too restrictive to measure overall above

BAU project performance across all project participants, which resulted in a perception

of procedural injustice (unfairly excluded by the measurement process from sharing in

the financial incentive pool despite performances worthy of reward). These interviewees

also expressed the view that the FIM should have been more flexible, to allow the FIM

goals to be reassessed to meet changing project conditions. It was interpreted that this

perceived injustice lowered their motivation and commitment towards the stretched-

scope targets set during the initial stages of the project.

Performance measurement (MD5) Another area of the FIM design that was perceived

to have a negative effect on FIM motivation was the exponential function measurement

system, developed by the client representatives to determine the incentive amount that

would be paid out based on the performance of the project team (see Section 5.1.7 for

details on this function). Under the financial pressures experienced by the project team,

the managing contractor and consultant representatives felt that this measurement

system was unsuited to the project (also supported by one of the client representatives).


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They perceived the incentive amount on offer to achieve a proportion of the stretched-

scope work items was not enough, based on the effort required to achieve it. This

affected their goal commitment as they thought it unlikely that they would achieve the

maximum stretched-scope and gain the full incentive pool. The Managing Contractor

Representative Two and Consultant Representative One expressed that the incentive

measurement process was extremely unfair and had it been more equitable there may

have been more opportunity to promote performance towards at least part of the

stretched-scope, having promoted their goal attainment expectancy levels.

Reward distribution (MD10) According to four out of the eight interviewees, the Client’s

decision to allow the project team to decide how the FIM bonus pool allocation would be

distributed amongst them was positive to their perception of incentive measurement

procedural fairness. Although these interviewees expressed the view that in principle

this was a fair way to determine how the incentive pool would be distributed, when it was

realised that the FIM goal appeared to be unattainable and the financial reward amount

on offer was inadequate to offset the high levels of risk, project team discussions on

incentive distribution ceased. This limited the impact of this driver on FIM goal

motivation.

5.3 CONCLUSIONS

The FIM in the project failed to effectively promote motivation towards the set FIM goal.

The project team, particularly the Managing Contractor, experienced significant financial

pressures throughout the project as they were unable to control their contractual risks,

due to a sharp rise in construction costs. This resulted in low incentive intensity i.e. the

financial reward amount on offer wasn’t worth the effort required to achieve the FIM

goal. This had a follow-on effect on FIM motivation, impacting on the failure to achieve

the goal. As determined from the motivation driver impact data, there were specific

aspects of the project that were not suitable under the conditions, which resulted in an

ineffective FIM. As Figure 12 shows, motivation towards the FIM goals were critically

impacted by the:

• inability of the project team to control their financial incentive performance due to

perceived unjust contractual risk allocation (MD1)


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• late involvement of the Managing Contractor and subcontractors (MD2), who

could otherwise have contributed and influenced design outcomes that may have

decreased construction cost risks

• misalignment between the project performance goals and the FIM goal resulting

in a perception of procedural injustice and decreasing the attractiveness of

achieving the single FIM goal (MD3)

• inaccuracies in the GCS estimate due to tender submission pressures and an

unfair negotiation process (MD4) resulting in a low expectancy of achieving the

FIM goal and receiving the FIM reward

• unfair and inflexible incentive performance measurement process (MD5) under

the project conditions.


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Figure 12 Project B - Motivation drivers

The results indicated that despite the failure of the FIM, there were positive motivation

drivers that promoted FIM goal commitment at the initial stages of the project. Due to the

dominance of the negative motivational drivers, this positive motivation did not translate

into FIM performance. These positive drivers were: the short-term relationship

development through relationship management approach (relationship workshops and

the possibility of contractor/consultant future work opportunities), the supportive nature

of the client representatives, the value-based tender selection process and an equitable

incentive distribution plan aimed at rewarding the project team.

This case has focused on the application of a failed FIM as useful lessons can be

derived from an anatomy of failure, and indeed that seems to be the case. These

Client Flexibility

Future work


FIM

Performance

Failure to achieve the ‘stretched-scope’ FIM goal resulting in ineligibility for any of the A$1.6 million bonus pool

Performance Measurement

Inadequate Price

Negotiation

Value-based Tender

Reward Distribution

Plan

Impact on FIM

Goal Motivation

LOW

HIGH

Positive Drivers

Negative Drivers

LEGEND

Single FIM Goal

Late Involvement

Inequitable Risk


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findings particularly challenge a general assumption that motivation is automatically

assured if FIMs are present. In the project, the FIM was applied with good intentions - to

promote motivation through positive reward. However, due to perceived flaws in the FIM

design and procurement approach, it resulted in failure. The results suggest that the

motivational environment in an Australian government large building project is complex

and to gain the greatest motivational power from FIMs, they should be situated within a

complementary range of interrelated systems that promote their positive nature, such as

relational contracts with equitable risk-sharing regimes. Without consideration of

supportive procurement initiatives, the FIM is likely to result in less than ideal outcomes.

As an end note for this project, it was interesting to discover that the project team

achieved all of their mandatory performance requirements under difficult financial

conditions and the Managing Contractor displayed a willingness to absorb significant

financial losses to do so. Although the FIM was ineffective in promoting motivation

towards the FIM goal, the project team achieved relatively high overall project

performance under what could be termed ‘crisis’ conditions. The managing contractor

representatives expressed the view that this occurred because they were committed to

the Government as a major client and were willing to absorb financial losses for a

successful outcome, despite the project team’s failure to achieve the stretched-scope.

This suggests that in this project, the Managing Contractor was strongly committed to

the overall project goals because of long term strategic business opportunities with the

Government, with less emphasis on short term financial gains, such as project profit

margins or the FIM reward. Unfortunately, ‘justice wasn’t served’ in the Brisbane

Magistrates Courts project and the results suggest that the majority of project

participants perceived the FIM as unfair and unsuited to the conditions experienced in

the project – ultimately influencing its failure.

CHAPTER 6: CASE PROJECT C ________________________________________________________________________________________________

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CHAPTER 6: CASE PROJECT C – ADELAIDE CONVENTION CENTRE

EXTENSION


The following discusses Case Project C (the ‘project’) characteristics in detail. The

information presented here has been sourced from interviewee accounts, project

contract documentation, State Government reports (DAIS, 2001; PSA, 1999) and

industry publications (AA, 2003; OneSteel, 2001). The analysis of the FIM motivation

drivers follows in Section 6.2.


The Adelaide Convention Centre Extension Project involved the design and construction

of a large-scale extension to a convention centre within Adelaide CBD, with an original

project budget of A$85 million (increased to A$92 million near the conclusion of the

project). This was a landmark building project for the Government of South Australia (the

‘Client’), as the upgraded centre would significantly contribute to the State’s economy. It

was intended to increase the capacity of an existing convention centre by 110%,

providing approximately 7,000 square metres of new multipurpose exhibition,

banqueting and pre-function facilities, and creating a total pillar-free exhibition area of

more than 10,450 square metres. The project site covered more than 1.2 hectares with

a total building floor space of more than 21,000 square metres. This floor space included

exhibition space, kitchen, plant rooms, amenities, canopies and back-of-house facilities.

The centre was designed to meet new multi-venue operational requirements, based on

international convention centre standards and accommodate more than 6,600 guests

with undercover parking for 1,350 vehicles. The duration of the project was

approximately 22 months, from 1999 to 2001.

The design of the facility was intended to honour the key objectives of a CBD Master


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Plan endorsed by the State Government Cabinet. This master plan set out specific

outcomes for the project, including that the building design would be iconic and would

positively represent the state in its highly visible CBD location. The project team had to

overcome many logistical hurdles in the construction of the extensions. One was the

constricted site, as the ground floor of the convention centre was constructed over nine

operational railway lines. The project team worked closely with the State’s rail authority

to ensure that a maximum of two railway lines were closed at any one time and, where

possible, that disruptions would only occur during off-peak times.

The building design included a combination of concrete and structural steel elements.

Pre-fabricated floor sections with long span steel elements were placed atop of precast

concrete head stock beams. Steel beams were then placed on top of the head stock

beams, supported by precast columns on a piled foundation. The roof comprised 1,450

tonnes of steel and included the fabrication and erection of 63-metre cantilevered roof

trusses to support 18 x 100 metre curved curtain wall glazing. This large area of glazing

was intended to open the pre-reception areas to natural light and provide an unimpeded

view of the river adjoining the CBD area. Major issues for the design were preventing

vibration from the railway lines and fireproofing in case of a train fire. Elastomeric

bearings were incorporated in the column heads to prevent vibration, while the building,

including the steel beams, was fire-engineered to prevent fire damage.

The project employed more than 1,500 workers on site, peaking at 300 per day. A major

goal of the project was to achieve the target completion date (31st August 2001), as the

Client had made a commitment to host an International Wine Convention in the new

venue in October 2001. Other project goals included meeting all functionality and design

requirements set out in the project brief (including environmental and safety goals),

being defects-free by completion date, limiting errors and omissions in construction

documentation, minimising industrial disputes, minimising lost time injuries and meeting

the Client budget of A$85 million (revised to A$92 million late in the construction stage).

It was initially believed that the project budget of A$85 million, approved by the State

Parliament in April 1999, was sufficient to achieve all the project goals, including the

design and construction program. However, late in the project, the project team

discovered that it was unlikely that they would complete the project within the budget, by

the set deadline. Approximately A$7 million was added to the budget to ensure that the

project would meet all of the Client’s requirements by the set completion date. The


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completion goal was also amended to ‘ready-for-use’ by the 31st August 2001, to suit the

changing project conditions. This date was achieved, which allowed the wine convention

to be held. The original goal of ‘defects free’ by the 31st August was not achieved (this

was achieved later, on the 19th October 2001). Due to uncontrollable circumstances, the

added cost to the Client to complete the project on time was approximately 10%. The

Client perceived this as reasonable, considering the complexity and high risk of the

project. According to the client representatives, the project team achieved a successful

outcome despite the deficiencies in the project budget that were identified when the

trade packages were tendered (see Section 6.1.8)


The general procurement approach was a Managing Contractor – Construction

Management (MC-CM) arrangement. See Chapter 2 for detailed information on this form

of procurement approach. It was the first time a relationship-based MC-CM procurement

approach was used on a large-scale building project in the state. Despite the overall

success of the project, problems with budget overruns were experienced. As the Client

took on the majority of construction cost overrun risks under this approach, they were

required to add approximately A$7 million to the project budget to ensure that project

goals were completed.

The Client chose this approach because it allowed them complete control over the

design. It also allowed them to manage construction costs through variation payments to

the Managing Contractor and consultants. The disadvantage of this form of control was

that the Client took on the majority of the cost risks associated with the design (and

design discrepancies) and construction. It was expected that, as the Managing

Contractor was appointed under a fee arrangement to provide input into the design

process and manage the construction trade packages, it would improve the

constructability of the design, potentially decreasing design-construction integration

risks.

The procurement approach included a comprehensive relationship management

process. This aimed to further mitigate the design and construction risks taken on by the

Client, through closer integration of the project team (the Managing Contractor and

consultants were directly contracted to the Client throughout the project) and improved

decision-making and problem resolution processes. It also established shared ‘stretch’


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project goals against which performance could be assessed.

The project contract offered improved flexibility to the Managing Contractor’s cash flow

through pre-payments. This was intended to empower the Managing Contractor to make

construction decisions based on the best interest of the project and not on their own

cash flow concerns. According to the client representatives, this also helped the

Managing Contractor to source subcontractors earlier in the process, allowing access to

the most suitable subcontractors, for example, those who were highly competent in off-

site fabrication.

There was also a separate Acceleration Agreement with the Managing Contractor,

which was set up under a lump sum arrangement. The Managing Contractor and their

subcontractors were required to complete the final scope of works by the target ‘ready-

for-use’ completion date to receive the A$1.2 million bonus (plus management fees).

This Acceleration Agreement is discussed in Section 6.1.7.


According to the client representative’s Australian Standard 43604 Risk Management

System, the project was deemed as an ‘extreme risk’ because of its:

• large size and complex design, with the requirement that it be ‘iconic’

• difficult logistical issues - over an operating railway station in CBD area

• inflexible completion deadlines with minimal time to undertake planning, design,

documentation and construction, resulting in the requirement to fast-track the

project delivery

• potential industrial relations target, as it had a high profile and was critical to the

Client’s credibility (largest state building project since the late 1980’s).

The Managing Contractor was appointed under a professional fee to manage the

construction process. They were primarily responsible for the management of the

construction work packages and were paid an additional design fee to provide input to

4 Australian Standard 4360: 2004 is the risk management standard in Australia, and details a seven step process for assessing and managing risk. It is a generic standard and is independent of any specific industry or economic sector, so it can be applied to a wide range of public or private activities or operations.


Page 147

the design consultants during the design and documentation stages. Unlike traditional

Managing Contractor type contracts, the design consultants were not transferred under

the control of the Managing Contractor during design development, so the client

representatives maintained control over the design throughout the design process, but

held the risk of design discrepancies. Although the Managing Contractor had an

obligation to maintain the client budget outside approved variations, the Client also held

the majority of construction risk for construction cost and program overruns.

According to the client representatives, taking on the majority of construction risk meant

that construction costs were not inflated by a risk-averse contractor. They believed the

open-book system improved their ability to manage the project budget, which could

result in lower construction costs.

‘We had taken the view that if you transfer risk, you pay for it and ultimately if you

are prepared to manage that risk yourself, you will get better value for money as

a result. We have had many examples of the Government paying too much for a

project, particularly when a project is anticipated to run smoothly. By

implementing a collaborative relationship approach we can improve the chances

that the project will run smoothly. We say - why pay for unforseen circumstances

up front when we can manage those risks ourselves?’ (Client Representative

Two)

They also felt that it was in the best interest of the project that they take on a share of

the risks, to prevent adversarial conditions.

The consultants held their own risk, in that they were required to provide minimum

design consultancy services to the Client under set consultancy fees. They were entitled

to variations for extra work approved by the client representatives. The subcontractors,

under the responsibility of the Managing Contractor, were required to complete their

trade packages within their tendered sum, with variations approved by the client

representatives and Managing Contractor. Both the Managing Contractor and the

finishing subcontractors also took on a share of the risk under the Acceleration

Agreement.


The management structure was a ‘construction management’ arrangement, with


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Managing Contractor and key subcontractors involved in design development and

documentation. A unique feature on this project was the abolition of the traditional

hierarchical structure. A ‘round table’ approach assigned key representatives from each

project party to an Integrated Management Team (IMT) and Project Control Group

(PCG). There were monthly IMT and PCG meetings, where open and honest

communication was encouraged, in a formal and equitable environment. The IMT and

PCG were established after the Managing Contractor was appointed, near the end of

the schematic design stage. The IMT involved senior executive representatives, while

the PCG involved management representatives from the Client, end-users, Cost

Manager and consultant and managing contractor organisations. The IMT reported

directly to the State Government Minister responsible for the project, while the PCG

reported to the IMT. Any issues that could not be resolved by the PCG were referred to

the IMT.

The Managing Contractor and early key subcontractors were brought into the design

process early, during design development and documentation, to fast track the

commencement of the construction stage and improve constructability. A Relationship

Consultant was appointed during the project’s conceptual stage to establish and

formalise the management structure and facilitate relationship workshops and ongoing

relationship ‘coaching’. The management structure and the contractor/consultant

engagement stages are illustrated below in Figure 13.


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Figure 13 Project C - Management structure and engagement stages



The Managing Contractor was selected on a value-based tender selection approach,

involving assessment against non-price criteria including past performance, experience

with this form of procurement approach, a compatible project team and ability to align

with the project objectives. Although this research was unable to determine the exact

proportions of the price and non-price criteria, the client representatives said that price

was a factor, but was not the dominant selection requirement (less than 50%). Feedback

from the industry after the tender selection process was complimentary. The managing

contractor tender process was managed by all members of the initial project team

(architect, engineer, cost planner, client and the relationship consultant representatives).

The Relationship Consultant developed the selection process to identify the Managing

Contractor most capable of delivering the required project outcomes within a specified

program and a tight project budget. Tenderers were short-listed by the quality of their


Managing Contractor and Consultants (IMT & PCG)

Other Subcontractors

Key

Subs

Design Consultant Team

Stage Two (a) Design Development and

Documentation

Stage Two (b) Construction

Managing Contractor and Consultants (IMT & PCG)

Key Subcontractors

Stage One Initial Design

Concept and

Master Planning

Project approval

Schematic Design and early Documentation

Design Development


(DD)

Construction

Project Completion

DD cont.


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tender submissions, which addressed the following criteria:

• proven team capable of working in a collaborative environment

• corporate approach to working in a collaborative relationship

• demonstrated ability to produce outstanding results with the local market

• demonstrated ability to work in an operating environment and achieve project

budget and completion deadlines

• demonstrated ability to achieve outstanding performance in public and industrial

relations, safety and environmental management

• demonstrated ability to construct with respect to design intent

• demonstrated ability to gain maximum performance from subcontractors

• price (DAIS, 2001, p.29).

Following the broad assessment of submissions, two tenderers were short-listed, and

participated in a half-day interview to assess and score their capacities against the

selection criteria. They then participated in a two-day facilitated relationship

development workshop, introducing the relationship management process. The

selection team then nominated the preferred tenderer for engagement.

The Managing Contractor was also invited to a facilitated contract negotiation meeting,

where they were allowed input to the finalisation of their contract. This approach

contrasts with ‘traditional’ tender selection requirements, where the Client can insist that

the contract is accepted without negotiation once the tenderer has been accepted. Here,

the parties negotiated the proposed incentive and value strategy, specific contract

conditions, and options to seek the addition of a GCS clause (which was not taken up by

the selected Managing Contractor).

The consultants were appointed during the conceptual design stages. As the

collaborative contract approach had not yet been established, they were selected under

more traditional consultant selection processes, without an option to negotiate their

contract. There was a competitive tender submission and interview, with an element for

price comparison. The consultant representatives who were interviewed believed that

they were not the lowest price tenderers and that they were selected because of their

prior experience in similar projects. They felt this was warranted, considering the


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project’s scope and the high design risks.

Key subcontractors were appointed next. They were selected under a two-stage tender

process. The team decided that having key subcontractors involved early in the design

development would allow the project commencement to be fast-tracked, particularly in

the structural steel and concrete prefabrication processes. They also hoped to improve

the documentation process, thanks to the subcontractors’ advice on constructability.

Stage One selection was based on non-price (demonstrated experience) and price (cost

estimate from early documentation) criteria. The key subcontractors assisted the

consultants in the development of shop drawings and negotiated their trade package

prices (open-book) based on value engineering outcomes. They were then appointed

under Stage Two of the tender process, to complete their trade packages for the

negotiated lump sum price, with the option of variations.


This was the first large-scale Government building project in the State that incorporated

relationship management obligations in its contract. The tender documents stated that

the relationship between the Client and their representatives, the Managing Contractor

and the consultants was based on a ‘value strategy’, which encouraged exceptional

performance through appropriate management of risk and promotion of reward. This

approach aimed to foster team commitment to the project goals. All project parties were

contractually obliged to ‘act in good faith’. The client representatives appointed a

Relationship Consultant to manage the health of the relationships between the project

parties. Their role involved:

• modelling the tender process, based on non-price criteria selection and

relationship workshops during and after tender selection

• establishing and formalising the management structure through the IMT and

PCG and setting up a 90-day plan to incorporate the collaborative approach

across the team members’ organisational systems and processes

• establishing a Results Management Team involving ten high-level managers to

improve the integration of leadership across the project

• on-site coaching in collaborative behaviour for the project participants


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• facilitating monthly working sessions to support the relationship management

approach through cost savings exercises, feedback sessions and identification of

milestones.

The Relationship Consultant also facilitated the development of a project goal matrix

that involved two levels of goals for the team. It comprised the BAU contractual goals

and a higher order above BAU goal set, which was referred to as the ‘stretch’ goals. The

client representatives, consultants and Managing Contractor set these goals early in the

project.

According to the client representatives, the project parties, led by the Managing

Contractor, worked well together to identify solutions to problems they were having,

rather than trying to deflect responsibility. The representatives believed that this

improved the efficiency of the problem resolution process on the project.


The FIM was intended to reward the Managing Contractor for efficiently managing the

Client’s risks, above their standard construction management fee. The Client did not

wish to include risk penalties such as liquidated damages, which they saw as

contradictory to relationship management principles. The positive performance-based

FIM aimed to reward three main areas of project performance: innovation contribution,

contingency savings and ready-for-use completion. As a part of the ‘value strategy’, a

financial incentive was offered to the Managing Contractor to seek innovative value-

adding design and construction options. The Managing Contractor could propose

innovations that would achieve cost-saving and/or program savings while preserving

functionality and quality. The innovation would then be approved by the client

representatives and the net benefit of the innovation would be shared on the basis that:

• 50% was placed in a Managing Contractor’s program and cost savings incentive

pool

• 50% was retained by the Client to reinvest in the project.

As the client representatives needed to manage the Government’s design and

construction risks, they were motivated to promote innovative ideas and retain as much

from the incentive pool as possible. The FIM was designed so that 50% of the


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accumulated incentive pool would be paid to the Managing Contractor if they achieved

the ‘ready-for-use’ target completion date. However, if they failed to achieve this date,

the Managing Contractor forfeited their portion of the accumulated incentive pool

amount.

By project completion, approximately A$2 million in savings was agreed from managing

contractor innovation contributions. As the Managing Contractor achieved the ‘ready-for-

use’ completion date, 50% of this (A$1 million) was distributed to them as an FIM reward

payment.

Also, the Managing Contractor was entitled to a 50% share of any remaining moneys

held in the construction contingency at the completion of their contract, provided they

achieved the target completion date. This component of the FIM was designed to

motivate the Managing Contractor to manage the project within the Client’s original

budget. Due to budget overruns in initial subcontracts and the rise in variations for

design and documentation issues, it became apparent early in the project that it was

unlikely that the contingency amount could be preserved. By the end of the project, the

Managing Contractor failed to achieve any contingency savings and therefore, did not

receive any incentive payment in this area.

The Managing Contractor and finishing subcontractors were also involved in a special

FIM arrangement - the Acceleration Agreement, which was implemented late in the

construction stage near the conclusion of the project, when it appeared unlikely that the

project would be finished by the target completion date. The Client proposed the

Acceleration Agreement to fast-track project completion.

The agreement was intended to motivate the Managing Contractor and subcontractors

to put extra resources into the project so that it was ready-for-use by 31st August 2001.

The Managing Contractor was given authority for an agreed acceleration lump sum

amount of A$1.8 million to be provided to subcontractors as required to achieve the

‘ready-for-use’ target completion date. The Managing Contractor was also offered a

A$220,000 management fee to manage the acceleration amount; if they did not achieve

the target date, they would forfeit their management fee. The Managing Contractor

incurred the risks of construction cost overruns on the A$1.8 million, but could share

50:50 in any unspent acceleration amount with the Client. The finishing subcontractors

were offered extra payment to fast track completion of their trade packages. Thus, if

they achieved the target date, they were eligible for extra payment in addition to their


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trade package profit margins. The agreement was implemented in June 2001 and the

project was ‘ready-for-use’ by the 31st August deadline, so the Managing Contractor was

rewarded with the A$220,000 extra management fee, but there were no savings to

claim. The finishing subcontractors were also rewarded for completion from the A$1.8

million ‘bonus’ amount.


The project experienced early budget and schedule setbacks because of documentation

problems that drove up contingency expenditure. A switch in the prioritisation of

construction documentation due to changes in the Managing Contractor’s construction

program put pressure on the consultant team to complete construction documentation,

and affected the budget through variation payments early in the project. The client

representatives, Managing Contractor and consultants undertook comprehensive value

engineering exercises between March and August 2000 and identified more than A$2.6

million worth of savings, including simplification of the exhaust system, modifications to

the steel structures and prefabrication of the internal timber walls between the

convention halls. Although these solutions improved the financial situation on the

project, it was not enough to preserve the budget.

The documentation coordination problems also resulted in late distribution of design

documentation packages for subcontractor tendering and introduced gaps in the trade

package documentation, which also drove up contingency expenditure. According to the

client representatives, there were flaws in the original project budget because the cost

plan was estimated on very early documents and specifications that did not take into

account the complexities of the final design, such as the structural steel roof. These

budget shortfalls were identified when subcontractor tenders came in, demanding higher

prices than first anticipated. The inaccuracies impacted on the project team’s ability to

preserve the contingency amount and meet the project budget.

The Managing Contractor and consultants committed greater levels of resources to the

project in an attempt to decrease the risk of project cost overrun. The Client needed to

pay these legitimate variations (according to the client representatives), which related to

the implementation of cost-saving strategies and additional work that was required on

site. The payments were made from the project contingency. Construction delays were

experienced in early 2001, due to very hot temperatures, poor performance of an early


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key subcontractor and the collapse of a piling rig during construction, placing further

pressure on the project budget.

According to the managing contractor representatives, although the project team were

heavily committed to the project goals, a late prediction in the budget overrun after the

subcontractor packages had been let limited their opportunity to propose scope

deletions and align the project budget with construction costs. Also, the risks taken early

in the project in tendering subcontractor packages on provisional documents drove the

contingency payments up further, as extra design and documentation work was

required. Although efforts were made through documentation reviews to improve

subcontractor coordination and minimise contingency spending, the project team failed

to preserve the design and construction contingency amount.

As risks were high on the project, the collaborative relationship approach promoted a

joint effort to deal with materialised risks through monthly evaluation meetings, where

risk mitigation strategies were proposed. This helped the team manage the risks,

particularly the budget deficiencies, and meet the required completion date.




discussed before:











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In this project, reward participants comprised the client representatives, the Managing

Contractor and the key subcontractors, while the non-reward participants were the

consultants. The maximum score possible for each motivation driver was 56.


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Table 10 Project C - Motivation driver matrix










Total Driver Score

Score

2 2 4 2 2 2 0 2 16 MD1. Inclusion of an Acceleration Agreement to the FIM during the final construction stage

Motivation Indicators Impacted

GC GC GC, DJ GC GC, DJ GC, DJ - GC

Score

4 2 4 4 0 0 0 0 14 MD2. Equitable contractual risk under project conditions


GC, IJ GC GC, IJ GC, IJ - - - -

Score

4 2 2 4 1 1 0 0 14 MD3. Relationship workshops during and after tender stage


GC, IJ GC GC GC, IJ GC GC - -

Score

2 2 2 2 0 1 2 2 13 MD4. Value-based open-book multi-criteria tender selection including non-price criteria


GC GC GC GC - GC GC GC

Score

2 2 2 0 1 1 2 2 12 MD5. Exclusion of consultants and early subcontractors from the FIM Motivation

Indicators Impacted

DJ DJ DJ - DJ DJ DJ DJ






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Total Driver Score

Score

4 0 2 2 0 1 0 2 11 MD6. Monthly ‘Round Table’ project management meetings at IMT & PCG levels Motivation

Indicators Impacted

GC, IJ - GC GC - GC - GC

Score

2 0 2 2 1 1 2 0 10 MD7. Potential for future work with Government through the successful delivery of an iconic project


GC - GC GC GC GC GC -

Score

2 0 2 2 1 1 2 0 10 MD8. Inaccurate budget estimate during conceptual design stage Motivation

Indicators Impacted

GC - GC GC GC GC GC -

Score

0 2 2 2 1 0 0 2 9 MD9. Late involvement of Managing Contractor and subcontractors in design stages


- GC GC GC GC - - GC

Score

0 2 2 2 1 1 0 0 8 MD10. Ambiguity of the ‘innovation’ financial incentive measurement process resulting in confusion over performance


- FP FP FP FP FP - -






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Table 11 Project C - Motivation driver descriptions



Indicators Impacted

Driver Score

MD1. Acceleration Agreement

The Client implemented a ‘lump sum’ Acceleration Agreement (as an inclusion to the FIM) during the final construction stage to realign the project budget with the actual project costs, providing the project team a greater chance to achieve the program deadlines.

FIM Design GC, DJ 16

MD2. Equitable Risk The Managing Contractor managed the Government’s construction cost risks, which was seen to be equitable to the managing contractor and client representatives under the high risk profile of the project.

Contract GC, IJ 14


Initial relationship workshops were facilitated by an independent Relationship Consultant to develop and promote a team-based culture throughout the duration of the project, under the relationship management requirements of the project agreements.


GC, IJ 14


The tender selection of the project organisations was based on multiple assessment value criteria. The non-price criteria included a demonstrated commitment to project goals and engagement of harmonious project management team members

Tender Selection

GC 13

MD5. Stakeholder Exclusion

Key project management organisations were excluded from the FIM. Consultants were excluded from the ‘innovation’ incentive and early subcontractors were excluded from the ‘acceleration’ incentive

FIM Design DJ 12

MD6. Team Meetings

Monthly round table IMT & PCG meetings were held, aimed at promoting team decisions in the management of the project risks and resolving budget and program issues.


GC, IJ 11

MD7. Future Work There was a desire to uphold reputation in the successful delivery of an iconic project, which could translate into future projects with the State Government (a major client).


GC 10

MD8. Budget Inaccuracies

Inaccuracies in the project budget that didn’t reflect cost realities, as the cost plan was estimated from the original conceptual design, limiting its detail. As budget management was a major FIM goal, this was perceived to have caused difficulties for the project participants in controlling their performance.


GC 10

MD9. Late Involvement

Late involvement of Managing Contractor and subcontractors in the design stages decreased the team’s ability to identify ‘value adding’ design options and increased the level of design documentation reworking, resulting in program delays.


GC 9


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Indicators Impacted

Driver Score

MD10 Measurement Ambiguity

Ambiguity in the measurement of the ‘innovation’ financial incentive, particularly the difficulties in clearly defining an ‘innovation contribution’ caused the Managing Contractor confusion.

FIM Design FP 8

KEY



As Table 11 shows, there were six positive and four negative motivation drivers

identified. The positive drivers tended to dominate (four out of the top five highest

ranked drivers were positive). These results indicate that the implementation of the

Acceleration Agreement (MD1), as a late addition to the incentive mechanism,

reinvigorated motivation. The Acceleration Agreement contributed greatly to the

achievement of the FIM goals. Motivation was also strongly promoted by the equitable

risk profile of the Managing Contractor contract (MD2) and the positive relationship

management and tender selection processes (MD3 and MD4), which encouraged loyalty

and commitment to the project goals. The motivation drivers are now analysed in more

detail according to the five project sources identified in Figure 6.


The form of contract yielded one positive motivation driver, which was ranked equal

second with a driver score of 14. This driver was ‘Equitable Risk Profile’ (MD2) and was

perceived to be a strong motivator in the project.

Equitable Risk Profile (MD2) According to the client and managing contractor

representatives, the modified MC-CM contract provided the framework for an equitable

allocation of design and construction risk under the project conditions and the

relationship management approach. Although the Client held the majority of risk for

program and budget overruns, the Managing Contractor held a risk for managing the

project efficiently, through the FIM and through contractual obligations under their fee

structure (with the possibility of variations).

These interviewees believed that the equitable contract risk profile promoted goal


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commitment, where the Client was willing to trust the Managing Contractor to manage

their risks of program and budget overrun, rather than insisting they carry all design and

construction risk. This allowed the Managing Contractor the financial flexibility to put

resources into meeting the FIM goals and therefore improved their expectancy that they

could attain the FIM goals.

These interviewees also believed that the project’s contract risk profile promoted the

perception of interactional justice, i.e. the Managing Contractor valued the Client’s

decision to share the construction risks under the collaborative culture of the

relationship-based procurement approach. The client representatives stated that, by not

forcing all of the design and construction risk onto the Managing Contractor, they

prevented an adversarial project environment where the Managing Contractor is

continuously attempting to recoup money to balance their high risk profile.

This positive motivation driver received a high driver impact score of 14, suggesting that

an equitable contractual arrangement between the Managing Contractor and the Client

was a strong motivator and was seen to improve the Managing Contractor’s ability to

control their performance. It was also seen by the client and managing contractor

representatives to promote the project relationship.



‘Team Meetings’ (MD6), ‘Budget Inaccuracies’ (MD8) and ‘Late Involvement’ (MD9). As

Table 11 shows, ‘Team Meetings’ was a middle ranking positive driver with a driver

score of 11. ‘Budget Inaccuracies’ was assigned a driver score of ten and was ranked

second-highest of the negative drivers, followed by ‘Late Involvement’ with a negative

score of nine.

Team Meetings (MD6) According to five of the eight interviewees, the project’s

management structure (realised through the IMT and PCG monthly meetings) was a

positive motivation driver towards FIM goal achievement. This driver impacted on goal

commitment, as it was perceived to improve the team’s ability to control FIM

performance, thus improving the expectancy that the project participants could attain the

FIM goals. These interviewees also perceived that the management structure assisted

the team in dealing with project issues such as the inaccuracies in the project budget,


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which was identified as a negative motivation driver.

Budget Inaccuracies (MD8) According to six of the eight interviewees, managing the

risk of project budget overrun (as a major FIM goal) was difficult because the original

project budget had been estimated during the conceptual design stage (without the

assistance and expertise of the Managing Contractor and subcontractors) and therefore

did not fully align with the realities of project costs, particularly considering the level of

complexity of design and construction. This caused difficulties in controlling FIM

performance. This negative motivation driver impacted on goal commitment because the

original budget inaccuracies meant project participants were unable to preserve the

contingency amount and meet the budget goal. The inaccuracies were rectified with the

introduction of the Acceleration Agreement, which, according to seven of the eight

interviewees, reinvigorated goal commitment and allowed the Managing Contractor to

achieve the target completion date within the revised budget. However, prior to the

introduction of the Acceleration Agreement, the Managing Contractor and

subcontractor’s late involvement in design development and documentation placed

pressure on the project budget and program, and impacted on incentive participant

motivation.

Late Involvement (MD9) According to five of the eight interviewees, the Managing

Contractor and key subcontractors were appointed too late in the design stages to

effectively provide cost-saving design solutions that could have alleviated some of the

pressures on the project budget. As it was, the Managing Contractor provided

constructability input late in the design documentation stage, which resulted in

significant amounts of documentation rework causing design documentation delays.

These interviewees also attributed program delays in the design documentation process

to an underestimation of the complexities of the design and the time allowed for

reworking the documentation. The increased amount of time required pushed the

construction program out, increasing the risk that the target completion date would not

be achieved. This driver impacted on the goal commitment indicator as the delays

decreased the expectancy that the target completion goal was achievable.

The five interviewees also felt that the documentation reworking undermined the project

participants’ ability to preserve the 5% contingency amount (decreasing their expectancy

of FIM goal attainment). The Managing Contractor interviewees in particular believed

that, if they had been appointed earlier, they might have been able to test the project


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budget with key subcontractors before it was locked in and possibly to identify the

inaccuracies in the original project budget sooner.

The three motivation drivers associated with the management of design and

construction relate to the project organisational structure (MD6), budget accuracy (MD8)

and the stages of engagement (MD9). These results suggest that the design and

construction timing issues associated with the stage of engagement of the Managing

Contractor and subcontractors, and the inaccuracies in the project estimates negatively

affected motivation. The perceived pressure on the team to maintain the budget and

program lowered the expectancy that the budget could be maintained and contingency

savings could be made. The delays in the documentation process also decreased the

expectancy that the desired completion date could be met. Although these management

issues were negative drivers, their effect on motivation was offset by the processes in

which these project issues were managed, which ultimately resulted in the Client’s

implementation of the Acceleration Agreement to resolve the budget issues. Although

the contingency savings FIM goal was not achieved, the project participants continued

to contribute design and construction innovations throughout the project, suggesting that

goal commitment wasn’t significantly affected by the budget or program pressures they

were experiencing.


The tender selection process yielded only one positive motivation driver, which was

relatively highly ranked at fourth out of ten drivers. This driver was ‘Value-based Tender’

(MD4) with a driver score of 13.

Value-based Tender (MD4) Seven of the eight interviewees said that selecting the

Managing Contractor and subcontractors on a value-based multi-criteria tender selection

process (including non-price) promoted FIM goal commitment. According to these

interviewees, this commitment was due to the recognition of, and respect for, their ability

to perform in a high-risk project. They felt inherent obligations to prove the Client had

been right to select them, motivating them towards the project/FIM goals and increasing

the attractiveness of goal attainment.

This emphasis placed on a value-based tender selection supported the relationship-

based approach, where the project parties were partly selected for their demonstrated


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ability to embrace collaborative arrangements, and to select harmonious project team

personnel on whom the Client could rely to manage the project risks. This positive

motivation driver received a relatively high driver score of 13, suggesting it was a

serious contributor to motivation towards the FIM goals throughout the project.


The relationship management approach yielded two positive motivation drivers:

‘Relationship Workshops’ (MD3) and ‘Future Work’ (MD7). As Table 11 shows,

‘Relationship Workshops’ was the equal second ranked driver with a driver score of 14

and ‘Future Work’ was middle-ranked with a driver score of ten. They were both

perceived by the interviewees to promote FIM goal commitment, above the extrinsic

motivation induced through the FIM reward on offer.

Relationship Workshops (MD3) The client, managing contractor, consultant and one

of the subcontractor representatives (seven of the eight interviewees) stated that the

relationship workshops during and after tendering developed a collaborative team

culture on the project. Therefore, the project participants were motivated towards

achieving the project/FIM goals because the attractiveness of goal attainment had

increased. According to these interviewees, a bond was formed between the project

parties through the workshops, in combination with the fair tender selection process and

the equitable contractual arrangements. This bond promoted shared responsibility in

finding innovative design and construction solutions to meet the mutual project goals

under a tight project program and budget. The one interviewee who failed to note the

value of the relationship workshops appeared to be sceptical about the relationship

management approach in general, and therefore did not see a link between the

relationship workshops and FIM goal commitment on this project.

Client Representative One and Managing Contractor Representative Two also

perceived the relationship development workshops as a promoter of interactional justice,

in that the client representatives were to be receptive to, and respectful of, the

significance of the Managing Contractor’s role in the project and the importance in

forming a close working relationship. The motivation induced through the project

relationships was also promoted through the potential for future work opportunities and

the desire to uphold reputation.


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Future Work (MD7) Another positive relationship motivation driver was the potential for

future work with the Client (cited by five of the eight interviewees). These

representatives believed that this driver increased their goal commitment, as the

achievement of the project goals in a high-profile building project would improve their

business reputation, potentially leading to future work opportunities, thus increasing the

attractiveness of goal attainment.

The two motivation drivers assigned to the ‘relationship management’ project source

were positive, receiving scores of 14 (MD3) and ten (MD7). They were both seen to

encourage the project participants to commit to the FIM/project goals. These results

suggest that the relationships developed through the workshops were a strong

motivation driver to the project participants, followed by the ‘Future Work’ motivation

driver and the importance placed on upholding reputation and market position in the

government building sector.

6.2.5 FIM Design

The three motivation drivers associated with the FIM design related to the flexibility of

the FIM with the introduction of the Acceleration Agreement (MD1), equity perceptions of

the FIM reward distribution (‘Stakeholder Exclusion’ - MD5) and the clarity of the FIM

measurement process (‘Measurement Ambiguity’ – MD10). As displayed in Table 11,

‘Acceleration Agreement’ was the highest ranked motivation driver with a positive driver

score of 16. ‘Stakeholder Exclusion’ was assigned a negative driver score of 12 (highest

ranked negative driver), while ‘Measurement Ambiguity’ was the lowest ranked driver

with a negative driver score of eight.

Acceleration Agreement (MD1) The introduction of an Acceleration Agreement late in

the construction stages of the project promoted goal commitment (cited by seven of the

eight interviewees) by improving their expectancy that they could achieve the overall

project/FIM goals. It also gave the Managing Contractor access to the ‘innovation’

incentive pool, as the ‘ready-for-use’ completion date then became achievable.

According to Managing Contractor Representative One and consultant representatives,

the Managing Contractor was rewarded with their share of the ‘innovation’ incentive pool

through the introduction of the Acceleration Agreement, which ‘brought reality back’ to

the overly ambitious budget, restoring the fairness in the FIM outcome.


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Despite the positive nature of the Acceleration Agreement that promoted FIM goal

motivation, injustices in how the FIM was distributed and confusion over the ambiguous

nature of the ‘innovation’ FIM measurement process had negative impacts on

motivation.

Stakeholder Exclusion (MD5): The innovation component of the FIM allowed a return

to the project of 50% of all innovative cost-saving solutions identified by the Managing

Contractor, assisting the project team to manage the project cost issues. Although those

who had shared in the FIM reward valued its inclusion as a motivator, seven of the eight

interviewees perceived that the exclusion of the consultants from this component of the

FIM did effect team motivation. This distributive justice issue stemmed from the belief

that the consultants should have shared in the innovation component of the FIM as they

had actively assisted the Managing Contractor to identify value-adding innovations.

Also, according to the managing contractor and subcontractor representatives, there

was a perception of distributive injustice concerning the exclusion of the early

subcontractors from the acceleration ‘bonuses’. This was because the early

subcontractors had completed their trade package prior to the introduction of the

Acceleration Agreement. These distributive injustices were perceived to negatively

impact on the motivation of the majority of project participants, not just those excluded

from this FIM reward.

Measurement Ambiguity (MD10) According to five of the eight interviewees, the

innovation component of the FIM was unclear. The ‘innovation’ incentive aimed to

motivate the Managing Contractor and subcontractors to identify innovative cost-saving

design and construction options that could be approved by the Client and implemented

in the project. According to these interviewees (including Client Representative Two),

there were disputes over how an ‘innovation contribution’ was defined and how it was

measured in terms of cost savings. This driver impacted on the procedural justice

indicator as the Managing Contractor perceived that the incentive measurement process

wasn’t clear and that judgment of performance was unjust.

These results suggest that the Client’s addition of the Acceleration Agreement near the

end of the project reinvigorated motivation towards the FIM goals by improving the

reward participants’ chances to receive the FIM rewards. There were perceived

injustices in how the FIM was distributed (excluding the consultants and early

subcontractors from the FIM), and the vagueness in what was defined as an ‘innovative


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contribution’. However, these negative drivers did not obviously translate into decreased

performance, as the innovation contributions were made and the ‘ready-for-use’

completion date was achieved. The data suggests the reason for this was the

dominance of the positive drivers such as the introduction of the Acceleration

Agreement, the equitable contract conditions and the relationship formed through

workshops.

6.3 CONCLUSIONS

In this project, the project participants achieved the ‘innovation’ incentive goal and the

‘ready-for-use’ completion date goal. However, they failed to achieve the contingency

savings incentive, which was perceived by the project participants as partly due to an

overly ambitious project budget and setbacks in the design documentation process.

As Figure 14 illustrates, motivation towards the FIM goals including the ‘ready-for-use’

completion and the ‘innovation’ incentive goals was critically supported by the:

• flexible FIM arrangement and Client’s responsiveness to the changing project

conditions, which allowed the introduction of an Acceleration Agreement –

significantly improving the reward participants’ chances to achieve the ‘ready-for-

use’ completion date and gain access to the ‘innovation’ incentive pool (MD1)

• Managing Contractor (Construction Management) contract that was perceived to

be equitable by the project participants (MD2), particularly the Managing

Contractor, supporting the ethos of the relationship management approach

• relationship management strategy that promoted collaboration and teamwork

through the initial relationship workshops (MD3) and the motivation induced by

the potential for future work opportunities if the project was delivered

successfully (MD7)

• open-book tender for the Managing Contractor and subcontractors, with the

majority of selection based on non-price criteria (MD4)

• ‘round table’ design and construction organisational structure established in the

monthly IMT and PCG meetings (MD6).

These drivers were perceived to increase the level of goal commitment through


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improved expectancy that the team would be able to achieve the incentive goals and the

greater attractiveness of the goal attainment. They also impacted on interactional justice

through the perception that the client representatives intentions were respectful and

honourable, which induced reciprocal behaviour.

Although the majority of the FIM goals were achieved, there were negative motivation

drivers, primarily related to the FIM design and difficulties in managing the design and

construction process. They included perceived difficulties in achieving the incentive

goals due to original budget inaccuracies (MD8), lateness in appointing the Managing

Contractor and subcontractors, causing increased rework of the design documentation

(MD9), inequities in the distribution of the incentive reward (MD5) and ambiguity in the

‘innovation’ incentive measures (MD10). The impact of the negative design and

construction management drivers was offset by the Client’s revision of the project

budget through the introduction of the Acceleration Agreement (MD1). The client,

managing contractor and consultant representatives saw this as a realignment of the

project goals with the cost realities and they believed it reinvigorated the goal

commitment. Although the negative FIM design drivers affected motivation on the

project, their impact was offset by the dominance of the positive motivation drivers (four

of the top five drivers were positive), which led to the achievement of the majority of FIM

goals.


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Figure 14 Project C - Motivation drivers

The findings from this project suggest that motivation towards the FIM goals was influenced

by both the value the reward participants placed on the incentive reward as a

commercial opportunity to increase their profit margins, but also the project and

relationship management processes that promoted commitment and loyalty to the

project and pride in the achievement of project goals. These processes intensified the

direct motivational effect of the FIM reward on offer. In summary, the impact of FIMs can

be improved if it is designed such that participants genuinely value the financial reward

on offer, the FIM goals are perceived as achievable and the FIM is situated within a

complementary suite of interrelated project management systems that promote its

Budget Inaccuracies

Team Meetings

(IMT & PCG)

Late Involvement

Stakeholder exclusion

FIM Performance

Achievement of “innovation” contribution incentive goal

Achievement of ‘ready-for-use’ completion date

Failure to achieve contingency savings and meet original budget

Value-based Tender


Equitable Risk

Acceleration Agreement

Measurement Ambiguity

Impact on FIM

Goal Motivation

LOW

HIGH

Future Work

Positive Drivers

Negative Drivers

LEGEND


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positive nature in recognition of high performance. Detailed recommendations on project

management initiatives that can improve the impact of the FIM, based on the findings

across all case projects, can be found in Chapter 10.

CHAPTER 7: CASE PROJECT D ________________________________________________________________________________________________

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CHAPTER 7: CASE PROJECT D – COFFS HARBOUR HEALTH

CAMPUS


The following discusses Case Project D (the ‘project’) characteristics in detail. This


documentation and state government and industry briefs (DOC, 2003; AA, 2002;

MNCAHS, 1996). The analysis of the FIM motivation drivers follows in Section 7.2.


The Coffs Harbour Health Campus project involved the design and construction of an

A$80 million hospital campus in coastal northern NSW. The new hospital campus, with a

final floor space of approximately 25,800 square metres, was built on a 19.2 hectare

greenfield site on the southern outskirts of Coffs Harbour, a NSW regional city. The

hospital was designed to meet the functional model of care set out by the NSW

Government (the ‘Client’) and the Local Area Health Service Project Definition Plan, to

deliver health services to a catchment population of over 100,000 people. The primary

objective of the project was to procure a facility that provided ‘patient focused care’ while

maximising the delivery of health services and replacing an existing base hospital that

was not meeting its functionality requirements. The new campus includes 202 beds, four

operating theatres, Intensive Care Unit/Critical Care Unit facilities, day procedure

facilities and an endoscopic suite. The campus design was centred on five distinct care

centres comprising:

• medical and therapeutic care: oncology, palliative care, rehabilitation,

hydrotherapy pool and renal services


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• critical care: day procedures, emergency, pathology, medical imaging, bio-

mechanical engineering and nursing care services

• family care: maternity, birthing, nursery, paediatric and primary health care

services

• mental and general wellbeing: psychiatric and community mental health and drug

and alcohol services

• support: logistics, linen supply, staff amenities, chapel, waste and fleet

management and medical records.

Each of these centres was designed to have separate entries and exits and reception

areas to provide patients with direct access to their specific area of need, preventing

contact with other medical areas. Several external courtyards were included in the

design, which were intended to promote access to outdoor areas for patients and their

visitors and take advantage of the warm coastal climate of the campus location.

Additionally, 500 car parks and internal road works were included in the project scope.

According to the client representatives, an unusual feature of the project was the

requirement to consult and manage a large number of user group concerns in the

development and documentation of design. Forty different user groups were consulted

up to five times each over a period of 24 weeks (design development and

documentation). Consultation continued throughout construction, particularly to minimise

disruption of medical services in relocating patients from the old hospital facility to the

new campus.

The project feasibility plan was prepared in 1995 and schematic design commenced in

December 1998. The hospital campus was officially completed in December 2001; a

project duration of 36 months.

The major project goals were quality and functionality, determined by end-user

satisfaction, and cost performance, assessed around the management of a GCS.

Meeting the time schedule was also an important goal to the Managing Contractor and

their consultants, as liquidated damages were implemented at A$5,000 per day for delay

in achieving practical completion. The project was completed on time after approved

extensions of time were incorporated.

As a major goal, cost performance was linked to the FIM, through a 50% share of

savings arrangement based around a negotiated GCS. The project was completed


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within budget with approximately A$1.2 million in savings achieved (with an estimated

A$600,000 distributed to the Managing Contractor through the FIM and the remainder

returned to the Client).

Also, according to the client representatives, a high level of end-user satisfaction in the

campus was also achieved through ongoing satisfaction surveys, in comparison to

similar new health facilities procured by the Client. The client representatives attributed

the achievement of this project goal to the levels of end-user input in the design and the

relative success of the design and construction delivery process. They also perceived

value in the project team’s approach to long-term water and sewerage costs, in

particular the Managing Contractor’s design input which resulted in forecasted life cycle

cost savings.


A Managing Contractor – Design and Construction Management (MC-D&CM) approach

was employed, for the first time by the NSW Government. The Managing Contractor,

under this contract type, was paid a management fee for providing input to the

development of design and documentation and managing the construction up to the

commissioning and handover stage. As is standard for this form of procurement, the

Managing Contractor was also reimbursed the cost of construction, which was capped

at the nominated GCS amount, and managed through an open-book process.

This process was managed under a two-stage system, where the Managing Contractor

was engaged for Stage One following their competitive tender in March 1999, to provide

input in the design development and documentation process. During Stage One, the

design consultants remained under the leadership of the Client. The Managing

Contractor was required to contribute to the design process as a ‘construction advisor’,

providing advice on subcontract work packages and design constructability. Although

they had significant input in management of the design development and

documentation, the Managing Contractor did not directly manage the consultants during

Stage One. This was a variation to the traditional MC-D&CM procurement approach,

where the Managing Contractor usually directly manages the consultants in the

development and documentation of design.

During Stage One, the Managing Contractor was also tasked with developing the GCS


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for the project, based on design development and documentation. At the completion of

Stage One in August 1999, the final GCS amount was nominated. It was accepted by

the Client in December 1999, when they engaged the Managing Contractor for Stage

Two - completion of construction documentation and management of subcontract

packages. At the commencement of Stage Two, the design consultants’ contracts were

transferred to the Managing Contractor (via the ‘novation deed’ set out in the contract).

They were tasked with assisting the Managing Contractor to complete the construction

documentation and construction work within the GCS. The performance of the ‘share of

savings’ FIM was assessed around the accepted GCS (50% of savings below GCS to

be distributed to the Managing Contractor – see Section 7.1.7 for further details on the

‘share of savings’ FIM design).

The procurement approach also included initial teamwork meetings with the managing

contractor, consultant and client representatives after the Managing Contractor’s

engagement to Stage One. This was intended to develop a team culture between the

project parties and improve the efficiency of the design and construction management

process. After the initial relationship workshop, the client representatives informally

monitored the quality of the relationships between the parties throughout the project.

There were also formal dispute resolution processes in the contract to prevent the

escalation of disputes to the courts through internal arbitration.


The Managing Contractor held the majority of risk for construction cost overruns, as they

were not entitled to price adjustments under the nominated GCS. The GCS could be

adjusted for variations and Client-initiated delay costs; however the Managing

Contractor warranted that the Client would pay no more than the approved GCS. To

minimise the cost overrun risks, the client representatives gave the Managing Contractor

the opportunity to develop the GCS during design development and to provide their

exclusions from the design scope, which would allow them to build the campus within

the Client’s TCS. This was followed by open-book negotiation of the excluded scope

items between the managing contractor and client representatives, and the GCS was

established for the construction stage. According to the client representatives, this was

seen a fair way of allowing the Managing Contractor to manage their construction cost

risks.


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‘[The Managing Contractor] got to know the project intimately during design

development which made sure the GCS they submitted was based on science

and not speculation. So in other words, although they held construction risk

around the GCS, they were able to efficiently manage this risk through the GCS

negotiation process. Also, as they came to us with a GCS that was qualified with

a series of scope reductions, we had enough brains to hold back a contingency

for that event through the flexible Target Construction Sum. So what that meant

was that we could effectively negotiate scope in line with the agreed GCS and

we had a clear set of documents that set out what was covered under the GCS,

so there were no arguments… I think we all felt this process was done very well

and was a fair way to do it.’ (Client Representative One)

This sentiment was also shared by the managing contractor representatives who

expressed that it was positive to allow them the opportunity to ‘build’ the GCS and

negotiate scope to improve its alignment with the design.

‘By the time we submitted the GCS we had a pretty good design solution – we

nearly had it to a state of complete developed design. You know what it is going

to look like, so there’s not that much greyness with respect to putting a price on it

and it’s an open and transparent system. Also, during the first stage, we were

providing buildability and pricing advice. They were at liberty to take our advice,

or not. When we got to the end of the GCS phase and we put our number on the

table we were a few million dollars high. We had a shopping list of items that

provided a number of initiatives that they could use to bring the price back down

and that was negotiated either by raising the GCS or by cutting things out of the

design.’ (Managing Contractor Representative One)

The Client held the majority of design risks for the design development and

documentation during Stage One, which was transferred to the Managing Contractor

with their engagement for Stage Two after the design consultants had been reappointed

under the Managing Contractor. Unconventionally, the Client was also responsible (and

held the risks for) the early works packages, which included earthworks and

geotechnical investigations. This would traditionally be the responsibility of the

Managing Contractor, but in this case was managed by the Client to minimise cost in the

early works period.

Under the contract with the Managing Contractor, the Client maintained significant


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control over the design direction as they were responsible for the final decision in all

design changes that were presented after Stage One. The client representatives saw

this as a way to manage their risks in quality and functionality requirements in the design

and to maintain the intent of the original design.

Also, according to the contract, all parties were required to act in good faith. This meant

that the client representatives were obliged to assist the Managing Contractor in

sourcing cost-saving options, which would provide an opportunity for them to secure a

share of savings around the nominated GCS – as long as quality and functionality

requirements were not negatively impacted. This was put into practice when the project

team (the client, managing contractor and consultant representatives) undertook value

engineering exercises to identify design opportunities to bring the project costs down

and improve design buildability, with the final approval from the client representatives.

The consultants and subcontractors held their own risk. The consultants were required

to provide minimum design consultancy services for an established consultancy fee to

the Client during Stage One and to the Managing Contractor during Stage Two, with the

option of variation payments for work outside these standard services. The

subcontractors, under the management of the Managing Contractor, were required to

deliver their subcontract packages within their tendered sum. They also had the option

of variations paid and approved by the Managing Contractor.


The Management Structure was a traditional hierarchy with the novation of design

consultants. The state government’s project management agency managed the design

process, with the project consultants, and the tender selection of the Managing

Contractor. They were engaged as the client representatives once Stage 2 began and

were originally engaged near the end of master planning/conceptual design stage. They

also managed the early works program including the site excavation and geotechnical

investigations. This program was undertaken during the schematic design stage, prior to

the engagement of the Managing Contractor.

The project consultants were engaged at the end of the master planning/conceptual

design stage. They were responsible for the development and documentation of design,

under the management of the Client for Stage One of the project. The Managing


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Contractor was then engaged at the end of schematic design. When the Managing

Contractor was re-engaged for Stage Two (early design documentation), the key design

consultants’ contracts were transferred to the Managing Contractor under the same

contractual conditions (and fee structures) they had with the Client, to complete

construction documentation and provide input in the construction process.

The subcontractors were engaged by the Managing Contractor at the end of design

documentation and at the beginning of the construction stage and did not have

significant input to design development. The Managing Contractor was required to

tender early trade packages as soon as possible before the commencement of Stage

Two, which included the earthworks, piling and underground services. The remaining

subcontractors were tendered thereafter.

The management structure and engagements in each of the project stages are

illustrated in Figure 15.

Figure 15 Project D - Management structure and engagement stages



Consultants (pre-novation) and Managing

Contractor (Stage 1)

Subcontractors

Design Team Consultants

Stage One Design

Development

Stage Two Design Documentation

and Construction

Managing Contractor (Stage 2)

Consultants (post-novation)

Concept and

Master Planning

Project Approval

Schematic Design

(and early works)

Design Development


(DD)

Construction

Project Completion

DD cont.


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The managing contractor tender process was managed by the Client with input from the

design consultant team. The Managing Contractor was selected based on price and

non-price criteria according to the two project stages. The Stage One tender involved

the assessment of expressions of interest and tender submissions based on the

tenderer’s ability to contribute to the design process and develop the GCS in

accordance with the contractual agreements. The interviewees were unwilling to

disclose the relative weighting between price and non-price criteria, however, it was

established that the tender evaluation included non-price criteria including previous

experience, reputation and financial capacity and resources to manage the project. The

tender process also involved the assessment of the Managing Contractor’s

management fee proposal.

For Stage Two of the project, the Managing Contractor’s nominated GCS was compared

to the TCS and negotiated with the Client. Under the contract conditions, the Client had

the option not to accept the nominated GCS and ‘test the market’ (go out to open

tender) for the documentation and construction of the developed design. This did not

occur – the client representatives accepted the Managing Contractor’s GCS and the

Managing Contractor was re-engaged for Stage Two.

The design consultant tenders were selected through a fee structure submission and

interview process. They were also unwilling to disclose the relative weighting between

the price and non-price criteria in their tender evaluation, but it was identified that their

tender evaluation process included non-price criteria including previous experience and

reputation. The subcontractor tender selection was based on subcontract price and

their capacity to complete the trade packages. The subcontractor tender process was

managed by the Managing Contractor and audited by the Client, ensuring the tender

and subcontract prices were open-book. Where possible, the Managing Contractor was

required to engage subcontractors from within the region to support the local market.


The relationship management process comprised project advisory group team meetings

with the managing contractor, consultants and client representatives to promote the

procurement approach and encourage the development of a cooperative project team.


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The initial design team, including the end-user representatives, held several informal

team meetings that established a ‘team culture’ during schematic design stages. The

project advisory group meetings held after the Managing Contractor’s engagement were

intended to bring the Managing Contractor into this team environment and to develop

improved procurement delivery strategies. These meetings also involved the end-user

representatives, as well as the consultant and the managing contractor representatives.

This group informally managed team relationships and problem resolution processes to

prevent disputes, supported by the expert dispute determination process laid out in the

general conditions of contract.


The FIM was intended to reward the Managing Contractor for a smooth, well-managed

project without disruption, through a ‘share of savings’ incentive based on the GCS. As

the client representatives could closely manage functionality and design intent, the

preservation of money below the GCS was seen as the major incentive goal on the

project. The client representatives believed that the FIM could motivate the Managing

Contractor to improve their profit margin through their share of savings reward, and it

could also allow a share to be returned to the Client and redistributed back into the

hospital, providing a value-adding opportunity. Therefore, the FIM was intended to

motivate not only the Managing Contractor, but also the client representatives to return a

share back into the project. The consultants and subcontractors were not offered a

share in the FIM reward, as it was deemed by the client representatives to be too

complex to measure and allocate under the basic ‘share of savings’ arrangement.

The ‘share of savings’ FIM design offered to the Managing Contractor was based on

50% of the difference between the amount of the GCS (adjusted in accordance with the

contract) and the Actual Construction Sum (Client-approved actual costs of

construction), capped at A$1 million. The cap of A$1 million was determined by the

client representatives as an appropriate reward for high cost performance in an A$80

million project based on the project risk. By the conclusion of the project in December

2001, the project participants had achieved approximately A$1.2 million in savings

below the GCS. Therefore, the Managing Contractor received A$600,000 and the

remainder was reallocated back into the project by the Client.


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According to the client representatives, there were significant risks involved in the

development of design due to the unique and complex nature of each of the care

centres. Due to these risks, the Managing Contractor was heavily involved in design

development and documentation and the negotiation of scope based around the Client’s

TCS. Also, due to the complexity of the design and the unique functionality requirements

of the health campus, the end-user groups were also heavily involved in design

development and documentation. This required the design team to be flexible

throughout the design process and be responsive to end-user requirements. The

managing contractor representatives expressed that although they had to ‘up-skill’ a

number of local subcontractors who had never been involved in a project of its size

(introducing potential risk), subcontractor performance was high and subcontractor

prices remained relatively stable between GCS nomination and subcontractor

engagement. Also, the design and price negotiation process improved the accuracy of

the Managing Contractor’s subcontractor price estimates through a more informed

design.

The client representatives stated the managing contractor performed well throughout the

project, particularly in cost performance. However, they did identify problems in

maintaining this momentum after the project had reached Practical Completion. Several

large defects were not rectified early in the defects liability period and required the client

representatives to continuously follow-up on rectification works. Eventually these issues

were resolved, but late in the defects liability period. Although this was a problem, the

client representatives did not believe it tarnished the overall success of the project.




discussed before:




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In this project, reward participants comprised the client representatives and the

Managing Contractor, while the non-reward participants were the consultants and the

subcontractors. The maximum score possible for each motivation driver was 48.


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Table 12 Project D - Motivation driver matrix










Total Driver Score

Score

4 4 4 2 1 0 1 1 17 MD1. Equitable risk profile of Managing Contractor contract under a negotiated GCS agreement


GC, IJ GC, IJ GC, IJ GC GC - GC GC

Score

0 4 4 4 1 1 1 1 16 MD2. Potential for future work opportunities with Client through the successful delivery of project


- GC, IJ GC, IJ GC, IJ GC GC GC GC

Score

2 2 2 2 1 0 1 1 11 MD3. Value-based tender selection involving non-price criteria assessment Motivation

Indicators Impacted

GC GC GC GC GC - GC GC

Score

0 2 2 2 1 1 0 0 8 MD4. Early relationship/teamwork meetings


- GC GC GC GC GC - -






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Total Driver Score

Score

2 0 2 2 1 1 0 0 8 MD5. Large distances between the key stakeholders head offices and construction site


GC - GC GC GC GC - -

Score

2 0 2 0 1 0 0 0 5 MD6. Clearly documented ‘request for change’ and variation approval process


GC - GC - GC - - -

Score

0 0 2 2 1 0 0 0 5 MD7. Late involvement of Managing Contractor in design stages


- - GC GC GC - - -

Score

0 0 2 0 1 1 0 0 4 MD8. Single incentive performance goal based on cost savings achieved around the GCS


- - GC - GC GC - -






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Table 13 Project D - Motivation driver descriptions



Indicators Impacted

Driver Score

MD1. Equitable Risk Despite the Managing Contractor taking on the risk of construction cost overrun through the assignment of a GCS, the GCS negotiation process during design development increased the accuracy of the GCS and improved their chances of achieving cost savings.

Contract GC, IJ 17

MD2. Future Work There was a desire to uphold reputation in the successful delivery of an iconic project for the region, which could translate into future projects with the State Government (a major client).


GC, IJ 16


The invitation to tender and tender assessment of the Managing Contractor was partly based on non-price criteria, including contractor capabilities and previous experience. Financials were open-book.

Tender Selection

GC 11

MD4. Teamwork Meetings

Early team meetings facilitated by the client representatives to develop and promote teamwork and project relationships. This was followed up by ongoing performance reviews.


GC 8

MD5. Stakeholder Locations

The client, managing contractor’s and design consultants’ offices were located large distances from one another and from the construction site, which resulted in communication problems, particularly during design documentation.


GC 8

MD6. Variation Approval

Clear documentation and rigorous ‘request for change’ and variation approval processes provided reassurance that if the criteria were met, variations would be paid –allowing tight control over scope changes and financials.


GC 5

MD7. Late Involvement

The Managing Contractor was engaged too late in the design stages to effectively identify cost-saving design options and provide build-ability advice.


GC 5

MD8. Single FIM Goal

Single cost performance goal, which did not measure the performance of the Managing Contractor in other project priority areas such as quality or program performance

FIM Design GC 4

KEY




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As Table 13 shows, there were five positive and three negative drivers that impacted on

motivation towards the achievement of the FIM goal. The positive drivers tended to

dominate (the four highest ranked drivers were positive). These results indicate that the

process by which equitable financial risk was managed under the contractual

arrangements between the Client and the Managing Contractor, specifically the GCS

negotiation process, significantly promoted FIM goal motivation (MD1). This motivation

was also promoted through the project relationship, intensified by future work

opportunities (MD2), the early teamwork meetings (MD4). The selection of capable and

experienced project team members through a valued-based tender (MD3) also strongly

promoted motivation. These positive motivation drivers were contributing factors in the

achievement of approximately A$1.2 million in savings below the GCS by the end of the

project.

The drivers that were perceived to have negatively impacted on FIM goal motivation

were sourced in the design and construction management process and FIM design. The

highest ranked negative driver was the large distances between stakeholder locations

(MD5), which resulted in communication problems. Although this negative driver

impacted on the Managing Contractor’s motivation, substantial cost savings below the

GCS were achieved, suggesting it did not significantly impact on FIM performance. The

motivation drivers are now analysed in more detail according to the five project sources

identified in Figure 6.


The form of contract yielded only one motivation driver, ‘Equitable Risk’ (MD1 - positive),

which was assigned the highest overall rank, with a driver score of 17.

Equitable Risk (MD1) All interviewees, except Consultant Representative Two,

perceived that allowing the Managing Contractor to negotiate the GCS with the Client

during design development gave the Managing Contractor the financial flexibility to

focus their efforts on achieving project savings and sharing in those savings under the

FIM. This resulted in strong expectations that cost savings could be achieved, promoting

goal commitment. According to the client representatives and the Managing Contractor

Representative One, the willingness of the client representatives to negotiate the GCS,

which involved raising the TCS when it was found to be inadequate during design


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development, also promoted a perception of fairness in how the contract risk was

managed. The subcontractor representatives believed that the Managing Contractor’s

‘comfortable’ financial position allowed them to place greater emphasis on selecting

capable subcontractors and therefore, to have greater security over subcontractor

performance, lowering construction risks.

These results suggest that the Managing Contractor’s motivation was significantly

influenced by how their financial risks were managed under the contract. A perceived

readiness of the Client to assist the Managing Contractor in minimising the potential for

GCS overruns (through the negotiation process) promoted motivation and commitment.

Motivation was enhanced through the awareness that if procurement was efficiently

managed, the Managing Contractor had the potential to bring the project costs under

GCS and secure a share of the incentive, outside external project influences such as

market price rises.



‘Stakeholder Locations’ (MD5 – negative), ‘Variation Approval’ (MD6 – positive) and

‘Late Involvement’ (MD7 – negative). As Table 13 shows, ‘Stakeholder Locations’ was a

middle-ranked driver with a driver score of eight, but it was the highest negative driver

identified. ‘Variation Approval’ and ‘Late Involvement’ were the second and third lowest

ranking drivers, both with driver scores of five.

Stakeholder Locations (MD5) According to both the managing contractor and

consultant representatives, the large distances between the managing contractor and

the design consultant offices and the construction site was a negative motivation driver.

It was perceived to have negatively impacted on the Managing Contractor’s ability to

manage the design documentation process, as the distance between the parties

resulted in communication problems and design discrepancies. Although there were

differences in the opinions of the managing contractor and consultant representatives

about who was at fault, this driver was perceived to have negatively impacted on FIM

goal commitment by both of them, but not to have affected the performance of the

Managing Contractor in achieving cost savings. Managing Contractor Representative

One noted that project collaboration tools were in their infancy during this project and

therefore, these communication problems may have been reduced if they had been


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using the latest web-based collaboration tools.

Variation Approval (MD6) Client Representative One, Managing Contractor

Representative One and Consultant Representative One each noted that the client

representatives developed a clear set of procedures to handle requests for changes and

variation approvals. They perceived this was a positive driver to the project participants’

motivation as it prevented ambiguity and disputes over variations above GCS scope,

therefore providing some assurance that fair and reasonable variations would be paid.

This was perceived to promote FIM goal commitment as it increased the expectancy

that the GCS could be preserved and project savings could be achieved.

Late Involvement (MD7) The managing contractor representatives believed they were

engaged too late in the design process to fully control the direction of the design and to

provide comprehensive buildability input. This was perceived to have decreased their

opportunities to identify cost-saving design options and secure further construction

savings below their GCS. Although the managing contractor representatives said that

they valued being involved in the design development process, particularly in the GCS

negotiation process, they felt, ideally, they could have been engaged at schematic

design stage to increase their contribution to design. This was supported by Consultant

Representative One, who believed that, if the Managing Contractor had been engaged

earlier, the amount of design reworking that was required during design development

and documentation could have been decreased, saving both time and cost.

As shown in Table 13, these design and construction management drivers did not

significantly impact on FIM motivation as they were assigned as middle- and low-ranked

drivers. The interviewees placed greater emphasis on the positive contractual risk

profile, project relationship and the tender selection process as motivation drivers, which

resulted in the achievement of construction cost savings within the required time and

quality parameters.


The tender selection process yielded only one motivation driver, ‘Value-based Tender’

(MD3 - positive), which was ranked relatively highly at 11.

Value-based Tender (MD3) All interviewees, except Consultant Representative Two,

believed that the selection of the Managing Contractor on both price and non-price


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criteria (under a value-based tender - i.e. selection of tenderers on the value they would

contribute to the project) was a positive driver that promoted the motivation towards the

FIM goal. The evaluation of ability, reputation and experience, as well as the

competitiveness of the managing contractor fees during the invitation to tender and

tender assessment stages, promoted a desire to prove they had been rightly selected.

This motivated the Managing Contractor to strive for the project goals (including

achieving construction savings) and uphold a reputation that could lead to future work.

The subcontractor representatives expressed the view that the Managing Contractor

selected them on similar criteria and this promoted the Contractor/Subcontractor

relationship, as they also felt a desire to prove they had been rightly selected.


The relationship management approach yielded two positive motivation drivers: ‘Future

Work’ (MD2) and ‘Teamwork Meetings’ (MD4). As Table 13 shows, ‘Future Work’ was

the second highest ranked driver with a driver score of 16, while the ‘Teamwork

Meetings’ was the fourth highest, with a positive score of eight. They encouraged the

project relationship between the Client and the Managing Contractor, which promoted

FIM goal motivation.

Future Work (MD2) All interviewees, except Client Representative One, perceived

incentive participant motivation was strongly promoted by the knowledge that the

delivery of the project above BAU may translate into future work opportunities with the

Client for the Managing Contractor. Therefore, the attractiveness of achieving project

savings (below the GCS) was increased for the Managing Contractor through the

potential for future work opportunities.

The managing contractor and consultant representatives also observed that there are

very few managing contractors who have experience in procuring Australian state

government hospital projects. Therefore, reputation and experience were seen to be

particularly important in securing future projects in this area. This driver was also related

to the managing contractor representatives’ perception that the client representatives

valued their effort and would recommend them for future projects if they achieved

outstanding performance, promoting interactional justice.

Teamwork Meetings (MD4) According to the managing contractor and consultant


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representatives and Client Representative Two, the initial teamwork meetings held after

the Managing Contractor was engaged assisted in the development of the project

relationships. These meetings were seen to promote personal commitment to the project

goals, including the delivery of the project below budget (i.e. ‘share of savings’ incentive

goal). According to Managing Contractor Representative Two, the formation of a

harmonious team was largely the result of the high level of professionalism of the team

members. This sentiment was reflected by Managing Contractor Representative One,

who believed that, as they had an established relationship with the Client, the teamwork

meetings were less focused on the relationship building exercises and more on the

proactive development of improved delivery strategies. The consultant representatives

also added that the relationship between the project participants was an essential

component of the successful delivery of the project and complemented the objectives of

the FIM.

In summary, the willingness of the project participants to commit to the FIM goal was

strongly influenced by their desire to promote their reputation and gain future work -

increasing the strength of motivation born purely from the offer of the financial incentive

reward. The initial teamwork meetings, although not as powerful a motivator as future

work, provided a framework to encourage project team member relationships. It also

provided a forum for the development of improved project delivery strategies,

contributing to FIM goal commitment.

7.2.5 FIM Design

The FIM design yielded one negative motivation driver: ‘Single FIM Goal’ (MD8).This

was the lowest ranked driver, with a score of four. The client and managing contractor

representatives stated that the 50:50 savings share was a simple FIM to manage and

the reward participants understood how it functioned, but did not believe that these

characteristics directly impacted on their motivation to achieve the FIM goal.

Single FIM Goal (MD8) According to the consultant representatives and Managing

Contractor Representative One, the single goal of the FIM – to achieve savings below

the nominated GCS - limited the opportunities for the Managing Contractor to be

rewarded in other performance areas. According to Managing Contractor

Representative One, this can result in a perception of unfairness in how performance is


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rewarded. Additionally, the consultant representatives believed that overall project

performance can suffer if the FIM focus is purely on cost performance, to the detriment

of other performance areas such as quality and/or time.

These results suggest that, although ‘Single FIM Goal’ was a low-ranked negative driver

and did not significantly affect the motivation, there was potential to improve the impact

of the FIM by incorporating a multiple goal system - increasing the opportunities for the

Managing Contractor and decreasing the potential for over-emphasis on a single

incentive performance goal.

7.3 CONCLUSIONS

The project participants achieved approximately A$1.2 million in savings below the

GCS, which was shared 50:50 between the Managing Contractor and the Client. As

Figure 16 shows, motivation towards the FIM goals was critically supported by the:

• equitable risk management of the MC-D&CM contract, promoted particularly

through the GCS negotiation process during design development (Stage 1 of

Managing Contractor’s contract) (MD1)

• potential for future work opportunities, inherent in the selection of large

government hospital projects (MD2)

• value-based tender selection process that comprised price and non-price

selection criteria (MD3)

• initial teamwork meetings intended to develop positive relationships between

project team members (MD4)

• clearly documented and rigorous ‘request for change’ and variation approval

process (MD6).


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Figure 16 Project D - Motivation drivers

Despite the achievement of the FIM goal, there were negative motivation drivers

primarily related to the management of design and construction. These were the

communication problems resulting from the large distances between the stakeholder

office locations (MD5) and the late involvement of the Managing Contractor in design

stages, limiting their input to the building design (MD7). The remaining negative driver

was associated with the single goal characteristics of the FIM design (MD8). Although

these negative drivers affected motivation in the project, their impact was offset by the

dominance of the positive motivation drivers, which led to the project coming in well

below budget within the required time and quality parameters.

Late Involvement

Variation Approval

FIM Performance

Achievement of approximately A$1.2 million in cost savings below the GCS; shared 50:50 between the Managing Contractor and the Client.

Stakeholder Locations

Teamwork Meetings

Value-based Tender

Future Work Equitable Risk (+ GCS Negotiation

process)

Impact on FIM

Goal Motivation

LOW

HIGH

Single FIM Goal

Positive Drivers

Negative Drivers

LEGEND


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An important finding was that the Managing Contractor’s motivation was not negatively

impacted by the implementation of a GCS because of the perceived equity in which the

GCS was developed and negotiated. The results suggest that if a GCS is fairly

negotiated (within a similar project context), it can positively promote motivation, as it

offers the Managing Contractor greater ability to predict and manage construction costs

and minimise cost overrun risks.

Goal commitment was a strong indicator on the project - all of the positive motivation

drivers impacted on this indicator. The two highest ranked drivers also impacted on the

perception of interactional justice, strengthening FIM goal motivation. Despite the

problems associated with team communication, the stages of engagement and single

goal characteristics of the FIM, the project participants remained motivated to secure

project savings. Overall, this was attributed to the GCS negotiation process (which led to

the perception of equitable risk allocation), the project relationship that was formed

through the teamwork meetings, the potential for future work and the tender evaluation.

There was a general perception from the project participants that did not share in the

FIM reward (consultants and subcontractors) that they would have valued the

opportunity to be rewarded in the same manner as the Managing Contractor under the

FIM. This suggested that the inclusion of the consultants and subcontractors in the

distribution of the cost savings share may have increased their motivation to assist the

Managing Contractor in improving design and construction efficiency and lowering

construction costs. However, the consultant and subcontractor representatives

expressed that their goal commitment wasn’t decreased by their lack of inclusion in the

FIM, indicating that they were motivated by other project drivers such as the project

relationship and the tender selection approach.

The results suggest that when applying a ‘share of savings’ FIM within a similar project

environment, it is important for client representatives to provide the Managing Contractor

enough time and information to accurately estimate construction costs prior to price

submission. This can minimise the potential for uncontrollable price rises, which can

have a negative impact on motivation to achieve results beyond business-as-usual.

Encouraging accurate cost estimates can positively promote the project relationship, as

the Managing Contractor is less inclined to focus on preserving their financial position

and more inclined to strengthen the relationship with the Client, which can increase goal

commitment.


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The Managing Contractor valued the inclusion of the FIM in the project and found the

financial reward on offer motivating. However, according to these results, they placed

greater emphasis on the project management processes that supported the FIM function

as the basis for their motivation, and less emphasis on the FIM design. This suggests

that it is important for government clients, under similar project conditions, to consider

the overall risk/reward strategy, including the motivation power of future work

opportunities when implementing the FIM. The FIM should not be seen as an

independent initiative, but as an integral part of a suite of project management initiatives

that promote motivation towards the achievement of the FIM goals. Detailed

recommendations on project management initiatives that can improve the impact of the

FIM, based on the findings across all case projects, can be found in Chapter 10.

CHAPTER 8: CROSS-CASE ANALYSIS ________________________________________________________________________________________________

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CHAPTER 8: CROSS-CASE ANALYSIS

The purpose of this chapter is to identify and rank the key motivation drivers that impact

on FIM goal motivation and to explore the project characteristics that influence FIM goal

attainment. Analysis of findings across the case projects will identify trends that can form

the basis of recommendations for government clients in developing incentivised

procurement approaches and the basis for developing detailed research questions to

guide further research.

This chapter is structured into two parts. First, an analysis of the key motivation drivers

is undertaken, derived from the case project results. Second, the key motivation drivers

are analysed in reference to their project sources, i.e. the contract, design and

construction management, tender selection, relationship management and FIM design,

to identify the key areas within the projects that can be manipulated to improve the

impact of financial incentives in the research population.

8.1 ANALYSIS OF KEY MOTIVATION DRIVERS

Table 14 summarises the key motivation drivers to emerge from Projects A-D. Each key

motivation driver is presented with scores and a summary ranking of its impact on each

project.

The summary ranking system (high, mid, low) was used to improve the researcher’s

ability to analyse the key driver rankings across case projects. The drivers with the three

highest weighted-frequency scores in each project were categorised as ‘high’ impact

drivers, while drivers that were ranked fourth to sixth were categorised as ‘medium’

impact drivers. The remaining drivers (seventh and below) were categorised as ‘low’

impact drivers.

The negative and positive drivers associated with a particular driver theme in each case

were combined under a single driver label. For example, ‘Equitable Risk Allocation’ from


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Projects A, C and D and the ‘Inequitable Risk Allocation’ from Project B are combined to

form ‘Risk Allocation’ as a key motivation driver. Negative driver scores were added,

rather than subtracted, to the total driver score, to reflect its importance.

The overall driver score shown in the extreme right-hand column of Table 14 is a

summation of the scores from all case projects for each key driver. An additive approach

was used to determine the key driver rankings from the case project driver scores. The

motivation drivers that were mentioned by two or more interviewees on two or more

case projects and pertained to the project characteristics that were common to all cases

were classed as key drivers. Focusing on the key drivers derived from common project

characteristics across all cases, improved the generalisability of the thesis findings

across the research population. Also, by defining the key drivers in this way,

comparative analysis could be conducted to assess their relative impact. Each of the

key drivers had a total maximum impact score of 208 across the four case projects.

Eight key motivation drivers were identified and ranked through the summation of driver

scores across Projects A to D.


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Table 14 Key motivation drivers (Projects A-D)

Project Key Motivation Driver

A B

C D Total

Score

6 24 14 17 61 MD1. Risk Allocation

An equitable risk profile of the Managing Contractor contract; improving the contractor’s ability to adequately manage project cost risks.

Ranking Low High High High

Score 20 10 10 16 56 MD2. Future Work

Potential for future work with the government client; increasing the attractiveness of achieving above BAU performance.

Ranking High Mid Mid High

Score

16 10 14 8 48 MD3. Relationship Workshops

Initial relationship workshops that form the project relationships and establish a ‘best for project’ team culture promoting project goal commitment.

Ranking High Mid High Mid

Score

11 20 9 5 45 MD4. Design Involvement

Early involvement of the Managing Contractor and, if applicable, key subcontractors in the design development and documentation stages to manage design and construction integration risks.

Ranking Mid High Low Mid

Score 8 8 13 11 40 MD5. Value-driven Selection

A ‘value-driven’ tender selection process, containing non-price criteria that promotes the selection of the best tenderer based on the project priorities and not only on lowest price.

Ranking Low Low High High

Score 9 13 16 0 38 MD6. FIM Flexibility

Ability to modify FIM goals and measurement process to allow for unforeseen changes in the project environment and prevent the FIM becoming ‘unachievable’.

Ranking Low Mid High Low


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Case Project Key Motivation Driver

A B

C D Total

Score

12 17 0 4 33 MD7. FIM Goal Opportunities

The application of a multiple goal FIM that increases the opportunities available to the project participants to secure the incentive and prevent manipulation.

Ranking Mid High Low Mid

Score

0 7 12 0 19 MD8. Reward Distribution

Distribution of financial incentive to all team members who had input in achieving the financial incentive goals, including consultants and subcontractors if applicable. Reward distribution amount valued by the reward participants.

Ranking Low Low Mid Low

Key:

Positive Driver Negative Driver

Driver not identified in project

The five highest ranking drivers were active on all four projects suggesting significant

impact in the research population. The highest ranking of these was ‘Risk Allocation’,

indicating that the FIM goal motivation is significantly affected by how construction cost

risks were allocated and managed in the projects. Equitable allocation of construction

cost risks was not only seen to improve the ability of the project participants to achieve

the FIM goals (inducing goal commitment), but also instilled a perception that the

government’s behaviour was fair in providing the best opportunity to do so.

The second and third ranked drivers were ‘Future Work’ and ‘Relationship Workshops’.

These results suggested that the quality of the project relationship significantly impacts

on the project participants’ motivation. A strong working relationship between the key

project participants has the potential to increase motivation on a large building project,

which includes the motivation directed at achieving the FIM goals.

The fourth ranked driver: ‘Design Involvement’ suggested that involving the Managing


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Contractor and subcontractors early in the design stages (with engagement as early as

schematic design) can improve project participants’ ability to effectively manage the

integration of design and construction, which increased expectancy levels that FIM goals

would be achieved, thereby promoting motivation.

‘Value-driven Selection’ was ranked fifth and the results suggest that a tender selection

process that evaluates the suitability of a tenderer on non-price criteria, most commonly

on experience and ability, can have a positive impact on motivation towards the FIM

goals. Non-price criteria selection was perceived across all projects to instil a desire in

the project participants to prove they had been rightly selected and to uphold their

reputation as experienced and capable professionals – which translated into FIM goal

motivation.

‘FIM Design Flexibility’ (ranked sixth) was identified as a key motivation driver (identified

in three of the four projects), indicating that the ability of the government client to modify

the characteristics of the FIM influences its impact on motivation. An FIM design that

can be altered to allow for unforeseen changes in the project conditions (such as an

uncontrollable price rise) can prevent the FIM goals from becoming unattainable, which

would otherwise lead to lower motivation and potential FIM failure (as occurred in

Project B). FIM flexibility may have been not been a motivation driver on Project D

because of the success of the GCS negotiation period; improving the opportunity for the

incentive participants to achieve the FIM goals without design alteration.

According to three out of four project results, the driver ‘FIM Goal Opportunities’ (ranked

seventh) increases the project participants’ opportunities to achieve the incentive

reward, therefore increasing their expectancy levels and promoting motivation. These

results also suggest that an FIM goal system that rewards participants’ performance in

multiple areas can more accurately represent the overall project objectives, potentially

inducing increased motivation.

Finally, an equitable ‘FIM Distribution’ (ranked eighth) was perceived to be a motivation

driver in two of the four projects. As expected, an equitable distribution of the financial

incentive to the deserving parties was found to positively influence motivation in Project

B, while in Project C, the exclusion of key project participants in the FIM distribution was

seen to be detrimental to the project team’s motivation as there was no reward amount

on offer to them. Although the equitable distribution of the incentive reward was a key

motivation driver, its low overall ranking suggests that incentive reward distribution did


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not impact on motivation towards the incentive goals as much as other project

motivators such as an equitable risk allocation or the project relationship.

8.2 ANALYSIS OF PROJECT SOURCES

Table 15 presents the key motivation drivers with their corresponding project sources,

the applicable case projects and total scores.

Table 15 Summary of key motivation drivers and project sources (Projects A-D)

Key Motivation Driver Project Source Case Project Identified

Total Score

1. Risk Allocation Contract A,B,C,D 61

2. Future Work Relationship A,B,C,D 56

3. Relationship Workshops

Relationship A,B,C,D 48

4. Design Involvement Design and Construction Management

A,B,C,D 45

5. Value-driven Selection Tender Selection A,B,C,D 40

6. FIM Flexibility FIM Design A,B,C 38

7. FIM Goal Opportunities FIM Design A,B,D 33

8. Reward Distribution FIM Design A,C 19

The following sections analyse in detail the key motivation drivers in the context of their

project sources.


‘Risk Allocation’ was the only driver that arose from the project contract design. It

attained the highest rank of all key drivers. Motivation was heavily influenced by the

perceived equity of risk allocation between the project parties, particularly between the

government client and the managing contractor. This risk allocation was primarily related

to the risks associated with cost. Despite differences in the contract structure across the


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various projects, the process by which cost risk was managed and allocated strongly

impacted on FIM goal motivation.

Key Driver 1: Risk Allocation

Each of the projects had their own specific contractual arrangements. Under their

contracts, the managing contractors in Projects B and D took on a greater share of

construction cost risk, than in Projects A and C. As the government clients took on a

majority of construction cost risks in Projects A and C, the participants in these projects

perceived that project cost risks could be adequately managed by the team, without

placing a GCS obligation in the Managing Contractor contract. This was seen to improve

the managing contractors’ ability to achieve the goals, as they were less likely to be

focused on their own financial liabilities, and more likely to perceive the client behaviour

as fair. They were thus less likely to try to transfer risk and appreciated the greater role

played by the government clients in the project team’s decisions to manage design and

construction risks.

Despite this strong motivation in Projects A and C, the findings also suggest that a

perception of equitable risk can be achieved in projects under an MC-D&CM (GCS)

contract, whereby the managing contractor must not exceed a nominated GCS. The

distinguishing factor between the allocations of risk in the two MC-D&CM (GCS) projects

(Projects B and D) was that in Project B, there was a limited amount of negotiation

between when the GCS was nominated and agreed, while in Project D, there was an

extensive GCS negotiation process prior to the settlement of the agreement.

In Project B, the construction team perceived their cost risks were uncontrollable under

the project conditions, partly because of inaccuracies in the GCS relating to rising

subcontractor market prices. The inequity in the cost risk was the highest ranked

negative driver in Project B, and strongly influenced the failure of the project participants

to achieve the FIM goals by the conclusion of the project. However, it was the opposite

situation in Project D, where the extensive GCS negotiation process, which culminated

at the completion of design development, provided the opportunity for the Managing

Contractor to agree to a fair and reasonable GCS based on a well-developed design

and their knowledge of labour market conditions.

Although the State Government transferred all the construction cost overrun risk to the

Managing Contractor through the application of a GCS in Project D, the results suggest


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that the intensive negotiation process for the GCS (during design development and

documentation) ensured the GCS was more accurate in relation to the market conditions

and the design complexity, thereby minimising the potential for cost overrun. Turner

(2004, p.81) argues that the risk allocation of a standard GCS type contract de-

motivates contractors because the cost overrun risks are heavily weighted in the client’s

favour. However, the findings here suggest that if a GCS is more fairly negotiated, it can

positively promote motivation, as it offers the managing contractor greater ability to

predict and manage construction costs. Therefore, if the Managing Contractor was

provided the opportunity to partake in an extensive GCS negotiation process during the

design stages in Project B, allowing the development of a fair and reasonable GCS, it

may have ‘brought reality back’ to the construction cost estimates. This could have

improved the contractor’s ability to manage cost risks and achieve the project’s

stretched-scope incentive goals.


One key motivation driver was identified within the design and construction management

stages, focusing on the effectiveness of design development (‘Design Involvement’); this

driver was ranked fourth overall.

Key Driver 4: Design Involvement

Early involvement of the managing contractor and key subcontractors in the design

development and documentation stages can promote FIM goal motivation. Due to the

complexity of the designs in the projects, the consensus of the managing contractors

and consultant representatives was that the managing contractor should be engaged no

later than design development and, at best, during schematic design, to improve the

effectiveness of the design development process and to improve the perception that FIM

goals can be attained.

In Project A, the involvement of the Managing Contractor and key subcontractors in

design development and documentation was seen to improve the design team’s ability

to fast-track the design and manage the integration of design and construction by

providing buildability advice. It was the only project in this study to comprehensively

include the key subcontractors in the design stages, which increased the Managing

Contractor’s effectiveness in identifying value-added design options.


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Projects B and C experienced documentation issues that were attributed to late

contractor and subcontractor involvement. These may have been resolved if the

managing contractors and key subcontractors had been engaged earlier, minimising the

level of design rework required during the documentation stage.

The impact of this driver was greater under the financial pressures experienced in

Project B, where it was assigned a high ranking. The results for Project B suggest that if

key subcontractors had been engaged under a two-stage tender to provide input to the

design and to negotiate their subcontractor price, it may have minimised the effects of

the sudden subcontractor price escalations and improved the accuracy of the cost

estimates.

Project D results also indicate that if the Managing Contractor had been engaged earlier,

the level of design reworking could have been lower, reducing design costs. However,

the ‘Design Involvement’ driver was assigned a mid-low ranking. This can be attributed

to the effectiveness of the price negotiation process at the end of design development,

which allowed the Managing Contractor to negotiate design changes in line with the

GCS, preventing design cost escalation.

This key motivation driver was perceived to directly impact on the project participants’

ability to manage their performance. This suggests that increasing the project

participants’ control over their performance by actively incorporating the managing

contractor and key subcontractors in design development is likely to result in increased

motivation towards achieving FIM goals due to higher expectations that the goals can be

achieved.


One key motivation driver was identified in the tender selection process, focused on the

tender evaluation (“Value-driven Selection”); this driver was ranked fifth overall.

Key Driver 5: Value-driven Selection

It was identified across all four projects that the selection of project participants based

on their ability to add value to the project (rather than the traditional price-focused tender

selection) increased the project participants’ expectations that FIM goals could be

achieved, promoting commitment and motivation. This was due to a perception that


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fellow project team members would be willing to align with the team objectives and meet

the client expectations by which they were selected. The two key elements of the value-

driven selection process in the projects comprised contractor and consultant selection

based on non-price criteria and the matching of project team capabilities and experience

with the primary project objectives (including the FIM goals). The tender selection

process on all four projects emphasised non-price criteria such as previous

performance, and ability aligned with the project objectives. This instilled an inherent

desire for project participants (both individually and organisationally) to demonstrate to

the government client, that they had been rightly selected based on their capability and

competency, and to uphold their reputation in the delivery of a high-risk

significant project.

Although tender price evaluation was a component of the selection process in all

projects, according to the interviewees, the non-price selection components had a

greater impact on project participants’ motivation towards project goals. This can be

explained by a general acknowledgement across contractor and consultant

interviewees, that there are ‘higher-level’ project team capabilities required to deliver

exceptional performance on large high-risk building projects. Interviewees considered

that government clients should therefore be less focused on tender price assessment

and more focused on a ‘value for money’ assessment; or the value the tenderer would

contribute to the project for the tendered amount. This can result in greater expectations

and attractiveness of goal attainment within the project team, and higher levels of

commitment and motivation.

This driver was ranked differently across the projects. In Projects A and B it was ranked

relatively low reflecting less emphasis on non-price criteria in the tender selection

approach, while for Projects C and D, it was a high ranking driver. As the breakdown of

the non-price component of the tender criteria was not fully disclosed to the researcher

in Projects C and D due to confidentiality, there is no direct explanation why these

interviewees placed greater emphasis on this driver. However, despite the potential

difference in how the tender selection criteria were structured, the non-price components

were important in aligning parties’ objectives and promoting FIM goal motivation across

all projects. Future research into the specific features of a value-based tender selection

process and its impact on motivation in the research population is required.


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It was determined from all projects that the project team relationship and supporting

processes played a vital role in promoting motivation towards the achievement of the

FIM goals. There were two areas within the relationship management area that were

seen by the project participants to significantly promote motivation. These were ‘Future

Work’, ranked second and ‘Relationship Workshops’, ranked third.

Key Driver 2: Future Work

The potential for future work with the government client was a strong motivation driver.

This driver was related to the desire to uphold and improve reputation so as to increase

future commercial opportunities. This was particularly relevant to this research

population, as state governments in Australia are major repeat clients. It is likely that the

desire to strengthen reputation with these clients would be stronger than with clients

who are less likely to provide further work opportunities.

The strength of this driver was particularly evident in the project outcomes for Project B.

Although the FIM goals were not achieved on the project, the team achieved relatively

high project performance under ‘crisis’ conditions, in which the Managing Contractor

was willing to absorb significant financial losses. According to the managing contractor

representatives, this was primarily due to their long-term relationship with the State

Government and their wish to be favourably looked upon for future government projects,

even at the expense of short-term profits.

‘Future Work’ was a high-level motivation driver in Projects A and D, and a middle

ranking driver in Projects B and C. The high ranking in Project A was due to the fact that

the project team was reappointed to Stage B of the hospital redevelopment project due

to their high performance in Stage A. The informal discussions that occurred between

the Government Client and the Managing Contractor and consultants about the potential

to be viewed favourably for Stage B, justified through auditable performance reporting,

intensified the motivation induced by this driver. Also, it is suggested that the strong

motivational impact of this driver in Project D was due to the importance placed on

experience by clients in assessing state government hospital projects. According to the

managing contractor and consultant representatives, there are very few contractors who

have experience on state government hospital projects, and therefore, reputation and

experience is seen to be particularly important in securing future projects in this area.


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The analysis of this driver suggests that rewarding high performance by improving future

work opportunities can intensify the willingness of project participants to commit to the

project relationship and promotes motivation, in this case, towards the achievement of

the FIM goals. However, government clients need to be aware that there are significant

probity (or procedural integrity) issues associated with offering ongoing work

opportunities to contractors and consultants.

Procurement policies in each Australian state government require departments to be

accountable and transparent in their appointment decisions, which can place constraints

on adopting more flexible contracting approaches, such as strategic partnering

relationships. However, the action taken by the Government Client in Project A (with the

reappointment of the high performers for Stage B of the hospital redevelopment)

provides evidence that probity and transparency can be upheld when performance

reporting is used to justify reappointment in a staged project arrangement. This allows

the client to capitalise on the benefits of repeat inter-organisational interactions such as

continuous improvement, improved relational quality and motivation.

Key Driver 3: Relationship Workshops

It was evident that although each project had varying relationship development

processes, each had an initial relationship workshop and informal relationship

monitoring which induced very good levels of relational quality. This relational quality, in

turn, promoted motivation towards the project goals, including the FIM goals. The

importance placed on strong relationships as a major determinant of motivation in these

projects shows that without strong relational quality, the impact of the FIM on motivation

can be decreased.

In Projects A and C, the delivery approach placed greater emphasis on the development

of the project relationship, with more intensive relationship workshops than in Projects B

and D (which each had only one relationship meeting after the managing contractor was

engaged). The research suggests that the greater the level of team building developed

through ongoing relationship workshops, the greater the impact on FIM motivation – as

this driver was ranked high in Projects A and C, while it was a mid-ranked driver in

Projects B and D.

In summary, the results suggest that this motivation driver, in combination with a

supporting project management structure and a tender selection process during project


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delivery, can induce personal commitment to the deliverables on the project, beyond the

organisational goals of each individual participant. This commitment intensified the level

of motivation induced through the financial incentive reward and developed the

attitudinal prerequisites required under a relationship contracting approach.

The high/mid ranking of the ‘Relationship Workshop’ driver across all projects and the

emphasis placed on the importance of the project relationship to motivation towards

above BAU project goals by the interviewees, outweighed the impact of the FIM design

drivers. These results suggest that without a strong project relationship, the FIM and its

reward intention can be misconstrued, significantly hampering its impact on motivation.

Therefore, development of the project relationship should be a core element of a

procurement approach that incorporates FIMs.

8.2.5 FIM Design

The majority of reward participants held the offer of the financial incentive in high

esteem and were directly motivated by its reward. The FIMs applied in the projects

varied in their reward amounts, goals, distribution and measurement processes. Despite

this, there were common components of the FIM design across the projects that were

seen to promote/discourage motivation. These components were associated with the

flexibility of the FIM to meet changing project priorities (‘FIM Flexibility’), the goal

opportunities to achieve the FIM reward (‘FIM Goal Opportunities’) and the fairness of

the incentive reward and its distribution design across all the project participants

(‘Reward Distribution’). ‘FIM Flexibility’ was ranked sixth, ‘FIM Goal Opportunities’ was

ranked seventh, and ‘Reward Distribution’ was ranked eighth.

Motivation Driver 6: FIM Flexibility

FIM impact is influenced by participant perceptions about the FIM design and whether

the government client has the ability to adjust the FIM design to suit changing project

conditions, that is, to maintain the relevance of the incentive goals and/or measurement

processes. In Project C, the flexibility of the FIM, displayed through the introduction of

the Acceleration Agreement late in the construction stages, strongly promoted

motivation (it was the highest ranked driver in Project C). The agreement was perceived

to ‘bring reality back’ to the incentive measurement process and improve the

participants’ expectations that they were still able to achieve the goals, despite the


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presence of unforeseen and uncontrollable project factors such as early inaccuracies in

the Government budget.

In Projects A and B, a lack of flexibility in the FIM goal and measurement process

impacted negatively on the project participants’ perception of incentive fairness and

measurement accuracy. In Project A, the FIM goals/benchmarks set by the participants

early in the project were overtaken by changing project circumstances and could not be

renegotiated, making benchmarks more difficult to achieve than expected. This driver’s

negative impact on overall motivation in Project A was low. Despite the lack of goal

flexibility, the majority of FIM goals were achieved by the end of the project.

On the other hand, FIM measurement inflexibility had a strong negative impact in Project

B. The majority of the project team agreed that the Client’s ‘exponential function’ FIM

performance measurement system (see Section 5.1.7 for further details) was an

unsuitable measurement system under the difficult financial conditions experienced in

the project. This negatively impacted on motivation towards achieving the performance

goals. It can be predicted that if greater flexibility was allowed in the FIM measurement

process in Project B, and the performance objectives were altered to align with the

changing project environment (rising contractor construction costs), the project

participants’ motivation towards the FIM goal priorities may have been increased. This

did not occur, resulting in the participants’ perception that performance goals were

unattainable, in turn, resulting in FIM failure. This failure was also due to the financial

difficulties experienced by the Managing Contractor, which may have intensified the

perception of inflexibility in the incentive measurement process, explaining the driver’s

higher ranking in Project B, compared to Project A.

Key Driver 7: FIM Goal Opportunities

In Project A, aligning multiple FIM performance goals with project priorities gave the

project participants considerable control over their performance, as there was a wide

range of opportunities to secure the financial incentive, resulting in improved levels of

FIM goal motivation. Also, the multiple goal system in Project A allowed the participants

to focus their efforts on the goals relevant to current project priorities, such as meeting

the Furniture, Fit-out and Equipment (FFE) requirements when shortfalls in the FFE

budget were identified in the construction stage, without surrendering opportunities to

secure the financial incentive. This was a middle ranking driver on Project A. The

analysis of this project also showed that the project participants’ involvement in setting


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the financial incentive goals through the FIM development workshops ensured that the

FIM goals, measurement procedures and reward outcomes were aligned with the

project objectives.

In Project B, however, the project participants felt that the single stretched-scope goal

was too restricted, and did not take account of their performance in the key project

priority areas. The perceived injustice in the development of the goals negatively

impacted on motivation and FIM goal commitment. This was a high ranking driver on

Project C, reflecting the team’s perception of unfairness over their failure to be offered

an incentive reward for their performance in areas outside the scope of the FIM. While

they were unable to attain the stretched-scope incentive goal, they achieved high project

performance in other areas such as schedule performance and design and construction

quality (according to the client representatives) under significant financial difficulties (the

Managing Contractor made a loss on the project).

Project D had an FIM measured on cost performance only, that was identified as a

negative motivation driver. However, it was a mid-low ranking driver in the project and

did not significantly impact on motivation. As Project D had very similar incentive and

contractual arrangements to Project B, it is unclear why their results are inconsistent

(driver was high ranking on Project B). This may have been due to the financial

difficulties realised early in Project B by the design and construction team, which

compounded the perception of unfairness and dissatisfaction towards the single goal

incentive. On the other hand, Project D was a relatively smooth-running project, which

did not experience Project B’s financial hardships. Therefore, the negative perception of

the single goal incentive was not as strong – as the FIM goal remained achievable

throughout the project. Future research may gather more conclusive evidence of the

effects of this driver.

Key Driver 8: Reward Distribution

On Projects B and C, the design of the FIM distribution impacted on motivation towards

the FIM goals. Project B’s results suggested that the project participants valued and

were motivated by the Government Client’s decision to allow the project team to decide

how the FIM amount would be distributed. Allowing the project participants to ‘self-

assess’ their contribution as a team and determine how the FIM would be distributed

had the potential to improve distributive justice perceptions. These perceptions

unfortunately were unrealised when the project participants identified that the FIM goals


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were unachievable due to the difficult financial conditions born out of the rising

subcontractor costs in the project. The inability for the project participants to control their

performance and achieve the FIM goals on the project limited the impact of this driver,

as the distribution plan would not be executed, resulting in its low ranking in Project B.

In Project C, the exclusion of key project participants from the FIM distribution design

was seen to be detrimental to the participants’ motivation and was a mid-ranked

negative driver. This was a distributive justice issue, stemming from the Managing

Contractor’s belief that the consultants and subcontractors should have been offered a

reward share in the innovation component of the FIM as they had assisted in identifying

value-adding innovations. The consultant and subcontractor representatives also

perceived that they deserved to be rewarded for their contribution. Even so, project

participants excluded from receiving FIM rewards remained motivated to assist the

Managing Contractor in identifying value-adding innovations due to the strong project

relationship. It cannot be speculated if the motivational strength of the excluded

participants would have been greater if distribution equity had been restored, but the

results do suggest that overall perceptions of distribution inequity has the potential to

negatively impact on the motivation of the team. Following on from that, it also suggests

that a strong project relationship can minimise the motivation deficits caused by FIM

distribution inequity.

This finding does not undermine the motivational power of FIMs, rather it suggests that

both equitable FIM arrangement (with a valued reward) and strong project relationships

are complementary in positively promoting motivation towards the FIM goals across the

entire project team

8.3 SUMMARY

The results of this primarily qualitative analysis indicate that the motivational

environment of an Australian government large building project is complex and therefore

it cannot be assumed that motivation is automatically assured if an FIM is present. The

results suggest that the FIM should be considered as only one part of the procurement

strategy and that, if key areas which promote motivation toward FIM goals are not

considered in the development of the project delivery approach, it may result in less than

ideal FIM performance.


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This chapter has identified the key motivation drivers (1-8) and their relative impact on

FIM goal motivation based on the data derived from Projects A to D. This chapter has

also discussed the key drivers in the context of the project sources which gave rise to

them. This has provided the opportunity to determine the key areas within the project

that have commonly impacted on FIM goal motivation, and has shown how the

differences in the project contexts have impacted on the impact of the FIM.

The findings from this exploratory research suggest that, despite the differences in

project contexts (comprising project scope, project participants, contract, project

management arrangements and FIM design), there are fundamental requirements within

the project design and delivery that should be considered in the application of an FIM

that will support and complement its positive nature. These include:

• consideration of equitable contract risk allocation and management;

• the scope for future work opportunities;

• the quality of project relationships promoted by relationship workshops;

• early contactor design involvement;

• value-driven tender selection processes.

The above features of the procurement approach are important to motivation as they

mediate the ability (and expectancy) of the project participants to achieve the FIM goals.

Also, the underlying inter-organisational relational quality significantly impacts on the

level of motivation that project participants will produce towards the FIM goals as it

influences the attractiveness of goal attainment and perceptions of fair treatment. If FIMs

are applied in large building projects that do not promote the development of a robust

project relationship, it can lead to the project participants questioning the integrity of the

FIM, potentially resulting in significantly lower motivation strength, despite the level of

the financial reward on offer.

General discussions with the government client representatives in the research

interviews revealed a lack of clarity in how financial incentives should be optimally

applied in Australian government large building projects. All perceived it as a positive

addition to the procurement approach that was generally valued by the project

participants, but thought that due to the complexities of the inter-organisational

interactions there was a risk that the higher order FIM goals would not be achieved.


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Due to the voluntary nature of FIMs, there will always be the risk that project participants

will choose not to pursue the above BAU incentive goals. However, these results

indicate that if government client managers promote a relationship-based procurement

approach (including an FIM), that supports and rewards high achievement while

managing project risk, motivation can be accelerated – resulting in increased

performance levels.


of an Australian government large building project and the impact of FIMs as a part of

the procurement strategy. The clear implication from this investigation is that there are

several key project factors that can significantly impact on motivation towards FIM goals,

most notably through the allocation of contractual risk and the operation of the project

relationships. The next chapter discusses the research findings in the context of current

research and explores the design and delivery implications of these findings.

CHAPTER 9: DISCUSSION ________________________________________________________________________________________________

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CHAPTER 9: DISCUSSION

This chapter discusses how project activities can be managed, in the light of the

research findings, to maximise FIM impact and project performance, employing current

literature on motivation, inter-organisational management and construction

management. Each of the five project sources is considered: contract, design and

construction management, tender selection, relationship management and FIM design.

9.1 CONTRACT DESIGN

The contract is the mechanism by which the client (principal) aims to motivate the

contractors (agents) to achieve their objectives. Large and complex one-off construction

projects are often very risky, due to a high level of technical uncertainty where total

costs are influenced by a wide range of unforeseen risks (Olsen and Osmundsen, 2003,

p.511). So, the client should select the type of contract that will most effectively motivate

the contractor to the desired results, while considering the levels of risk (Zaghloul and

Hartman, 2003, p.419-420).

According to the economics of contracting based on transaction cost principles, an

effective contract strategy to promote motivation depends on the contract’s ability to

incentivise contractors and safeguard risks in advance (ex ante incentivisation) and

remain flexible to manage unforeseen risks throughout the project (ex post governance)

(Turner, 2004, p.76). As a contract is designed under conditions of imperfect and

asymmetrically distributed information (Williamson, 1996, p.136), with the threat that a

contract party may behave opportunistically to exploit their information advantage, ex

ante incentivisation needs to be strong enough to prevent ‘negative’ motivation and

opportunistic behaviour. Also, as much of the construction project risk is endogenous

(internally influenced by specification and planning), the risk allocation and

incentivisation should be heavily based on the level of specification and planning ex ante

(Olsen and Osmundsen, 2003, p.2). Motivation and project performance will depend on

the balance between risk allocation and incentivisation (risk/reward ratio), based on the


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level of uncertainty within a contract and governance structures within the project to

manage the risk borne by the contract agent.

All projects in this study were deemed high risk from their outset. This was primarily due

to a minimal level of detailed design and engineering specification prior to the managing

contractor tender. This approach was intended to fast track the commencement of

construction, but introduced the possibility of cost overruns due to redesign

requirements, estimate failures and unforeseen construction complexities. The

introduction of an FIM in the project contract aimed to motivate the project participants to

manage this risk and pursue above BAU project goals (client goal alignment). However,

the results suggest that without an equitable allocation of risk ex ante, in line with the

financial incentives that were offered, the project participants were less motivated to

achieve the higher order project goals.

The perception of an unfair and uncontrollable risk profile can result in project

participants’ unwillingness to strive for higher performance levels because of the high

uncertainty that they will be able to achieve the goals and be rewarded for their effort (as

experienced in the failed FIM of Project B). This finding is supportive of the general

comments made by the Australian Constructors Association (ACA, 1999, p.16), that a

relationship-based contract has a high chance of failure if clients attempt to transfer all

cost risk to the contractor; or if the contractor seeks higher returns without accepting an

equitable percentage of risk.

FIMs are voluntary - the performance of the project participants solely depends on their

motivation to pursue its goals and the incentive reward. Without incentivisation and a

perception by participants that they can control the risks associated with goal

achievement, FIMs can fail.

The reluctance of construction clients to carry project risks, and their attempts to transfer

them to the contractor via disclaimer clauses such as the GCS clause, can also result in

the client paying large premiums for risks that may never arise (Zaghloul and Hartman,

2003, p.420). Premiums in tender prices (hidden costs) aim to balance the risk that the

contractor believes they will carry, including uncontrollable (unforeseen) risks. Not only

does the introduction of disclaimer clauses increase the cost of design and construction,

it can also result in the contractor pursuing a defensive self-interest position within the

project, potentially leading to adversarial relationships (Zaghloul and Hartman, 2003,

p.420). The client representatives in Projects A and C identified the potential for a


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higher tender price as the reason why they did not include a GCS clause in the

managing contractor’s contract. This was poignantly expressed by client representative

one in Project A:

‘Relationship contracting just doesn’t gel with the idea of GCS-type contracts. If

you expect them [the Managing Contractor] to take on all the risk for unforeseen

issues they will load their price accordingly. So you will end up paying for

something that may never happen. So we think that is bad value management.

The theory in our state - and I don’t think it is shared across other governments - is

that it is better to pay for it if it happens rather than pay for it if it doesn’t happen.’

Turner (2004, p76) states that the contract should be designed to ‘encourage the owner

and contractor to act rationally together to achieve common objectives, and the best

outcome for both within the expected risk’. Project risk, therefore, should be allocated

and managed according to its ability to promote rational behaviour and cooperation.

Similarly, Rahman et al. (2003) stressed the importance of a joint risk sharing approach

in the efficient management of unforeseen risk, and development of a cooperative and

integrated project team. The thesis findings support these conclusions in the context of a

Managing Contractor contract that incorporates FIMs.

The thesis findings also suggest that to fully promote motivation towards the FIM goals

and induce project team cooperation, the overall contract strategy should be directed at

equitably sharing the foreseeable and unforeseeable risks between the client and the

managing contractor. This will not only provide effective incentivisation as risks will be

perceived to be controllable ex ante, but can also promote teamwork in the management

of unforeseeable risks as a project unit. Equitable risk sharing clearly has the potential to

decrease the client’s design and construction costs as contractor risk premiums may be

less. Turner and Muller (2003, p.7) identified a construction project team as a ‘temporary

organisation’, whose performance depends on a climate of cooperation to achieve

project goals. The construction contract should reflect this unity through the equitable

allocation of project risk to promote high level project performance.

The implication of this discussion for government client managers is that to improve the

impact of the FIM on motivation, it should be incorporated into a contract with an

equitable allocation of project risk ex ante. The FIM should also be aligned with a

governance approach that is perceived by the managing contractor to offer an effective

joint management strategy for unforseen risks. For the project participant, this will


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promote the perception that performance can be controlled and that unforeseeable risks

will be efficiently managed as a project unit. Also, government clients should seriously

consider maximising the managing contractor’s design and constructability knowledge

and information by facilitating their involvement in project planning and specification

prior to the agreement of the contract price, especially if they want the managing

contractor to take on a larger share of the construction cost risk.

9.2 DESIGN AND CONSTRUCTION MANAGEMENT

In this research, the design and construction management processes influenced how

much control the project participants had over their performance (and how they

managed project risks), throughout the design and construction stages. As goal

commitment is a major indicator of motivation, Hollenbeck and Klein (1987, p.213)

defined two major antecedents of the goal commitment process (originally

conceptualised by Locke et al. (1981)). These were the attractiveness of goal attainment

and the expectancy of goal attainment. In a construction project, the efficiency of the

design and construction management process, aligned with the incentivised contract,

determined the expectancy of FIM goal attainment (through the evaluation of the project

team’s ability, goal difficulty and performance constraints). It also established

perceptions of justice in relation to the operation of the FIM (goals, measurement

process and distribution fairness). This thesis finds that a design and construction

management process that promotes the project participants’ ability to achieve the FIM

goals and maintains fairness and equity in inter-organisational interactions throughout

the project will increase the chances for FIM goal achievement.

In the four projects reviewed in this research, the design specifications were incomplete

at managing contractor tender stage due to the need to fast-track the commencement of

construction and obtain the managing contractors’ input in design. The involvement of

the managing contractor in the design process improved the integration of

design/construction due to their provision of buildability advice to the design team. This

directly impacted on project participants’ expectancy perceptions, as the managing

contractors’ (and subcontractors’ in Project A) involvement in design development

improved the participants’ chances to achieve the incentive goals.

Also, the involvement of the managing contractor as early as possible in the design


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stage was perceived across all the projects to promote early teamwork and establish a

cooperative project environment. Research by Sidwell and Kennedy (2004, p.15-16)

similarly found that front end integration and coordination of the project team at the early

design stages (including consultants) improves the certainty of construction outcomes.

In summary, government client managers should consider integrating the construction

team as early as possible in the design stages (interviewees recommended as early as

schematic design). This will enhance the integration of design and construction (lower

risks) and enhance the responsiveness of the project team (increased level of design

specification). Project participants’ perception that FIM goals are achievable will also be

improved, promoting motivation towards the FIM goals.

9.3 TENDER SELECTION

In western countries, government clients are increasing their reliance on value-based

non-price selection criteria, despite their long tradition with lowest bid selection (Waara

and Brochner, 2006, p.797; Holt et al., 1995, p.558-560). In Australia, researchers have

concluded that government construction clients are moving away from price-focused

tender selection, instead selecting on previous performance and ability (Sidwell and

Kennedy, 2004, p.12). Australian research also emphasises the importance of value-

based tender selection in combination with an integrated project team within

relationship-based projects (Ng et al., 2002, p.444; ACA, 1999, p.31).

In all the projects studied here, contractor selection processes included non-price

criteria, which according to the client representatives, were intended to improve the

quality of the tenderers given the high uncertainty about the design at the tender stages.

The non-price criteria aimed to match project team capacity and experience with the

project objectives.

According to the thesis results, the ‘value-driven’ selection approach increased

expectations that FIM goals could be achieved, as team members had confidence they

could rely on each others’ skills and thus felt they could all remain aligned with the ‘best

for project’ objectives throughout the project duration. Similarly, research on a recent

Australian building alliance project (reportedly the first in the world) found that selecting

alliance members on their willingness to align with a ‘best-for-project’ culture (i.e. those

most likely to perform in the best interest of the project and to embrace a cooperative


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team approach) was crucial to project success (Walker and Hampson, 2003, p.58).

Project participants who were selected on the value they could contribute to the project,

in terms of their competence and ability, felt a strong desire (both individually and

organisationally) to support their reputations and demonstrate to the government client

that they had been rightly selected. The thesis results show that such a selection

process supports the development of effective project relationships and helps set the

background for motivation born from future work opportunities. A construction team

member’s reputation from past projects can be a key asset in non-price tender selection

processes. The use of non-price selection enhances the value of reputation which

enhances the team motivation to maximise project performance, creating an effective

effort and reward loop.

For confidentiality reasons, the relative weightings of the non-price and price criteria

cannot be disclosed. However, it is clear that transparent non-price criteria in a value-

driven tender selection process can positively promote motivation towards FIM goals.

Such criteria should be based on experience, competence and ability to achieve project

objectives and align with the project relationship.

9.4 RELATIONSHIP MANAGEMENT

Construction supply chains are highly fragmented (Mitropoulos and Tatum, 2000, p.48)

and typically characterised by disjointed relationships between contracting parties,

misalignment of objectives and risk-averse behaviours (Rahman and Kumaraswamy,

2004, p.147).

In the Australian construction industry, there has been a call by industry for procurement

approaches that promote greater collaboration and heightened relationships between

project teams (Hampson and Brandon, 2004, p.16-17). Relational contracting has been

introduced with the aim of promoting collaboration, teamwork and motivation towards

unified project goals.

There is a great deal of construction research literature heralding the performance

benefits of establishing collaborative inter-organisational relationships between key

project participants (eg. Kadefors, 2004; ACA, 1999; Bennett and Jayes, 1998). All

relational contracting approaches are based on the recognition of mutual benefits in


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sustaining cooperation between project participants throughout the project. As there is

often information asymmetry between project participants and high levels of unforeseen

risks in construction projects, relational contracting is increasingly being adopted to

prevent manipulation and opportunism by developing trust through individual and inter-

organisational relationships (Rahman and Kumaraswamy, 2004, p.149).

Arino et al. (2005, p.15-17) argue that trust amongst individuals can be used to

operationalise and explain inter-organisational cooperation. The authors emphasise trust

as an essential part of robust relational quality and necessary in establishing efficient

inter-organisational business relationships. This finding highlights the importance of

intrinsic motivation drivers such as decency, honour, respect and acknowledgement - all

of which influence the development of trust between project participants and their

willingness to reciprocate positive principal (client) behaviour.

As an objective of relationship contracting is to align the goals of project participants,

FIMs can be viewed as a positive component of a relational contracting approach – as it

aims to align commercial interests of the project participants through a financial reward

and has the potential to complement the project relationship and the formation of trust,

through the recognition of high achievement. However, as the thesis results show,

without the early establishment of trust and good relationships between the project team

members, the FIM can be perceived as hostile. The FIM both influences the quality of

relationships and is influenced by them. Importantly, the thesis findings suggest that the

project relationship has a greater impact in promoting positive motivation towards above

BAU project goals than the FIM, and that government client managers should prioritise

the development of the project relationship, even in the absence of a financial incentive.

The thesis results also suggest that without the early establishment of trust, an FIM can

become counterproductive (or at least fail to motivate) if it is perceived to be controlling.

This finding is supported by the extensive literature on the ‘crowding out’ effect on

intrinsic motivation by financial incentives (see subsection 2.5.2.3) where incentive

systems can fail if their intentions are perceived to be suspicious, thus undermining self-

determination (Benabou and Tirole, 2002). On the other hand, the thesis results suggest

that financial incentives can also reinforce or ‘crowd in’ intrinsic motivation (and increase

the strength of project relationships) if they are perceived as a positive initiative to

acknowledge and recognise effort.


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9.4.1 Relationship Workshops

Team building processes in the early stages of a project influence project behaviour and

project knowledge so that relationships based on trust are more likely to be formed and

maintained (Kadefors, 2004, p.181). The projects investigated here were all relationship-

based i.e. the project relationship was a focal point of the procurement approach. The

results suggest that the initial relationship workshops in all projects had a positive impact

on motivation towards the FIM goals, as they facilitated teamwork and relationship

building between project participants – improving expectancy and attractiveness of FIM

goal attainment. The workshops also encouraged positive attitudes towards the project

objectives. It might be that the workshops were instrumental in ‘relationship

management’ being rated more highly than FIM design in providing motivation to above-

BAU project goals. Further research is recommended to capture a larger cross section

of projects, including projects without relationship development initiatives.

The importance of ‘building’ the project relationship in the earliest possible stages of

team formation should not be underestimated and should be supported by the

government client managers. The thesis findings also suggest that an increase in the

intensity of the workshop program, by including follow-up workshops and ongoing

relationship monitoring, increases the impact on FIM motivation. Therefore, the

government client manager should consider championing relationship maintenance

activities in an on-going way over the project’s life to sustain teamwork and cooperation

and facilitate relational contracting principles.

9.4.2 Future Work

The prospect of future work is a major motivator for collaborative behaviour which can

lead to project performance above BAU in relationship-based construction projects

(Kumaraswamy and Dulaimi, 2001, p.332). There are well-researched benefits of repeat

inter-organisational exchanges. A cumulative product is trust in the goodwill of each

party, and this cumulative trust will lower transaction costs (time and effort) required by

parties to reach inter-organisational agreements in future transactions (Ring and Van de

Ven, 1994, p.110). Similarly, this trust can increase each party’s confidence in their

ongoing relationship, resulting in more equitable and efficient business agreements with

less requirements for formal control mechanisms (Arino et al., 2005, p.24), such as


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highly specified contracts.

As previously noted, probity requirements placed on government departments can

restrict the formulation of on-going strategic alliances with the private sector. These

restrictions can make it difficult for government client managers to perpetuate reciprocal

behaviour which, to some extent, compromises the formation of long term trusting

relationships (Rahman and Kumaraswamy, 2004, p.156). On the other hand, many

leading contractors understand these constraints and are happy to get a share of work

that recognises their superior work history and strong client relationships, but which also

allows for equity in the sharing of work packages across the industry – in consideration

of government’s mandate to sustain a viable and competitive industry.

Despite the probity issues that were raised by all of the government client interviewees

concerning ongoing strategic relationships, the thesis research results suggest that

future work opportunities are currently a major motivator towards the achievement of

above BAU incentive goals. This finding was related to the desire of project participants

to uphold and improve their reputation within a competitive marketplace. The strength of

this motivation driver was greater on the projects where superior performance was more

likely to translate into future project opportunities. For example, on Project A, the project

team reasonably assumed they had a good chance of being reappointed for the next

project stage if they produced exceptional performance and met FIM goals, and indeed

this is what occurred. Results also suggested that the future work driver positively

contributed to the formation of project relationships, as contractors and consultants

involved in these large projects are willing to embrace and uphold a relationship with a

government client for the benefit of being looked upon favourably for future projects,

even given probity constraints.

The implication for government client managers is that they are in a strong position to

promote this motivator by maintaining detailed reports on design and construction

performance that can be assessed in future competitive tender selection processes.

That way, project team members will still perceive a positive link between high

performance and improved future project opportunities, while government client

managers can use the performance reports as evidence to satisfy probity considerations

– promoting this motivation driver even if strategic alliances are politically contentious.

Large government clients have the potential to significantly influence industry

behaviours. They are in an ideal position to promote this important motivation driver and


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‘lead by example’ in rewarding exceptional performance through future tender

opportunities.

Although the relationship workshops and performance reporting can improve the

opportunities for establishing trust and good relationships between government client

and contractor/consultant, they should not be implemented in isolation. Rather, they

should be combined with an integrated design and construction management process,

value-based tender selection, equitable contract conditions and a valued financial

incentive system, to induce maximum inter-organisational commitment to the higher-

order project goals.

9.5 FIM DESIGN

Financial incentives have been promoted in the construction contracting literature as a

valuable contract tool that can exert a positive influence on project success (Bower et

al., 2002, p.38; Ibbs, 1991, p.157). More specifically, they aim to align client and

contractor/consultant objectives and, within the delivery approach, can encourage

cooperation (Ling et al., 2006, p.65). The thesis findings support this general argument,

but emphasise the importance of tailoring the FIM design to suit the specific project

context.

In all projects, the FIM was a positive incentive that aimed to promote the achievement

of goals above BAU. The FIM goals were voluntary, therefore, strong incentive intensity

and appropriate risk allocation was required to promote motivation. Motivation was

influenced by the design of the FIMs, which aimed to promote goal commitment and

perceptions of fairness. The application of psychological theories in explaining inter-

organisational interactions suggest that these qualities can impact positively on the

collected effort of a group of key actors within a ‘dominant coalition’ (Staw, 2003, p16)

such as a construction management team. The thesis supported these findings.

Although each FIM varied in goals, distribution and measurement processes, there were

three common factors that influenced perceptions of justice and goal commitment: FIM

flexibility, goal opportunities and reward distribution.


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9.5.1 FIM Flexibility

As Publilius Syrus, a Roman orator in the 1st Century B.C said: “It is a bad plan that

cannot be altered” (Bartlett, 1919). Flexibility is important to ensure designs can be

adapted to suit changing conditions and meet objectives. Due to the often high level of

uncertainty and complexity within large non-residential building projects, it is difficult to

predict, at the commencement of the project, the events that will occur during delivery

that may alter project outcomes. Therefore, generally, the project design features should

remain flexible to meet changing project circumstances.

Ling et al. (2006, p.65) investigated incentives in relational contracts in Singapore and

commented that contract incentives should be ‘flexible and armoured with appropriate

adjustment mechanisms at the post contract stages in order to get things done in the

face of uncertainty’. Kerr (1999, p.67), also expressed the importance of incentive

‘reversibility’ (or the ability to reverse the incentive if it is failing to achieve its desired

result) in the organisational management context.

The research results reported here support these general comments, finding that FIM

goals and measurement processes should be as flexible as possible to ensure that

unforeseen events do not render the incentive measurement benchmarks unattainable.

The results also suggest that a powerful process to maintain the relevance, fairness and

attainability of the FIM goals and measurement processes throughout construction

projects is to allow participants a ‘voice’ in both the design and ongoing review of the

FIM. This is supported by organisational justice theory principles; by allowing input in

determining performance requirements, perceptions of fairness of reward measurement

processes and outcomes are enhanced (Greenburg, 2004, p.361). From a construction

project perspective, Ibbs (1991, p.160) emphasised negotiated incentive mechanisms as

being advantageous through a heightened spirit of collaboration and co-operation.

Negotiated designs were also found by the research reported here to positively promote

fairness and FIM attainability.

Government client managers should be given the capability to refine the FIM goals and

measurement processes throughout the project, to ensure they remain operationally

relevant to the project participants. Also, managers should seek participant input in how

the FIM is designed and implemented, to promote the fairness and attainability of the

FIM.


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9.5.2 Goal Opportunities

Ibbs (1991, p.160) stresses the importance of ‘balance’ in the goal parameters of an

incentive mechanism. To prevent an imbalance in project participants’ levels of effort,

FIM goals should cover all performance areas, based on the project priorities, and

should be perceived as attainable. Similarly, Locke (2000, p.53) emphasises the

importance in setting multiple goals and incentive reward levels to ensure that goals

remain achievable and credit is given for partial success. This research found that a

simple multiple goal FIM system based on measurable criteria increased the level of

incentive intensity (motivational power). Therefore, the more accurately incentive

opportunities represent distinct project priorities, the greater the potential incentive

intensity.

This research shows that incentives can be tied to a wide range of performance criteria.

The most common of these was a financial performance goal (profit sharing incentive)

based on a Target Construction Sum (Projects B and D). There were also FIM goals

based on schedule, innovation, ecologically sustainable development and community

relations performance (Projects A and C). The fact that project participants were strongly

motivated by a wide range of these goals suggests that limiting goals to financial

performance alone fails to encapsulate all incentive opportunities. Multiple goals can

also promote perceptions of fairness, as the participants are more likely to be rewarded

for at least some part of their performance. FIM design should therefore maximise the

scope to delineate multiple goals, as at least some are likely to remain attainable and

therefore maintain motivation, while with a single goal the risk of complete unattainability

is greater.

9.5.3 Reward Distribution

Jeffrey Pfeffer in his prominent Harvard Business Review article “Six Dangerous Myths

About Pay” (1998, p.118), wrote that, if financial reward systems (such as FIMs) are not

determined on group performance, it can negatively effect teamwork and cooperation:

‘…talking about teamwork and cooperation and then not having a group-based

component to the pay system matters because paying solely on an individual basis

signals what the organisation believes is actually important – individual behaviour

and performance. By talking about the importance of all people within the


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organisation and then paying some disproportionately more than others belies that

message.’

The thesis results suggest that, although the article was written from an organisational

management perspective, the argument is applicable to a construction project with high

task interdependency, where teamwork and cooperation are essential to project success

(Phua, 2004, p.1033).

Specifically, the research results suggest the financial incentive distribution plan should

be equitable in how it rewards the major parties who contribute to the FIM goal

performance outcome, including consultants and subcontractors, if applicable.

Consultants and subcontractors are often ignored in the reward sharing mechanisms in

relational contracting projects (Ling et al., 2006, p.65), which can result in perceptions of

inequity, can potentially inhibit the formation of a cooperative project team, and can

negatively impact on the motivation of all project parties. Project C provides an example

of this, where consultants were excluded from sharing in the ‘innovation’ FIM reward, but

were actively involved in the development of innovative cost-saving options – resulting in

an overall team perception that the FIM reward was unfairly distributed. This finding is

supported by distributive justice/equity theory, originally developed by Adams (1963),

where motivation is argued to be induced by a need for fair treatment and comparisons

will be used to determine what is fair, just and reasonable.

Based on the research findings here, government client managers should consider the

use of a team-based FIM distribution plan that offers a financial reward to all parties that

contribute to FIM goal performance - based on agreed contributions. The distribution

plan can be agreed during the FIM design stage with input from all project participants to

ensure fair allocation and distribution once performance has been achieved. This can

assist in aligning the motivations of the project team members, as the distribution design

is not singling out an individual party, rather is rewarding the project team as a unit.

CHAPTER 10: CONCLUSIONS ________________________________________________________________________________________________

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CHAPTER 10: CONCLUSIONS AND RECOMMENDATIONS

This chapter presents the thesis conclusions, provides a summary of the research

recommendations that were derived from the discussion in the previous chapter, and

presents the broad research contributions from an industry and academic perspective. It

also explores future research directions.

10.1 OVERVIEW

A key objective of an effective procurement strategy, including the application of a FIM,

is motivational alignment of the project participants. However, in the four projects

explored in this research there were varying degrees of misalignment between the

motivations of participants. Although an FIM can be a worthy addition to aligning project

participant motivation, to gain the most from such a mechanism, government clients

should incorporate it into a procurement strategy that instils trust, unity and fairness in

project team interactions, including the equitable allocation and management of

project risk.

As the largest client in the Australian building sector, government can lead the industry

in ‘best practice’ approaches, such as relational contracting, to not only ensure value is

achieved and public interest maintained, but also create an industry culture based on

quality relationships. However, government clients’ concerns about unforeseen risks in

large non-residential building projects have resulted in a typically risk-averse stance.

This is evidenced in the use of disclaimer clauses within the contractual arrangements,

such as the GCS clause, which is a policy requirement of state governments for specific

high risk projects. This has resulted in distrust between government clients and

contractors, particularly in projects where the contracting parties have experienced

financial difficulties to the point where some contractors have been unwilling to tender

on future government projects.

In the context of an FIM, distrust can induce a negative perception of the FIM intention,

limiting the impact of the FIM on motivatation. This emphasises the need to improve


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procurement approaches incorporating FIMs – potentially through new policy directions.

Clients need to promote the FIM as a supporting tool in the development of trust,

cooperation and motivation and not as a performance control mechanism within highly

detailed contractual specifications. The use of FIMs in a respectful contractual

environment will avoid the perception that the client is untrusting and suspicious of the

contractor’s behaviour, and encourage the idea that the client aims to promote respect

and recognition through rewarding superior performance.

The research results show that a multi-faceted approach is required to positively

promote the FIM as a symbolic and substantive signal of expected exceptional

performance. As discussed earlier, Bresnen and Marshall (2000) noted several

limitations to the use of incentives in partnering and alliancing projects in their analysis

of six medium- to large-scale construction case studies. Their findings cast doubt on the

prevailing view among construction procurement analysts that there is a direct link

between the project incentives and performance. Their work indicated that incentives

may be only a part of a larger picture in the promotion of motivation and collaboration in

a relationship-based project.

The findings here indicate that motivation is indeed impacted by a wide range of project

design and delivery drivers, and the simple existence of an FIM should not be viewed as

a sufficient condition for performance improvement - nor is it even a necessary

condition. However, in a supportive project environment, the FIM can focus the positive

energy created by a range of other performance-enhancing initiatives, such as an

equitable contract, future work opportunities, relationship workshops, up-front design

involvement, and value-driven tender selection. As such a robust approach may not

always be possible, given the limited resources of clients, prioritisation strategies may

be necessary. In such circumstances, the findings of this research suggest that clients

should be primarily focusing their attention on creating an equitable contract risk profile

and promoting the project relationship. These factors were found here to have the

greatest impact on motivation towards above BAU goals, over and above the drivers

related to the FIM design, including the FIM reward distribution.

Figure 17 presents a revised conceptual framework (based on Figure 6) outlining the

motivation process on building projects, focusing on the impact of project drivers on

motivation towards FIM goals. This version of the framework shows that the research

gap has been addressed by the research conducted in this thesis, which has identified


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key motivation drivers. This framework forms a solid foundation for future research into

the impact of FIMs on motivation in construction projects. The research process

confirmed the effectiveness of the conceptual framework, as the motivation drivers that

were identified were easy to match to the project sources conceptualised at the

beginning of the research, without overlap. The sources also assisted in focusing

discussion with interviewees. The categorisation of indicators proved similarly effective

in guiding fieldwork, although the indicator framework developed immediately following

the literature review was subsequently rationalised prior to the commencement of

fieldwork to provide a more focused structure for the interviews. Interviews proved a

useful tool in eliciting information about project participant motivation. Notwithstanding

the robust findings reported in this thesis, it is likely that future research would usefully

advance and refine conceptualisation of project sources and the key motivation drivers.


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Figure 17 Revised conceptual framework - Motivation on building projects

Project Sources and their Motivation Drivers

10.2 CLIENT RECOMMENDATIONS

The following recommendations are for government client managers to consider when

they develop procurement approaches for future Australian non-residential building

projects with FIMs. Project motivation can be improved by:

Performance (FIM goal attainment)

Motivation

Goal Commitment

Distributive Justice

Process fairness

Interactional Justice

Effort (Motivational Force)

Contract MD1 Risk Allocation - Equitable cost risk profile between client and managing contractor and fair contract price negotiation _________________________________

Design and Construction Management MD4 Design Involvement - Early contractor involvement in design stages _________________________________

Tender Selection MD5 Value-driven tender - Value-driven tender selection based on non-price criteria _________________________________

Relationship Management MD2 Future Work - Possible future work opportunities to motivate performance MD3 Relationship Workshops - Formal relationship development program including early workshops and ongoing reviews _________________________________

FIM Design MD6 FIM Flexibility - Flexibility to modify goals/ measurement processes MD7 FIM Goal Opportunities - Multiple-goal FIM that increases opportunities to secure incentive reward MD8 Reward Distribution - Team performance-based reward distribution and a valued reward level

Key: MD1-8 (Key Motivation Driver 1-8) - refer to Table 14 for further explanation of key motivation drivers and their impact rankings.


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CONTRACT

• equitably sharing construction cost risks through the application of a Managing

Contractor – Construction Management type contract and being involved in team

decision-making processes and ongoing project budget reviews to maintain

budget accuracy.

• implementing a comprehensive GCS negotiation process during the design

stages if construction cost risks are to be transferred to the managing contractor

under a Managing Contractor – Design and Construction Management (GCS)

type contract. This will allow for the development of a fair GCS that will provide

the contractor and their consultants the financial flexibility to strive for the FIM

performance goals.

DESIGN AND CONSTRUCTION MANAGEMENT

• engaging the managing contractor and, if possible, key subcontractors no later

than design development and documentation, to improve the accuracy and

integration of design and construction.

TENDER SELECTION

• focusing the tender selection on ‘value’ criteria including capability and

competence of the tenderer to meet above BAU performance and integrate into

the project team.

• providing acknowledgement and recognition to the winning tenderer that they

were selected based on the value (eg. ability and experience) they would bring to

the project, and not purely on their tendered price.

RELATIONSHIP MANAGEMENT

• conducting relationship workshops, which should:

o involve all key project participants including subcontractors and suppliers

where appropriate; and

o be held as early as possible once the project team has been formed.

• conducting ongoing relationship reviews, such as follow-up workshops or

relationship feedback sessions, which can further enhance teamwork and build

on the relationship ideologies established in the initial workshops.


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• maintaining detailed reports on design and construction performance that can be

assessed in future tender selection processes. This will promote a positive link

between high performance and improved work opportunities, while still

maintaining government probity requirements.

FIM DESIGN

• providing the project participants with multiple goal opportunities to secure the

financial incentive reward, based on project objectives. This can minimise the

negative motivational effect of uncontrollable incidences during design and

construction that can forfeit the reward opportunities for participants under a

single incentive goal system.

• implementing an equitable incentive distribution plan, that aims to reward all the

major parties who contributed to the FIM goal performance outcome, including

consultants and subcontractors, if applicable. This can also promote the

formation of a harmonious project team, as the distribution design is not singling

out an individual party; rather it is rewarding the project team as a unit. The

reward amount on offer to each participant must be equitable with the perceived

effort required to achieve the FIM goals.

This thesis suggests that uptake of these recommendations by government clients may

improve the impact of FIMs on motivation and increase the chances of achieving the

above BAU incentive goals. In turn, the client can expect improved project performance

through heightened motivation levels. The implementation of these recommendations

should also increase the robustness of the industry and result in more sustainable

profitability levels and improved reward for above BAU performance.

10.3 ACADEMIC CONTRIBUTION

This research is the first known attempt to explore the drivers within construction project

design and delivery that impact on motivation towards FIM goals. It has also responded

to the research gap identified in the literature review - that integrated motivation theory

principles have not previously been applied to the investigation of FIMs in the

construction industry, resulting in a lack of knowledge on how FIMs should be effectively

incorporated in a construction project context. This research developed a conceptual


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framework and undertook in-depth case studies to identify and explore the drivers of

motivation.

This research has made fundamental contributions to the literature by 1) developing a

theoretically-based conceptual framework for identifying design and delivery drivers

impacting on motivation towards above BAU project goals, 2) empirically exploring the

impact of key motivation drivers towards FIM goals and above BAU performance in

Australian government large non-residential building projects, and 3) prescribing crucial

areas for attention by government clients to increase the impact of FIMs in this building

sector.

The conceptual framework developed in this research provides a structured mechanism

to assist researchers in investigating and understanding motivation in a construction

project context. It will allow researchers to carry out further large-scale empirical testing

and comparison of motivation drivers across project types, sectors, industries and

geographic boundaries. Future researchers may expand this framework based on more

focused studies encouraged by this research.

This investigation has also provided a foundation for future research in a number of

related areas, offering exciting opportunities to further enhance the quality of information

provided to clients to assist them in designing policies to improve building construction

procurement practices.

10.4 FUTURE RESEARCH

Due to consistency of the research findings with current construction and organisational

management research, the thesis results may apply to a wider range of project

environments than those covered in the sample. Nevertheless, the current work has

been an essentially qualitative study, with ranking of motivation drivers based on simple

descriptive statistics. Future quantitative work is recommended to improve and extend

the validity of findings. Such work might capture a larger cross-section of construction

projects, to usefully advance and refine the research framework, and fine-tune existing

findings. Future research in construction sectors other than Australian government non-

residential building is recommended to maximise the general relevance of the thesis

findings. To help guide future work, researchers are encouraged to explore the factors

listed below, as they are indicated by this research to potentially impact on the level of


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motivation towards the FIM goals in a construction project context:

• Professional culture: What is the optimal design of financial incentives for

different professional cultures (eg. architect vs. builder vs. subcontractor)?

The thesis results suggested that different professional cultures may influence

the perceived value of a financial incentive reward and the perception of the

FIM’s intention. For example, in Case Project A all of the consultant

representatives interviewed were suspicious of the FIM intention as they felt that

it implied they would not do their best without it. They felt that their integrity may

be compromised by accepting the offer of an incentive. However, this view was

in stark contrast to the perceptions of the Managing Contractor and the

subcontractors, who valued the opportunities under the FIM. This finding

highlights possible difficulties in applying team-based FIMs in a building project

due to the differences in professional cultures.

• Firm size: Do FIMs motivate small- to medium-sized contractors/consultants

more than larger ones? Do their motivation drivers differ?

This research has focused on motivation and performance in large government

building projects which generally engage large contractor and consultant

organisations (due to their financial capacities as a requirement of government

pre-qualification). It should be noted that in smaller building projects, where

smaller construction firms are more likely to be engaged, these smaller firms

may have different motivational characteristics and needs and have the potential

to be more agile in their responses to financial incentives and other project

initiatives.

Barrett and Sexton (2006) in their research into innovation in small project-based

firms argued that government initiatives geared towards increasing firm

performance require distinction between small and large firms. Therefore,

initiatives that are appropriate for large firms may not be appropriate for small

ones and vice versa (p.344). This distinction may have significant influence on

perceptions of financial incentives and their impact on motivation.

• Temporal impacts: Is motivation intensified with positive FIM experiences over

time on a single project, or over multiple projects? Is there a performance-reward


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reinforcement loop?

As this research has focused on gaining the perceptions of project participants in

retrospect from an individual project perspective, it is recommended that future

research investigates differences in motivation towards above BAU goals at key

points throughout the duration of an individual project or across multiple projects

involving the same participants. Investigating the effect on incentive intensity

under these conditions (including the effect of performance-reward feedback

loops) could provide important information to clients on how FIMs may

strengthen motivation over time and/or over multiple projects. Also, investigation

of the impact on motivation at key points throughout the project duration will

decrease problems associated with post-hoc rationalisation commonly

experienced with retrospective analysis.

• Group dynamics: The literature review identified the importance of team-based

incentives when attempting to motivate a group of interdependent agents.

Although the equitable reward distribution across the project team was identified

as a key motivation driver in this research, future research is recommended to

provide greater insight into the dynamics of social relations and team motivation

under group-based FIMs. The following questions might direct such research in

the context of a construction project:

o To what extent does free-riding behaviour and group pressure impact on

team performance under a group-based FIM in a highly interdependent

project environment?

o What is the impact of subcontractor and/or building supplier participation

in team-based financial incentives on site performance?

• Goal specification: What are the effects of single goal incentives (eg. cost) on

performance in unmeasured areas (eg. quality of work) – does the presence of

the single goal FIM introduce moral hazard problems (i.e. will the contractor cut

corners in unmeasured areas to gain the reward for performance in the

measured area)?

The results of this research suggest a project environment that promotes positive

relationships and motivation across all project participants may decrease the

potential for self-interested behaviour that may be detrimental to performance in


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unmeasured areas. Although a multiple goal approach was found to be a positive

FIM design feature, clients may not be able to incorporate all performance areas

into the FIM. Therefore, it is recommended that future research investigate under

what conditions project participants are less likely to behave immorally towards

performance areas that are not visible to the client and not measured under the

contract or FIM.

This discussion reveals the exciting new topics to emerge from the current research that

can be explored in the areas of professional culture, firm size, temporal impacts, group

dynamics and goal specification. Future research can very usefully be directed to these

topics, in addition to validating the findings of the current study through the adoption of

more quantitative methods.

10.5 CLOSURE


of Australian government large building projects and the impact of FIMs as a part of the

procurement strategy. The findings suggest an FIM is limited in its ability to promote

overall goal commitment and motivation towards above BAU performance. Client

intentions can easily backfire if project participants’ perceptions are influenced by

suspicion. Yet these dangers can be effectively managed, principally through

appropriate allocation of contract risks and attention to the project relationships.

Indeed, the thesis findings indicate that FIMs are best considered once appropriate

attention has been given to the following project design and delivery areas (in order of

importance):

1. Equitable contract risk allocation

2. Future work opportunities

3. Relationship workshops

4. Early contractor involvement in design

5. Value-driven tender selection.

Government clients have the potential to significantly impact on industry development

through judicious use of their strong purchasing power and can lead the way in


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procurement initiatives that recognise and reward those who have demonstrated

exceptional performance. To maximise overall motivation toward above BAU project

goals, a wide range of client driven systems and practices need to be considered, such

as those presented in this thesis.

FIMs have the potential to be a valuable addition to any project procurement strategy.

Yet, the main message of this thesis is: If clients rely solely on financial incentives as the

driver of motivation it will likely result in failure. This is in contrast to the simplistic

rhetoric of some construction management literature which uncritically stresses the

benefits of financial incentives. It is very important to ensure that financial incentives are

not perceived as ‘calculative’ instruments of manipulation, but rather mechanisms for

reward, recognition and acknowledgement. Harnessing the power of motivation through

reward systems is not an easy task and requires a good understanding of the context in

which the reward is being applied, especially in complex social environments like

construction projects. This thesis has contributed to improving this understanding for

clients.

APPENDIX A: SEMI-STRUCTURED INTERVIEW GUIDE

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APPENDIX A:

INTERVIEW GUIDE

INTERVIEWEE DETAILS

Project:……………………………………………………………………………………...........................

Interviewee: …...…………………………………………………………………………………................

Position: ……………...………………………………………………………………….............................

Company: ……………...…………………………………………………………………..........................

Location: ...............………………………………………………………………………………................

Date:……………….……….. Time:……………..………… Phone No: …………………………………

OVERALL PROJECT PERCEPTIONS

- Description of Project (type, size, start/finish date, and team) (Gathered prior)

- Brief biographical information of interviewee (role, responsibilities and experience)

- Understanding of the contract form and procurement approach?

- Understanding of the project management structure?

- Understanding of the financial incentive, its goals and the performance measurement?

- Previous experience with client, contract type and incentives? Did you feel your past experiences with client, contract type and incentives influenced how you perceived them in this project?

- Contractor/consultant/subcontractor involvement in development of incentives?

- The application of the financial incentive across the supply chain? e.g. subcontractor incentives?

- Final outcome of the financial incentive (achievement of incentive goals)?


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- Were there any constraints in the project that effected performance to achieve the incentive goals? If so, what were they?

- Did you feel enthusiastic about the project at commencement, and were you satisfied with your work throughout the project’s duration?

- Were there other project drivers that motivated your team to strive for set project goals, other than the financial incentive? If so, what were they?

- Would have you been prepared to achieve the incentive goals even if the financial incentive wasn’t offered?

INCENTIVE MOTIVATION INDICATORS

a) Goal Commitment

- How were the financial incentive goals set? Where you involved in the goal setting process?

- Did you clearly understand the incentive goals throughout the project? Where the goals explicitly outlined in the contract?

- Did you see value in the achievement of the incentive goal? Why or why not?

- Did you feel that other project participants were committed to the incentive goals? Why or why not? Did this influence your commitment of the incentive goals?

- Did you feel a sense of commitment to the project team? Did this influence your response to the financial incentive?

- Did you feel that the incentive goals were set at an appropriate level in term of your ability to achieve the goals? What aspects of the project gave you this impression?

- Did you feel competent to attain the incentive goal throughout the project?

- Did you feel you had control over the performance required to achieve the incentive goals?

- Did you feel uncertain at all during the project that you were not going to achieve any of the incentive goals? If so when?

UNSTRUCTURED DISCUSSION: What aspects of the project (contract design, FIM design, tender selection process, relationship management approach and construction management processes) influenced your commitment to the financial incentive goals (expectancy and attractiveness of goal attainment)?

b) Distributive Justice

- Was the incentive amount offered appropriate in terms of risks to achieve the incentive goals? What influenced your perception that the reward on offer was fair/unfair in relation to risk?

- Was the incentive amount offered appropriate in terms of what you contributed to the project?


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- Did the incentive reward reflect the effort you put into achieving the incentive goals? If you received (or did not receive) a share of the financial reward – was it justified given your performance? If not, why not?

UNSTRUCTURED DISCUSSION: What aspects of project (contract design, FIM design, tender selection process, relationship management approach and construction management processes) gave you the impression that the financial incentive offer was appropriate/inappropriate?

c) Process Fairness

- Were you able to express your views about the incentive measurement procedures?

- Did you have influence over the outcome arrived at by those procedures? - Were the incentive measurement procedures applied consistently throughout the

project? - Do you think the procedures were free from bias? - Were the procedures based on accurate information? - Were you able to appeal your measured performance arrived at by the

procedures? - Were the procedures upheld according to ethical and moral standards?

UNSTRUCTURED DISCUSSION: What aspects of project (contract design, FIM design, tender selection process, relationship management approach and construction management processes) gave you the impression that the FIM goals and measurement processes were fair/unfair?

d) Interactional Justice

- Did the client/managing contractor representatives treat you with decency and respect in the application of the financial incentive?

- Did you feel the underlying intention of the incentive was honourable and fair? Did this influence your response to it?

- Were the client/managing contractor representatives candid and honest in their dealings with you?

- Did the client/managing contractor representatives explain the incentive procedures and outcomes thoroughly and in a timely manner?

- Were the client/managing contractor representatives generally receptive to any issues you may have had with the financial incentive?

UNSTRUCTURED DISCUSSION: What aspects of the project (contract design, FIM design, tender selection process, relationship management approach and construction management processes) gave you the impression that you were/were not fairly treated?

FINANCIAL INCENTIVE LEARNINGS

In hindsight, what aspects of the financial incentive design and/or the procurement approach do you believe could have improved motivation and commitment towards the incentive goals? Discuss.

APPENDIX B: CASE PROJECT A - DISAGGREGATED DATA

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APPENDIX B:

DISAGGREGATED DATA

CASE PROJECT A - LYELL McEWIN HEALTH REDEVELOPMENT STAGE A

Example Interviewee Quotes

This section presents example interviewee quotes supporting the definition of motivation

drivers in Case Project A (the ‘project’), presented in the rank order of impact as shown

in Table 7. See Chapter 4 for analysis of motivation driver impact data.

MD1: Monthly FIM Workshops

Client Representative 1: “Yes, I think the benchmarks were valuable because the teams could see how they would really benefit the project. For example, they saw benefit in the community awareness goal through the value it would contribute to improve the local community awareness in the project.”

“The team managed all of the benchmark measurements and presented to us the results for our evaluation. It was a team approach to all areas of the incentive. I think this instilled a sense of fairness in how the incentive was managed. I think they felt that we really wanted them to get the maximum incentive possible.”

Client Representative 2: “The team decided what the benchmarks would be in the management meetings [and] made sure that they were set at an appropriate level and everyone understood what needed to be achieved.”

Managing Contractor Representative 1: “The team contributed in setting the incentive deliverables. So for example with cost management; all the stakeholders involved in this area set the benchmarks for cost management. This ensured that the incentive benchmarks we set were relevant and it also gave us input in how the incentive was to be divided up between us and I think everyone was happy about how it was done.” [Level of incentive was based on fee proportions].

Managing Contractor Representative 2: “The wider team was involved in setting the incentive benchmarks in the early incentive workshops. We wanted the benchmarks to be challenging, but if they are too challenging there is little chance we can achieve them and get the incentive. I think in hindsight the benchmarks were set pretty hard, although I think it was positive and fair to allow the team to be involved in the incentive benchmark-setting process and the incentive workshops were valuable in establishing a framework to push the team towards the benchmarks we had set.”


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Consultant Representative 1: “I think it was a fair system. It was good that the Client wanted us to be involved in the workshops and it was important to us that we set reasonable benchmarks.”

Consultant Representative 2: “The benchmarks were endorsed by the ELT [Executive Leadership Team] as we could have set very miserable benchmarks so it needed a high authority group to audit our processes. So we developed the benchmarks and provided them to the ELT for approval. The incentive workshops really focused our attention on setting achievable benchmarks. It was a good process where we could all get our say on what needed to be achieved”

MD2: Future Work Client Representative 1: “Yes, it is an unprecedented move, but I think it has been a big motivator for the team, as they know we can continue the relationship and improve for the next stage. There was always the potential of this [follow on work] and I think it really motivated [them]. It was a nice way to reward them for their performance in this project. It puts pressure now on the team, that we can prove that this was a good move and we have to do better and improve on Stage A and dismiss the critics.”

Client Representative 2: “There was a certain few of us who persisted [pushing the idea of the same team for Stage B] because we thought it would be silly to go through this long process, establish such a good team who we knew could work together, then just disband them. So it seemed smart to continue it, and we succeeded, so they have just been appointed again. That was a big achievement for us and I know they value this decision. It is a huge reflection on the success of the first stage.”

Managing Contractor Representative 1: “We have just been appointed to Stage B. We were selected on a performance-based arrangement and how better to illustrate that than what we had achieved on this stage. So in some ways, a big incentive for us was being given the opportunity to undertake such a pivotal and learning tool project and get the knowledge to improve our chances for future work in projects like this. We don’t have a short term relationship with the Client and we saw fostering this relationship [as] much more important than kicking up a stink over the cut in the incentive pool.”

“When they made the [incentive] cut they were under their own pressure and I guess political outcomes are a deliverable as well. They were in the team and it was important to know if they had a problem, then we all had a problem and we had to work together to solve it.”

Managing Contractor Representative 2: “I think on a business level, a demonstrated performance to assist in future work was a major driver for us and certainly impacted on our commitment to the project goals in this project. We were driven to maintain the good relationship with government so we would be looked on favourably in future projects. The fact that we have been appointed for the next stage on the redevelopment was a great outcome and a valued reward outside the [financial] incentives. I think as a major business driver it is important that a client recognises high performance by rewarding us in this way.”

Consultant Representative 1: “When we were offered the next stage it was a feather in the cap for the whole team - we thought it was fantastic that our client was able to just reappoint us. I think we always had it in the back of our minds that this is what we were working towards so it was a high priority for us that this project went well. We weren’t buying work – but we did show that we were willing to work with them and help them achieve the best building possible.”

Consultant Representative 2: “Future work was a big factor for us. This project was a great springboard for us and future jobs with this department. It is much more important than the percentage of the incentive fund we would receive outside our agreed fees. It really pushed us to get the best possible outcome against our benchmarks and it was great that we were offered the


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follow on work for Stage B.”

MD3: Team Meetings Client Representative 1: “The commitment to the incentive benchmarks was definitely influenced by how the project parties were structured. It not only ensured that the incentives were fair but it assisted in forming a strong project relationship based on trust.”

Client Representative 2: “There was a general agreement that this [management structure] was the way forward – if we hadn’t had that, we wouldn’t have pursued it. I think this decision helped promote the team relationships in an equitable, open project environment. IMT [Integrated Management Team] members had an ‘equal say’ in the team decisions - which worked very well. I think they saw it as a fair process and it instilled a personal commitment to the project.”

Managing Contractor Representative 1: “We had a management model where everyone in the team had a say in project decisions, it was a team approach. It was quite interesting in that regard, where we could turn around to the principal and say that if we perform that extra work it will exceed the budget and that work could be vetoed by the team. This model was very successful in focusing our decisions in the best interest of [the] project and everyone involved. It was certainly an equitable decision-making process and it worked very well.”

“The group environment helped us to ascertain what these competing ideas were and we could then make a communal decision on what was best, based on the value it would contribute to the project. This provided us better control over our performance and improved our ability to achieve project benchmarks. It was about making informed decisions with a group of experts in consideration of all views. The challenge of this approach was having the methods in place to foster a common behaviour with all stakeholders’ right down to subbie [subcontractor] levels.”

Managing Contractor Representative 2: “Not only did it help solve project issues quickly as all of the major parties were involved [in the IMT and ELT], but it also promoted goal alignment as we clearly understood the project objectives and worked together as a team to achieve them, including the incentive goals. The teamwork on the project was very positive and I think it was facilitated through this management framework - everyone being actively involved in directing the project delivery - and from this, the team’s culture was developed. I think it [the management structure] was a big factor in the level of commitment to the project goals.”

Consultant Representative 1: “But there wasn’t any one person who made the decisions. I guess, the Client was the bottom line and if you could convince him and the team thought it was a good idea, then they generally went with it. The good thing about this arrangement was that we could out-vote the Client on a lot of things. For example they would ask for something and we would all sit down and look at it and if no one else agreed then it would be voted out. The team was in it for the good of the project and saving as much as possible but not to the detriment of functionality. If each of us including the Client couldn’t justify [the] reasoning behind, say, a benchmark, then it would not be implemented. It came down to decisions being made for the overall good of the project. It was a fair system which really focused everyone’s attention to making value-based project decisions.”

Consultant Representative 2: “It was a round table approach and not a hierarchical approach. It took a while to get that into the traditionalist heads. There was apprehension. To be on an equal level to the Client is a very different approach! But I think it was a good process and helped the progression of the project immensely. It gave us a chance to put forward our ideas in an open environment and focus the team’s objectives.”

Subcontractor Representative 1: “It was good to be acknowledged. I think they realised that they had hired us for our expertise so they should have us contribute to making an informed decision. Sometimes you would sit though a meeting that wouldn’t be at all relevant to you but the next one


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was, so it worked well and it makes for a smoothly running project. This was really due to how the team was structured and the relationships.”

Subcontractor Representative 2: “We had a good relationship with everyone from the architect down. Normally we wouldn’t have that much to do with the architect but on this project we did and I think that is good and I do think it is the way of the future. It was especially good to get input in the higher project decisions.”

MD4: Relationship Workshops Client Representative 1: “It was a very unique process [relationship-based project approach] and a very enjoyable experience. It has been a good way to work. You will find without exception that everyone who has been involved with the project has gained something from it. We developed a ‘best for project’ culture through the relationship workshops. It has taken us out of the individual mentality. We all felt part of the big picture, where we felt personally responsible for the welfare of the project. This drove everyone on the ELT and IMT to make the system work and commit to the project goals and project benchmarks.”

Client Representative 2: “The way the relationship framework helped people deal with problems at a team and collaborative level was excellent. I think they really valued the inclusion of an incentive on the project. We had a lot of upfront relationship workshops which helped form the relationship on the project.”

Managing Contractor Representative 1: “The idea was making a change on all the things we did – either real or perceived – either a change in language or an actual functional change. So it helped ensure that those who enter the environment are forced to make the change and align with the cultural objectives in order to fit in. The initial [relationship] workshops helped establish this project ‘culture’. There was a real personal commitment to the project deliverables through our management model. It was all about being able to rely on the other team members to efficiently manage their own work and not let the team down.”

Managing Contractor Representative 2: “There was a series of workshops that set up a whole range of parameters we would work towards by both maintaining the project relationship and defining and measuring the project goals. The relationship management was established in the initial relationship workshops and was monitored in the ELT and IMT meetings. We were a bit sceptical at the start, thinking ‘here we go - another full day spent at relationship workshops’, but we have come to the view that it did promote trust between the team members which really helped the project delivery and got people working together which I think promoted commitment to the project goals. So it was not just the subject matter discussed in the workshops, but how the workshops established that trust between the team members – knowing we could trust one another to work together for the good of the project”

‘I think it was a personal commitment to the project that you were signed up to, looking to achieve a good outcome born out of the relationship workshops, and the fact that it was a great working relationship between the individuals on the team. There are some older guys on the project that put it in their top one or two projects over a 40 year period and I think coming to work and enjoying it is a good driver for the performance of the team.”

Consultant Representative 2: “We had relationship workshops which helped to establish the relationship and remove people’s misapprehension. [The relationship consultants] acted as the coach, and [the managing contractor] chaired the workshops. It gave us a chance to voice if we had any problems working with any of [the] team members. So the workshops were based on resolving personality conflicts and we worked on resolving these by say, restructuring the group so it would minimise that particular problem. This process really improved the performance of the teams.”


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Subcontractor Representative 1: “I think because of our good relationship and rapport with the engineers, [it] saved us a lot of time in administration because we worked so well as a team. There were very good lines of communication in our area - having these [relationship] meetings and so on in place like on [this project] is the icing on the cake. I think this sort of project really appeals to us and we reflect that in our price.”

MD5: Multiple Goals Client Representative 1: “With the involvement of ILT and ELT in setting the incentive benchmarks, [it] meant that they [were] fairly structured. I think the incentives were varied enough to motivate the team to achieve the benchmarks”

Managing Contractor Representative 1: “All aspects were managed by the team – there is a fixed budget, a scope of works and contingency – and from that we established a decent incentive pool with the remainder being shared across the team. I think the opportunities we had, to gain at least some of the contingency savings through the incentive were good, but we certainly had to work hard for it.”

Managing Contractor Representative 2: “On this project, the multiple goals were put in place to balance priorities. We committed to striving for each but not at the expense of other areas. Not only is this beneficial to the Client, to ensure that we perform in all areas, but it also allows us greater chance to secure some of the incentive if we are unable to achieve all of the goals. So, performance can be improved without the reliance on only one goal. We had to accept that we couldn’t achieve all of the incentive goals on the project such as the August 2004 completion goal. This goal was set at the start of the project and during the course of the project it became apparent that issues of cost and commissioning staging were considerably more important to the project than programme benchmark date. In reality, the project achieved a revised completion date with extensions of time and from our perspective that was a reasonable outcome.”

“It came down to a realisation from the team that the completion date wasn’t an issue and it was more important to focus on the other goals in the project. So it meant that although we didn’t reach that benchmark for the good of the project, we still were able to achieve the other goals and receive the majority of the incentive. As a motivation force the combination of securing the incentive pool through contingency savings and then allocating the incentive through the achievement of four or so benchmarks was strong and in the end we certainly did well.”

Consultant Representative 1: “A big factor was that money was coming out of our team contingency and not their money. If they had taken the hard line on us, we could have told them if they want it then they have to pay for it out of their own principal’s contingency. In that sense we were able to have a fair bit of control over how we were rewarded through both the project savings and the benchmarks”.

MD6: Early Involvement Client Representative 1: “The contractors and major subcontractors were then brought into the design process. When they were brought on board, it really intensified the whole design process to deal with the cost issues we were having, particularly with the FFE shortfalls. I think everyone valued their input and it really directed the team’s focus on finding the savings.”

Managing Contractor Representative 1: “So they [subcontractors] were brought in at a time where we felt they could assist in minimising design risks and maximising design opportunities. It provided us with a more informed view of our financial situation so we could target cost savings.”

“In their own areas we were able to offset some of the risk, especially in the uncertainty of the value of the mechanical and electrical packages, as they were the largest packages. There was also the opportunity that we could have another set of eyes that could come in to contribute to


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design solutions. In terms of value-based selection, their ability to contribute to design solutions was a significant criterion that we rated in their selection.”

Managing Contractor Representative 2: “The mechanical and electrical services were tendered on a two-stage arrangement, [in] which we paid them [subcontractors] a fee to assist the consultants in the development of their documentation and then they tendered on the completed documentation for the work with an open-book policy so we could see how the tenders were working and see opportunities to save money. It worked well because they were involved in the higher-level financial management of the project and it was a big leap of faith for us and vice versa. The observation was that it was successful and those involved valued their contribution, which certainly helped the team manage the project risks, particularly the budget. Under the relationship approach we didn’t go into it trying to heavily push the price down, it was more about the certainty of the quality of documentation during stage one and they were there to identify opportunities to add value, not to make it as cheap as possible. From the managing contractor perspective, we got a lot of value from them and they identified many value-adding solutions that ultimately saved the project money, and this money was able to be injected back into the project - and allowed us to secure the incentive pool.”

Consultant Representative 1: “A lot of the buildability suggestions were made after the prices came in. For example, a lot of the building was precast and due to a shortage of precast at the time it was suggested that the structural system be changed. This was all factored into the value of the project and in the end ¾ of a million dollars was picked up. Their [managing contractor and subcontractors] involvement in design development improved our ability to cope with the financial pressures on the project.”

Consultant Representative 2: “The government really pushed to get the subcontractors on early for the same reasons [as] for the managing contractor to be brought in early – to find building smarts that would improve the value of the project - more bang for the buck - and they could be upfront on all the decisions. I think they came on board at an appropriate time to price something. At the conceptual stage they are no better at pricing it than us. So as soon as we have some drawings for them in the design documentation then they can put together a budget based on market prices and have input in design. Their early involvement gave us an indication of what we were aiming for in terms of cost reduction.”

Subcontractor Representative 1: “The key was getting us in early and in this case the design was only 80% complete so we could give a reasonable preliminary price and still contribute to the development of design to find a better design solution that would improve the budget shortfalls at the time. This contributed to locking down a reasonable cost estimate.”

Subcontractor Representative 2: “It is not normal. A normal contract is that we would win the job and do the work as specified in the contract. I think it was good that we were involved in this process and it helped us realise what needed to be done. It recognised the contribution we can make to the design and not just do the work.”

MD7: Budget Inaccuracies Client Representative 1: “We had had an issue earlier on in the project. There were assumptions made about the level of FFE [furniture, fittings and equipment] that was required which were very wrong. There was an allocation of some 4.2 million dollars – and we ended up spending 12 million.”

Client Representative 2: “Now the shortfall in funding was recognised and at the time we were building the team and bringing in the managing contractor, it was understood one of the broader goals of the project was to grow the FFE budget by innovative thinking. It certainly made it more difficult for them to achieve the incentive benchmarks.”


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Managing Contractor Representative 1: “We had significant pressures on our budget due to shortfalls in areas such as FFE. The amount we could commit to achieving some of the [incentive] benchmarks was probably not enough, making it hard for us to achieve them. In the end it really came down to determining what the priorities were in the best interest of the project.”

Managing Contractor Representative 2: “Certainly the construction budget was seen to be very challenging, but it was always identified that there was a gap in the FFE budget. As it was quite a significant shortfall, we were on the back foot and were tasked with identifying savings in the project that could rectify these shortfalls, and it certainly made it difficult for us to allocate money into other initiatives and achieve other benchmarks. But through the construction process we were able to return in the order of A$1.5 million dollars to FFE. Although this was a great outcome the government still needed to source extra money to meet the FFE requirements. We did a lot of things smarter and in the end we procured some pretty amazing things. The whole team was constantly challenging the design and the consultants were very willing to accept design changes for the overall betterment of the project. Also we tendered the packages very well – the trade scopes – that maximised opportunities in picking up money which all helped fill the shortfalls. But I guess if the budget issues were not there, it may have improved our ability to achieve the other benchmarks.”

“The way that the contract was written up, the risk of the FFE budget was never the team. The shortfall was an identified issue and if we were able to pick up funds from the construction budget that would be ideal - A$6 million and savings of A$1.5 million was a pretty good outcome. I think at times we all tried to tell government that they had this problem and it sat there for a long time and I believe that things were happening but at the end of the day extra funding was obtained.”

Consultant Representative 1: “On the cost front, it was clearly identified in the tender documents that there was a shortfall in furniture, fitment and equipment. So it was attempted to recoup some of the expenses on the project and top up this area. They made a big mistake in estimating in that they thought that the majority of the equipment would be just transferred from the old hospital into the new one. But it turned out the equipment earmarked for re-use was cr*p and new equipment would need to be purchased. They put only 6% for FFE, which was nowhere near enough. Their original budget of four million needed to be about 11 million. We were behind the eight-ball right from the start and it made it difficult for us, especially in design. But generally we believed we [could] recoup those shortfalls and in the end we got the FFE budget up to about seven million from four through working hard on redesign – which ensured they ended up with some state-of-the-art equipment.”

Consultant Representative 2: “There was also an issue with the budget [for] FFE. The budget for FFE was shy of the mark and that may have been because of scheduling and unpredicted demand for new equipment. So as the first priority any amount we saved was pumped into FFE. This meant that there was little money left for other project initiatives such as meeting the ESD benchmarks.”

Subcontractor Representative 1: “Because FFE was a long way behind the eight-ball, I think they really had to work hard for the extra money to be put into FFE - which put pressures on the project and I know that to get it in on budget the team has had to cut items and do things more efficiently to deal with some of the cost problems. But in the IMT meetings, we were involved in discussing options and providing input in what things can be done to save the money. I think these pressures made it harder for the team to meet the benchmarks.”

MD8: Unexpected Removal Client Representative 1: “The incentive fund contingency started at a maximum A$1.5 million, and then it was halved to A$750,000 due to the reluctance of the government to award that much


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money. With some reluctance the team agreed to it. It was unfair, as we had worked particularly hard to achieve the savings on the project that protected the incentive fund. It is still on the table to be allocated between the managing contractor, the architect, engineers and cost planners – but most will be going to the managing contractor as they held the majority of risk.”

Client Representative 2: “It is probably fair to say not enough thought was given by government in terms of how the success of the incentive scheme may have to be sold in the end. I think there was a general belief that with a cap of 1.5 million there wasn’t a hope in hell that anyone would get close to that. Well they got the 1.5 million halfway though the project. So, as I mentioned before, all of a sudden there was this problem from our point of view in how we were going to sell this (giving away 1.5 million dollars), especially to Treasury. There was an agreement by the team that they would halve the incentive, putting it back into FFE. As a trade-off from that they were allowed to lower the benchmarks for achieving the incentive remainder. I think it probably was seen as unfair, but in the end it was important to everyone that we had enough money for FFE.”

Managing Contractor Representative 1: “It was a huge surprise to the government that we were going to get the 1.5 million [incentive cap] and people outside saw it as a bonus – which wasn’t fair as we had earned that money through the team savings that we made. But the Treasury people had great difficulty in understanding it. In the end what was agreed upon was that the incentive pool would be halved to A$750,000. That balance of money would go back into improving the project outcomes in the hospital principally in the area of FFE. I was personally disappointed but there were other things at stake such [as] ensuring the project was a success with the potential for ongoing work that we would get from the project.”

Managing Contractor Representative 2: “Look, it was quite a sensitive issue and we all knew the intention of the government on the incentive was really good and they understood the concept but it was a learning curve from all parties on how that incentive would work and I think deep down, although the incentive was sincere, we set the benchmarks pretty high and were a bit surprised that we would perform as well as we did! When we went into the project we went in pretty slim and it was seen to be an important project for us in our [market] position. Now a project like this is not a big turnover project but a great opportunity to up-skill our staff and a lead-in for future work. I think we saw the incentive as a great opportunity, however, not essential to make sure the project stacked up financially for us. So when the incentive needed to be halved because, perhaps, for the government to hand over the full incentive may have been embarrassing, we accepted it. But sure, we were disappointed and it wasn’t the driving force as it had been prior to its removal. We could have probably fought it and won, but in the end we didn’t want to tarnish such a successful project and damage our relationship with government as a major client. I think in the end our willingness to accept it put us in a pretty strong position for ongoing work.”

Consultant Representative 1: “Yes it did, we felt that we had worked hard at achieving the pool [and] that it shouldn’t be taken from us. Personally it was no big deal as I said before we just wanted to do a good job for the fair amount we were being paid – but I think the other team members weren’t too happy and saw the whole process as a little unfair.”

Consultant Representative 2: “I think it was a bit harsh to offer it and then take half away, but we didn’t really care that much as we were more focused on project outcomes and not about nit-picking over incentives.”

MD9: Inflexible Benchmarks Client Representative 1 “There was some feeling during the project that it may be difficult to achieve some of the benchmarks such as ESD [Ecological Sustainable Development] due to the financial pressures we were experiencing. However, when half the incentive fund was removed, it


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gave us the chance to re-evaluate the benchmarks as a sign of good faith. This was agreed upon by the whole team as a fair compromise”.

Managing Contractor Representative 1: “We had a situation where, due to major changes in the specification, we were not going to be able to achieve some of the incentive benchmarks, such as the completion date. It was very hard to convince [people] that the benchmarks were unrealistic and required an ongoing revision process. In the end, the programme was revised, but only as a compromise [to the incentive pool split]”.

Managing Contractor Representative 2: “I don’t think we realised the difficulties we would have in achieving some of the benchmarks when they were set. I think they should have been reviewed further down the track to ensure the reality of what we were trying to achieve matched the benchmarks set. A major reason for the problems was that money we had saved from the contingency was needed to boost the FFE budget, leaving very little for other initiatives such as ESD. The benchmarks were significantly higher than what had been done before. We had set such high standards for ourselves and those areas that were seen as a lesser priority became almost impossible to achieve. I think if we were doing it again the project team should be allowed to reassess the benchmarks and ensure they remain achievable and relevant throughout the project. This can maintain momentum and enthusiasm towards achieving the benchmarks.”

Consultant Representative 1: “I think you need a system where the incentive benchmarks are re-evaluated throughout the project depending on what is happening. We had a case where some of the goals that were set at the start of the project were not reassessed and it meant we had very little chance of achieving them.”

Consultant Representative 2: “The bechmarks needed to be re-evaluated with client input in a manner that team members can’t fudge it, so the goals are too easy. It would have been no good if we all just decided to change the target because we couldn’t achieve it, then it defeats its purpose – they still need to be challenging.”

MD10: Value-based Tender Client Representative 1: “Our tendering approach, including selection based on value and not just cost, really focused on the ability of the tenderers to embrace this type of procurement approach, and I think it showed, in how well the teams worked and how committed they were to the project goals.”

“It [the tender selection] was also a process of weeding individuals out who did not fit the criteria for good teamwork, including us. We attempted to select team members who would get along and commit to each other and the project goals. Generally, this was very successful, team members got along well.”

Client Representative 2: “Despite only one contractor option we still went down a workshop process to negotiate cost. Everything was open-book. They had to provide profit statements for the last ten jobs and that sort of thing and then cost was negotiated. I think they saw value in an open and fair selection process so they were less likely to be suspicious of our intentions and positions”.

Managing Contractor Representative 1: “This [open-book tender assessment] was assessed via a very confidential workshop with DAIS [Department of Administrative and Information Services] where we exposed our outcome margins on projects over the last five years to allow them to benchmark to what we were pitching as a reasonable fee and it clearly showed that our fee was not our end margin and that we would always be seeking to improve our margin at the start of the job. They knew what our base fee was and they knew what our target outcome was. An open-book arrangement is important as it breaks down misapprehension with people. It is a good way to tender, in that we knew we were being selected based on our prior performance and not just


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the lowest price.”

“The reality is that we did less micromanagement on this job than any other job because we could rely on the behaviour of the individuals. This reflected the quality of the team members selected for the project. We valued the fact that we were selected partly because we had a strong commitment to the team approach.”

Managing Contractor Representative 2: “We still had to submit a management fee, but there were components of non-price criteria that assisted us in our selection. I can’t clearly recall, but I think in the end our management fee was what won us the job, but I think our experience was a factor that came into our selection. I think it shows a more sophisticated client who is willing to select contractors on their ability and not just price. Over time clients who have pursued that type of tender selection usually don’t return to the price-only selection. We value our selection this way and I think it instils a sense of commitment to our client and justifies our selection based on previous experience. We strive to maintain this reputation throughout the delivery of the project.”

Subcontractor Representative 1: “It was good to know that if you tendered on the job well, based on an open-book price and your contribution to the design, you would get the job. You couldn’t pull the wool over their eyes because every item in the tender could be scrutinised and we had to justify every decision and price we had submitted. As a good faith gesture, we had come pretty close to their budget so they didn’t scrutinise us as much as they could have. Not only was this process to ensure we were playing fair but it also was to ensure that if the costs were over budget, we could find ways to bring the costs down through a value engineering process. We were able to do that and recoup some money. We could really see the overall requirements of the project and from that we could focus our work to achieving these requirements”.

“At the end of the day it gave people the opportunity to tender on value and previous experience as opposed to lowest price, which I think this industry needs to realise is the better way to procure, because even though the government may be paying a little more upfront, they are saving it though a smooth running project. You have many projects where contractors are selecting subcontractors on cheapest price and basically they are in conflict all the time with the subcontractors to rip the guts out of the variations to save money – so I don’t think this is good for a project.”

Subcontractor Representative 2: “The fact we were selected under a two-stage system partly based on our ability to contribute to design was good and I think the Client appreciated our involvement, especially the saving we made through the designs”.

“It follows some of the same ideas as any project. If you have the right people on the job, who treat each other with respect, it has a greater chance for success, and there were good people on this job.”

MD11: Equitable Risk Client Representative 1: “I think contractors appreciate it [client willingness to share construction risks] and you get more competitive pricing. I think it also helps the incentive as they see real benefit in achieving the incentive as an extra payment and not just supplementing their cost risks. I also think it is a good faith move - to share the risk improves the contractor’s attitude on the project, which can dramatically help the relationship”.

Client Representative 2: “I think it did help them as they had the financial flexibility to commit to the incentive benchmarks. I don’t think we envisioned that there would be cost overruns as we had done a lot of work at the start of the project to get accurate estimates.”

Managing Contractor Representative 1: “You have to understand that the standard C21 that purports to be a relationship contract is nothing more than a hard money contract and it is the behaviours of individuals that create the relationship. I think the fee-based approach used in this


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project allowed us the flexibility to be really committed to the project goals and didn’t force us to take on all the financial risk. That gesture in itself fits in with the team approach in that, we are sharing the risks, and so any individual problem is a problem for the whole team. It breaks down the ‘us versus them’ attitude which is prevalent in hard dollar contracts and focused our attention on achieving the project goals.”

Managing Contractor Representative 2: “When you look at it, yes, it [the Managing Contractor contract] did allow us to focus on the project goals, assisting us in managing the project risks. Although it was managing contractor, ultimately once we tendered the works and got approval from our client for the sum of money they were being engaged for, we took on contractual risk to maintain the subcontractor trade packages within the tendered sum. I think the Client shared the project risks with us to ensure that their budget could be maintained and we tendered on a sum that was negotiated. I think the negotiation process and the tendering of specialist subcontractors did allow us the flexibility to manage our risk and improved our ability to achieve the project objectives, such as finding savings for the shortfalls in the FFE budget.”

MD12: Consultant Suspicion Client Representative 1: “There was some scepticism about the incentive with the consultants, which I think is inherent in their profession. The consultants felt it was unethical – and were very difficult to convince - as they felt they did a good job anyway and were almost offended by the idea of the incentive.”

Client Representative 2: “There were initially some interesting views to the incentives. Some of the consultant teams felt that it was dirty money and didn’t want anything to do with it. But overall it was gradually accepted through the progression of the project.”

Consultant Representative 1: “Yes, we felt there were problems with the incentives offer. We are being paid what we consider to be a competitive but fair fee and then the Client is tossing us some more just because we have done what we should have done. Initially I think the consultants felt a little put off by it. We did realise that the reason they had done it is that the average consultant, particularly on health jobs, doesn’t come out of the project very well – so the Client thought they would try to improve performance through incentives. Our view is that we had a good team on the job – and we would have done a good job anyway.”

Consultant Representative 2: “I don’t think anyone in our team really thought of the incentive when decisions were made during the project –we had made a commitment so I don’t think the consultants really thought about it that much. We got the fee we were commissioned for the job and that is enough for us. The incentive was cream on top I guess, but I don’t think it has ever driven our decisions. I personally think if they were not there it would not have been any different for the consultants.”

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APPENDIX C: CASE PROJECT B - DISAGGREGATED DATA

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APPENDIX C:

DISAGGREGATED DATA

CASE PROJECT B – BRISBANE MAGISTRATES COURTS



drivers in Case Project B (the ‘project’), presented in the rank order of impact as shown


MD1: Inequitable Risk Client Representative 1: “The government love GCS [Guaranteed Construction Sum] projects as they can transfer all of the risk to the managing contractor. The tender goes out to the market and the GCS is determined allowing the government to accurately manage their budget. But it doesn’t always work that way because if there is an overrun the contractor will come at us with claims and do their best to recoup their money. Under the unforseen market movement in this project it did make it difficult for them to manage their risk which certainly resulted in problems, particularly completing the stretched-scope.”

Client Representative 2: “I don’t think that even a major increase in the bonus pool would have really helped the outcome. If what we were told was right and they were running behind, it would have taken a massive incentive to make it worthwhile. They would have had to pick up their existing losses and more. They would have had to put in their own money to recoup the capital costs for the added stretched-scope as they fund the stretched-scope items from the guaranteed construction sum. They would have had to take a quantum leap to be able to meet the stretched- scope items and would have required a monstrous bonus pool - it just wasn’t worth it for them.”

Managing Contractor Representative 1: “We knew at the tender time when we submitted our tender that we believed it would be possible that there was sufficient funds and contingency to get the stretched-scope. [From] when we were actually awarded the contract to when we wrote up the design development report, there was a period of about four months where we knew it was dead. We started getting market prices in from subcontractors [and] we knew it was not going to happen. We were actually looking at that stage to end up millions in the red. Although there was probably no way to predict it, there were fundamental flaws in how the contract allocated risk which meant that these problems were compounded and there was no way we could complete the stretched-scope. We couldn’t break even on the whole job.”

Managing Contractor Representative 2: “I think when clients face up to what a job actually costs


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and what a fair and reasonable return on risk is, then incentive mechanisms such as what we had on this project is just beating around the bush. It comes down to a fair and reasonable return on risk and striving for better performance because we have the flexibility to do so, [and] not just [deliver] the minimum. There was no way we could achieve the stretched-scope under this contract”

Consultant Representative 1: “The general intent of the contract is right, it is just that the contract mechanism that deals with the rising market was flawed and this meant that all the positive aspects of the contract such as the relationship and the incentives were overshadowed. You need to give us some sort of certainty – we are in business to make a profit. Under this contract, the [managing] contractor is the one that is taking all the construction risks and at the end of the day, if the Client is not going to allow them to make a reasonable profit then the contract and the project is a failure and certainly, the incentive system will fail. What it will mean is that fewer builders will be interested in projects with that client in the future”

Consultant Representative 2: “The market pressure was so great we just went into preservation mode where we were trying to make the losses as small as possible because we knew the managing contractor was not going to make a profit - we just wanted to save the project and the incentive bonus pool just went out the window. The fact is that this was no fault of our own. The contract did not deal with the market well at all.”

Subcontractor Representative 1: “Sadly, from this project I am [of] the opinion that the government bureaucrats are very afraid of allowing contractors or subcontractors to make money and they think if we make money then we haven’t done enough work and they haven’t got enough out of us. This is a terrible thing for the local market and in the end we will go out of business. Until we change this mentality the market will suffer. Sadly the contractor was placed with too much risk and the problems that resulted from this went from the government to the contractor - who then took it out on us. In the end it meant that the stretched-scope could not be completed.”

MD2: Late Involvement Managing Contractor Representative 1: “I know we couldn’t have forecasted the extent of what happened in the marketplace, but at least if we had been involved earlier in the design, we could have provided a more realistic price during tender.”

Managing Contractor Representative 2: “We should have been involved much earlier and this would of helped not only the quality but also would have prevented us from tendering so low, as we would have been testing the market progressively so we would have had a realistic number submitted in the first place. ‘Preferred contractors involved in design stages’ would have been much better for us. If you want to give people those sorts of responsibilities you have to have them in the know right from the start or it is just unfair. A lot of things would have been addressed if we had of been involved in design stages earlier. Not just on giving us a better idea on tender price, but also we wouldn’t have been documenting the bloody thing halfway though the project. We wouldn’t have started documents until all value engineering issues had been resolved.”

Consultant Representative 1: “The managing contractor was appointed at the end of [the] schematic design stage and that was one of the major problems in this project. The managing contractor was appointed too late in the design stage, where they had very little input into design leaving them to fend for themselves once design was handed over. The managing contractor for this type of job should have been involved at least at the start of schematic design. If they had been on board earlier I think the project would have gone much more smoothly from the end result perspective, because we, as a team, weren’t given enough time to fully develop the design and an appropriate TCS [Target Construction Sum] particularly in consideration of the market prices.”


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Consultant Representative 2: “I think you either need to have the managing contractor on board before you have started schematic design so you can plan the design with them - or at the end when you have a full set of drawings for them to tender on. Also, if they are appointed early it means that they can have their input and we don’t have to go back and rework the design. They were appointed too late in the process and it meant that we had to rework some of the design when they came on board, which pushed us back.”

Subcontractor Representative 1: “I think the managing contractor was brought in too late in the design process and in turn we were brought in too late. By the time we got involved the design, development was completed. Once we had a look at it, it was too late in the process to make any major changes and this really affected our ability to find cost effective design solutions for the budget problems. One of our major trade components was in the worst place possible. The fact that the design development had already been completed meant that we had to go ahead with it even though it was far from ideal.”

Subcontractor Representative 2: “I think the only issue we had in the early days was the design. The design was way behind. I think because we were brought into the project too late, big changes were being made to the design while we had already started on site. From our perspective, the design needs to be at least 95% completed before we start on site. The planning before commencement wasn’t as clear as what we would have liked which introduced a lot more risk into our work.”

MD3: Single FIM goal Client Representative 1: “I didn’t get any major indication that it wasn’t a fair incentive process; there may have been a comment once or twice that a bit more of an incentive in other project areas of course could have helped.”

Managing Contractor Representative 1: “It would have been good if financial incentives were offered for not just attaining the stretched-scope items but also other project performance areas such as timeliness, quality and the like. I don’t think just the one objective was enough to really measure the achievements on the project. I think if we had of been offered more of a reward in other areas it could have pushed us further.”

“As there was no way that the stretched-scope could be achieved at no fault of our own, it would have been so much better if the financial incentive could have been adapted and the objectives changed to meet the realities of project. It could have meant we would have put our resources into the new objectives so our losses wouldn’t have been as high.”

Managing Contractor Representative 2: “The Client must realise rewarding increased levels of performance through the incentive should be not only about their capital costs or their scope enhancement. There are many other things that could have been rewarded. Timeliness is one. In the case of this project, we should have been rewarded for the acceleration costs that we bore to complete the job, but there are other just as important issues that should have been addressed in terms of dedication to the project and project outcome and rewarding those who live up to their mission statements. Sadly, at the end of the day, the only one who is getting any benefit from our achievements outside the call of duty, at least financially, is the Client.”

Consultant Representative 1: “I think the incentive could have been applied in areas other than just scope enhancement. We delivered what we said we would under enormous pressure and unfortunately didn’t receive any of the incentive. I think that questions if the incentive was really targeting the right areas.”

Consultant Representative 2: “An incentive does instil a sense of achievement and reward. I guess the thing to weigh against that is making sure you don’t blow your fee trying to get to the target because if you do and you don’t achieve it there is no way you are going to recoup that


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money – so I think the goals needs to be clearly achievable. If they are not then it will be unlikely that the team will push for it. So it is a bit of a balancing act. I think there was really not enough scope in the incentive on this project as the stretched-scope goals just became unachievable and there was no way to recoup the incentive bonus.”

Subcontractor Representative 2: “There were definitely other areas that could have been rewarded through the incentive such as cost savings through recommended design changes, industrial relations, safety, training and up-skilling. For example, if you better your training hours on the project, you will receive extra. I think the incentive goals were too narrow to reward subcontractors appropriately and because of this we didn’t really expect that we would get any of it.”

MD4: Inadequate Price Negotiation Managing Contractor Representative 1: “Despite the non price aspects, the TCS estimating caused us problems. We didn’t have near enough time to tender on the project, which affected our ability to submit an accurate price.”

Managing Contractor Representative 2: “As the design was developed up to schematic design, we priced this job on schematic design drawings and we only had five weeks to price it and realistically this was not enough time. It was not fair. They got a hard dollar tender price off us without the normal assignment of risk and the opportunity for us to claim back shortfalls in the documentation was not there because of the clauses in the contract to prevent this. I call them ‘catch all clauses’. So basically it was virtually a lump sum offer based on sketchy drawings. A lot of documentation was given to us in terms of words, but what was being measured off the drawings was pretty furry.”

Consultant Representative 1: “The managing contractor was under pressure to tender on the TCS and sign off on the contract when the market was just starting to move. They made the commitment that they could undertake the project according to the documents for the target construction sum. I think they suffered because of this pressure to establish their GCS.”

Consultant Representative 2: “I don’t think the documentation was developed enough before the managing contractor tendered on it. They were also under a fair bit of pressure to submit their tender price. There is a big risk to the project team with uncompleted documents because it can result in an inaccurate tender price and with this form of contract the risk of discrepancies in the documentation are held by the managing contractor and I think this was a problem on the project. I think you either need to have the managing contractor on board before you have started schematic design so you can plan the design with them, or at the end when you have a full set of drawings for them to tender on. Also, if they are appointed early it means that they can have their input in design and we don’t have to keep going back to rework it.”

MD5: Performance Measurement Client Representative 2: “[The allocation function] was nominated in the contract documents at tender stage and it was based on an exponential sliding scale – the formula that determined how much would be paid and how. The contractor hated it because you basically have to build nearly all of the stretched-scope to maximise the bonus pool. For example, you build half of the stretched-scope items and you only get a quarter of the bonus pool. They didn’t like it and I agree with them, it should be a straight line relationship. For example, they built half the stretched-scope they get half the bonus. A straight line relationship would give them the motivation to at least get some of the items as opposed to on this project where there was no incentive to get some of it done – mind you they probably would not have got any of it anyway.”

Managing Contractor Representative 1: “We felt at the time of tender it [the measurement function] was fair, but in hindsight you can say it was bloody tough under the situation we found


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ourselves in. It could have done with some adjustments. I think at the end of the day if you complete a large amount of work for only a small amount of reward it is not much of an incentive for anyone.”

Managing Contractor Representative 2: “The function that determined the amount of incentive we would receive in comparison to the amount of stretched-scope items we completed was very unfair. An exponential curve was seen as a joke by us. Get rid of that bullsh*t. All this effort goes into achieving some of the items yet the return is poor, which has the opposite effect the bonus should be trying to achieve. All it says to us is that it is not worth our while to go for any extra items let alone going for the whole lot. It should be a straight return on the investment. It has ended up costing the consultants and ourselves over A$700,000 to just get some extra items completed to keep our client on side with no return for us from the bonus pool.”

Consultant Representative 1: “The incentive allocation curve was absolute rubbish in our view. Basically, you have to put in heaps of effort just to get a little of it [incentive payment] and really, if we had of got there under the pressures we were under, it would have been even harder to achieve. Then, you would have to do an obscene amount to get it all. It really wasn’t fair and it just would mean we would be less likely to get any of the stretched-scope work done.”

Consultant Representative 2: “I guess there always needs to be some sort of rules in how an incentive like we had on this project is measured, either straight or curved. The curve arrangement was a problem because it was really difficult to get the maximum amount of stretched-scope work that would provide a decent return.”

MD6: Relationship workshops Client Representative 1: “The relationship was the one thing that carried us through this project and I think it is the reason why we are where we are – at least on budget in a very harsh building industry at the moment. We completed ahead of programme, compared to other government projects that are months and months behind schedule. We had ongoing relationship reviews and I think these helped the team with dealing with harsh market conditions.”

Client Representative 2: “We had a full one day workshop on the contract to ensure that they understood it and a relationship facilitation process. Also, as a part of the tender review process, all tenderers gave a two hour presentation and were asked questions on the understanding of the contract. I do think the relationship workshops helped establish what was expected under the relationship contract and this in turn helped the management of the project.”

Consultant Representative 1: “We went into damage control in the project when the prices came in to bring the blowouts in price down as far as possible. This is where the relationships formed through the initial workshops came in handy, as the whole team had to react and help, including the Client. It was this relationship that saved the project under the huge financial pressures.”

Consultant Representative 2: “We were happy in the way things went and there was a good flow of information. The workshops helped establish the relationships that went on to really save the project under difficult project conditions. My feeling was that generally the relationships were good particularly between the consultants. It was very interesting that despite the difficult project conditions the team still remained amicable which probably wouldn’t have happened in a non relationship-based project.”

MD7: Future Work Client Representative 1: “Having been involved in the project team meetings, and there has been a lot of them on this project, everyone saw this building as an iconic building and they want to make their mark on it, not only in terms of the contractor they have been working for but in terms of the building they have been working on - ‘It will be a building we will be proud of’ mentality.


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They are driven by future work and if they cut corners in quality it will impact on their reputation. We have consultants and the managing contractor who has already put this building up for awards. They see it as a building capable of gaining an award, which to them is marketing.”

Client Representative 2: “The team took on the philosophy that this project is a landmark project and the building will be there for fifty years or more and will reflect their work. I think the marketing side of a landmark project such as this one is a major factor in their motivation - they have put a huge effort into getting the project completed on time and to the client budget.”

Managing Contractor Representative 1: “It is a great marketing tool for our future work – on time and on client budget and an iconic building to Brisbane - and we continue to display our skill to the government so hopefully it will lead to continuing work from them. This was one of the major drivers for us on the project that pushed our decision to absorb our losses and get on with delivering the project on time and on client budget.”

Managing Contractor Representative 2: “We have been obliging in this project in that we did align with the Client’s interest because we have a long term investment in future work with the government as our major supplier of work that we wanted to protect. We saw time as the priority and we spent a lot of our own money to make sure they got what they wanted. But that was particularly unique and a lot of people in our position would not have done that.”

Consultant Representative 2: “One major driver for us was that we were all working towards the same goals – to deliver a project that was going to be there for a long time, look great and the whole team was going to be proud of. It was also a building which would be reflective of our work and that would help us get jobs in the future.”

Subcontractor Representative 1: “On the magistrates courts we made a big loss, but were loyal to the project objectives because we wanted to maintain a strong relationship. It was not just about short term profits for our teams; we took the losses so we were seen in a good light for future projects.”

MD8: Client Flexibility Client Representative 2: “We hadn’t gone in saying that there is only one way to build it. We have involved the end-user agency with life cycle cost issues and have been flexible as a team and not too pedantic. It ends up working both ways as the contractor puts in a better effort if they know you are flexible and understanding to the issues.”

Managing Contractor Representative 1: “What we said at the start of this project, even if it is a realistic variation or not, why don’t we set up a register that is reviewed by the project management team every month and we will just put up what we think will be a claim - it wont be an adversarial approach and there won’t be a time bar or anything placed on it, but the project parties can discuss it as a team and if it is not realistic we can delete it. So no longer did we have an adversarial approach and lines of communication were good because we had those team meetings on possible variations.”

Managing Contractor Representative 2: “We didn’t waste a lot of time pushing agendas that were not going anywhere - we had no time for that. We did work hard on finding solutions that did not impact on functionality. The value engineering process was pivotal to us in clawing back some of the cost. They [the Client] were quite sympathetic to helping us in this process as best they could, but at that time it was too far gone.”

Consultant Representative 1: “I think the value engineering process has resulted in compromises in quality, but it has been done with the approval of the Client to help the team because the project was in trouble and I think that if the relationship wasn’t there the overheads would have been a lot higher and therefore, the loss to the managing contractor would have been higher. The Client was quite reasonable when it came down to design changes as a part of their relationship


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contracting role.”

Consultant Representative 2: “We had several design workshops where we provided input with the design team on possible design solutions that were sensible and achievable in line with the budget. The Client was heavily involved in this area and I think they saw the importance to work with us on design changes that might help with some of the financial issues that we were dealing with.”

MD9: Value-based Tender Client Representative 1: “We picked the managing contractor who were definitely not the lowest price, on the assumption that they were well developed in maintaining a good project relationship to ensure that they would achieve the primary project objectives based on our expectations and that we would not end up in dispute. I think they thought this selection process was a step in the right direction in that they were being selected primarily because of their experience in projects like this.”

Client Representative 2: “The [Managing Contractor] was selected heavily on their relationship project experience and I think they appreciated this process. We had worked with them before on other projects and I believe a big driver for them was to show they had been appropriately selected for this project.”

Managing Contractor Representative 1: “There is no doubt that we were not the lowest tender but they knew, as we have had an ongoing relationship with the Client, and we would focus on their priorities despite possible losses. It just would have been nice to be rewarded for the other areas we did well despite pressure on us to cut corners. The non price criteria selection was a positive aspect of the project for us. To be selected on experience and the smarts we could bring to the project, as opposed to just price, was a very good move.”

Managing Contractor Representative 2: “I think it was very important for the Client and a very positive aspect of the tender process. If they had of selected the tenderer with the lowest price they would have been in all sorts of trouble. Non-price selection does help ensure the Client’s goals are met, but our price still required us to be as competitive as possible because price still does make up a percentage of the selection criteria.”

Consultant Representative 2: “Prior performance and experience in the tender selection is very important and were part of the tender processes. This involves assessing the strengths of the team, then the financial strengths of the parties so that they can deliver the project despite outside influences. I think this was a big factor in the team’s performance on this job – knowing they had been selected based on experience and the motivation to uphold that reputation.”

MD10: Reward Distribution Client Representative 2: “The only requirement we gave them was that [the financial incentive] had to be distributed amongst those who had been actively promoting saving and not purely for the managing contractor. It was up to the team to determine what was fair and reasonable. There were various ideas on how to do it. Unfortunately it never happened.”

Managing Contractor Representative 1: “Well, the incentive objectives were already in place, but we were involved in how it was to be distributed. During the initial project meetings we recommended that it be distributed to all major project parties if we achieved the incentive stretched-scope objectives. This helped us formalise the incentive distribution process to make sure everyone involved would be duly rewarded. However, when it was realised that we weren’t going to be able to achieve the objectives, this discussion ceased.”

Consultant Representative 1: “The [financial incentive] distribution was then based on a team decision in terms of who received what between the managing contractor, consultants and


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subcontractor as a percentage. That team was going to determine the allocation of breakdown and could be adjusted in the future by the project team. This was a fair way to do it as it let the team decide how it would be allocated. In the end it didn’t happen.”

Subcontractor Representative 2: “I know that there was talk to allocate a portion of the incentive pool to us if the team achieve the stretched-scope. I think it is good to consider subcontractors for the incentive and as long as they allow us to have input in how it should be distributed, it is positive in our opinion.”

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APPENDIX D: CASE PROJECT C - DISAGGREGATED DATA

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APPENDIX D:

DISAGGREGATED DATA

CASE PROJECT C – ADELAIDE CONVENTION CENTRE EXTENSION



drivers in Case Project C (the ‘project’), presented in the rank order of impact as shown


MD1: Acceleration Agreement Client Representative 1: “When the managing contractor came to us and said we were not going to be able to do it under budget, under time, around February 2001, it was the first time the relationship structure was tested and people started to [lay] blame and the managing contractor saw that it was unlikely that they would get their incentive bonuses. In attempting to find a solution to this major dilemma, we were approved an extra pool of money that was provided to ensure the project was completed on time and to the quality standards. We pushed the team to see how we would go closer to the end and as things weren’t changing - the managing contractor had used every resource they had to get it done – they were offered an Acceleration Agreement where they had to complete the project by the set time or would forfeit extra fee payment. Therefore, the managing contractor held all the risk for time overrun. We felt this was fair as the contractor knew the risks they were dealing with. It wasn’t like at the start of the project where risks were difficult to determine and they agreed to what was a fair price to cover all acceleration expenses. I think they felt it was a fair deal that would allow them to inject resources into the project and get it completed. It also improved their chances that they would get their incentive amount for completing it by the ready-for-use date. There was a happy ending and we did deliver it and it was opened by the minister by the required date.”

Client Representative 2: “I believe the Acceleration Agreement worked and they [managing contractor] met the ready-for-use date. They did bring in extra contractors and paid overtime – but again there was angst in the team that we had rewarded the managing contractor when they hadn’t deserved it – so in fact we were rewarding their poor time performance by offering more money – however we felt it had to be done to get it completed. It did however, improve their ability to meet the ready-for-use date and receive their share of the ‘innovation’ incentive, which I think they thought was a fair deal.”

Managing Contractor Representative 1: “Right at the end of the project, the client representatives


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came up with the Acceleration Agreement. Although there wasn’t much in the payments as an incentive because it only really covered the added resources that we placed on the project, it did give us certainty that we would receive our outstanding variation payments and we could achieve the time performance objective, allowing us the opportunity to gain the ‘innovation’ incentive pool that we worked hard to build.”

Consultant Representative 1: “Once they [the Client] understood the issues we were facing, they were willing to allocate more money to the project for us to meet their full expectations. This came in the form of the Acceleration Agreement. It allowed the team the resources to meet the project expectations and gave the managing contractor the opportunity to receive their share of the incentive as they had met the ready-for-use completion date.”

Consultant Representative 2: “There was an Acceleration Agreement that the subcontractors and the managing contractors would get a bonus at the end of the project if they achieved the set project deadline. This was good as it finally set the budget at a more reasonable amount and reinvigorated us towards meeting the completion deadline. Although the managing contractor took on all the risks associated with programme and cost overrun under the Acceleration Agreement, it also improved their chances to get their ‘innovation’ incentive. So for them a lot was riding on it, but they got it in the end which I think they were very pleased about.”

Subcontractor Representative 2: “On the convention centre there was a small amount of money paid based on an acceleration of works. It was a carrot to get things completed by the scheduled date because they were all running behind time. We had an agreement that by a certain preliminary date we had to have certain work finished and by the next date we had to have other work finished and by the final date we had to be complete. So there were three stages. It wasn’t really a bonus as such for us because we had to put a lot more resources on the project to get it completed so it turned out it was just enough to pay us for the extra resources. But I think it was a good move by the government to offer an Acceleration Agreement to the builder [managing contractor] and it gave us an opportunity to get the project done on time - and I think without it, it would have been impossible to complete it by the date.”

MD2: Equitable Risk Client Representative 1: “I think the risk reward mechanism on this project was good. We developed a risk reward structure with input from the managing contractor to ensure that they took on some of the risks around the project goals with the incentive mechanism. Therefore, if they did not achieve the set project goals they would not receive the reward. It was a multiple goals system that covered the key areas of risk in the project, namely time and cost. I think because we shared the risks with the Managing Contractor under [the] Managing Contractor contract and rewarded their performance in managing risk through the incentive; it gave them the ability to really focus their attention on the project goals without the fear of penalties. This is in stark contrast with the traditional contract, which forces the contractor to take on all the construction risks and uses penalties if they do not deliver, which then forces the contractor to come back with any variations they can to recoup, which results in adversarial conditions. In the end of the day government usually pays the same, but it ends up hurting the relationship and causes massive administration requirements through the processing of variations. So this approach seemed to improve this - not only how the contractor perceived us because we were more willing to take on the risks, but also, with the help of the incentive, provided them the flexibility and empowerment to really work with us in delivering the project under its high risk profile.”

Client Representative 2: “The convention centre met all of its requirements without transferring all the risk to the contractor. If we are able to manage our part of the risk we can make it work for less cost. I think it allowed the managing contractor to fully commit to the project goals and manage the project risks under the ethos of the collaborative approach.”


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Managing Contractor Representative 1: “I think the combination on this project of a shared risk profile - where we were required to maintain the subcontractor tenders within the Client’s budget, but did not take on the construction variation risks - and the relationship management aspects, really put us in a position to put resources into sourcing innovative and creative cost and time saving options.”

Managing Contractor Representative 2: “We valued the Client’s decision to share the construction risks and work with us to find innovations that could improve the project’s bottom line and in the end we were fairly rewarded through the A$1 million ‘innovation’ incentive payment.”

MD3: Relationship Workshops Client Representative 1: “Generally everyone embraced the relationship concept. I think this was the biggest motivator from my point of view in really achieving what we achieved. It began with the tender selection and was developed through the relationship workshops. I believe the managing contractor felt it was a great project environment because they were given appropriate control over the management of the project risks and, under the relationship approach and the risk reward mechanisms, were respected as a valued member of the project team.”

Client Representative 2: “I don’t think we could have done so well on the project despite its problems without the establishment of the relationship - it was a big part of the project’s delivery. The relationship consultants made people think differently about how to approach the project and focus on the project goals. They did workshops and brought their own jargon to the table. But just the simple methods of listening and collaborating on problem solving and not blaming and focusing on solutions rather than the problems – simple communication concepts but very foreign to the major building project environment. There was significant resistance to these new ideas at the beginning because SA [South Australia] doesn’t have a history of disputation and we are quite a friendly little band and there was an attitude that this is all a bit of a waste of time. But nevertheless, by the end everyone did embrace it and it improved our ability to knuckle down and work together to sort out some of the budget and programme issues we were having.”

Managing Contractor Representative 1: “I think the initial relationship workshops really did help form a bond with the team, which definitely increased our commitment to the project goals, including the incentive goals. So not only was there the desire to maximise our profit margins through the ‘innovation’ incentive pool, but also our desire to assist in finding cost-saving solutions and meet the mutual project objectives we set.

Managing Contractor Representative 2: “Under the collaborative relationship that was born out of the relationship workshops and training, [the] client representatives were very receptive to our cost-saving ideas and treated us with respect as experts in constructability.”

Consultant Representative 1: “I think it is important to establish the project relationship through the workshops. I think it can be a problem if people get complacent and discard the importance of the bonding sessions. I think there was a perception that there was no need for the relationship coaching, but now realise the impact it had on the project, particularly in achieving the client expectations under difficult project conditions.”

Consultant Representative 2: “The thing I liked about the relationship approach is that once we had the managing contractor on board and we had that best for project culture established through the relationship workshops, if there was additional work required in some areas, because of either client requirements or the context of the project on site, then we all worked together to find best value solutions and get the prices down– some good value engineering. It showed how the relationship stuff can translate into tangible project benefits.”


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MD4: Value-based Tender Client Representative 1: “I think the managing contractor selection process really reinforced to the managing contractor and to the team that they were all selected on their ability to work collaboratively and achieve the projects goals. There was obligation to prove they had been rightly selected and not let the team down. I also think a big factor towards the level of project commitment was the selection of the right individuals on the project team including the subcontractors that were able to embrace the ideals of the relationship approach and who had some ownership with the process. This meant they could champion the organisations they work for and commit to the project goals that were set at the start of the project.”

Client Representative 2: “The value selection process for the managing contractor that was proposed by the relationship consultants involved registration of interest, tender calls, facilitation to interviews, short listing to two and facilitated workshop with the two and then we had selection and finally a workshop with the selected tenderer. Really throughout the process, price was only discussed at the final workshop. All up to then, it was an assessment of their ability to meet the project requirements and the empathy we felt with their team. I know the managing contractor and subcontractors valued this tender selection approach as it instilled recognition and respect in their selection which promotes commitment.”

Managing Contractor Representative 1: “It was great that they were choosing the most competent team rather than just the cheapest, which really set the momentum for the project. I think this tender process for our team was a big motivator because it placed us in a position where we had to prove to our client that we could perform and they had really selected the right people for the job. It was also important that we performed well to show the government critics this was the right way to select contractors. This followed through in our commitment to the incentive goals. Also, I think the majority of the subcontractors, that we subsequently chose [through the tender process] on their ability to add value, thought that it was fantastic as well.”

Managing Contractor Representative 2: “The ability to be chosen as the best person for the job instils an inherent obligation on you to prove they were right in choosing you this way, which is very motivating in terms of performance.”

Consultant Representative 2: “The tender selection process was good because the managing contractor and subcontractors were selected on a value-based tender, not just price. It includes criteria like their previous experience and their willingness to participate in a team environment. It ensured that the managing contractor was suited to the procurement approach, providing some assurance that they would be committed to the project goals and be able to manage the project risks. I think it also gave them a sense of project ownership and gave them input in how the risk reward mechanisms would be set up, which was complementary to the relationship approach. Overall, the team members were very committed to the project because everyone had been individually selected based on their ability to embrace the project’s goals which I think translated into improved performance, particularly in managing the project’s risks.”

Subcontractor Representative 1: “Cost wasn’t a major component in our tender selection; it was more to do with our building approach and our ability to embrace the whole relationship contracting principle. Cost still had to be a factor and we couldn’t be miles outside the budget but overall we felt that the emphasis on the non-price aspects was fantastic as it gave us the opportunity to compete with other subcontractors. The non-price aspects were probably the reason why we were selected over our competitors and we really wanted to prove to the managing contractor during the project that we were up to the task. A major selection criterion for the managing contractor tender was how well the managing contractor representatives could embrace the process and champion it across to us. So I think this selection of the right people was good but it was also the processes put in place by the government, like the workshops, that made a big difference to the commitment on the project.”


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Subcontractor Representative 2: “I think it was really good that we were selected on the convention centre based on our previous experience and options we could bring to the project, in comparison to other projects where you are just selected on your price. It sort of brings you into an environment where you are recognised for your ability and everyone has to make sure they deliver. This is especially important to maintaining your reputation in the marketplace because future projects may be selected on the same criteria. If you have the right people on the job they are going to get along and all work in the best interest of the project. I think this was the case on the convention centre. We were under heaps of pressure but everyone seemed to be committed to meeting [the] programme.”

MD5: Stakeholder Exclusion Client Representative 1: “I should also say that because there was a pretty big rush to get everyone aligned with the relationship approach, some of the consultants had very little opportunity to take part in the risk reward mechanisms, as opposed to the managing contractor, because they were tendered prior to its implementation. So therefore, they were only on their flat fee and were not able to share in the spoils. I think some felt this was unfair and if we had had more time to prepare the risk reward arrangements it would have been nice to have everybody on board with the incentives. But unfortunately, time was against us and in the end it just didn’t work.”

Client Representative 2: “To some extent, we had an expectation that the incentives could be applied to the subcontractors because it would be them who came up with the innovations and shorten the schedules on the project. With a couple of exceptions, where there were major trades [that] came up with significant innovations – I don’t think any of the money went though to the subcontractors, all was retained by the managing contractor – they [the Managing Contractor] viewed the bonus as their commercial advantage. It was a bit of a frustration to me that we were incentivising the whole team and not just them and they should pass it onto the subcontractors. I think some of the subbies felt this was quite unfair.”

Managing Contractor Representative 1: “The finishing subcontractors were involved in the Acceleration Agreement. But we had to be very delicate because there were some early trades that had performed really well and did not receive an acceleration bonus. However, because it was only the finishing trades that were left, they were the only ones offered this ‘bonus’ amount. There was very little we could do about it, but I know a few of them felt this was unfair considering their good performance earlier in the project.”

Consultant Representative 1: “For the design team there was no incentive sharing. It was discussed but it got too hard to try and negotiate an incentive once the consultant contracts had been let. There also were varying levels of people’s acceptance of the incentive in our team. My company were receptive to the idea and had done projects with incentive before, but some of the consultants were reluctant. In the end it was decided that it wasn’t to be taken up. It was discussed well into the design process so it made it difficult to administer. I think a big factor to its demise was that we felt these discussions were happening too late in the process and we didn’t have the time to work up a rigid plan. So it became an issue to how the design team can make resources available to help the managing contractor pursue design changes and savings strategies. We were paid adequately for our time to undertake that process so there was no disincentive for us to work towards pursuing the savings for the managing contractor, but there wasn’t really an incentive to find those savings either.”

Consultant Representative 2: “I think the incentive must be based on team performance, not on individual performance because it can cause too many problems. KPI’s [Key Performance Indicators - Benchmarks] should be set at a team level as holistic performance measures. If one member of the team makes a mistake then it induces a feeling that they have let the team down and that is a motivator to prevent mistakes. Although I think we would have valued the inclusion


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in the incentive on this project, the most important thing for us is to always get paid proper variations for additional work. As this was managed well by our client in this project our exclusion from the incentive system didn’t effect our commitment to the project goals. Like I said it was a little unfair that we didn’t share in the spoils but we were paid fairly for the work we did and that was enough.”

Subcontractor Representative 1: “I felt that it was very unfair that the subcontractors that were behind programme received a bonus amount at the end of the project, while those who had performed really well didn’t receive anything. Don’t get me wrong, we did very well from the project and it was a great opportunity for us, but it would have been nice to receive a part of it as something extra for our commitment to the project, considering those who were way behind got a share. It was interesting that those who hadn’t embraced the relationship approach were the ones way behind in programme, but then were rewarded with the acceleration bonus – didn’t really make sense.”

Subcontractor Representative 2: “There was a bit of a stir over the fact that the finishing subcontractors got it and the others who had completed didn’t. Look we were happy to receive it, but as I said, it just paid for the extra resources we had to put on site to get it done. I reckon that if you are going to offer it [acceleration incentive] you should offer it to everyone.”

MD6: Team Meetings Client Representative 1: “We set up a pseudo-company where key representatives from each of the organisations were joined to manage the project issues. The IMT [Integrated Management Team] involved the higher-level executives, while the PCG [Project Control Group] involved the on-the-ground project management team, and those teams met on a monthly basis. This was beneficial to the management of the project as it allowed the team to discuss project issues openly and determine appropriate courses of action quickly. This process improved the project team’s ability to solve issues quickly which assisted us in pushing forward and meeting the project goals, particularly under the high-risk nature of the project. I think the managing contractor and consultants valued their involvement in this management process as a sign of our [client’s] commitment to empowering them as vital contributors to successful project delivery.”

Managing Contractor Representative 1: “It was a challenging project – the risk profile was quite horrendous, there was a fixed time and cost to deliver over an operating railway station. The geometry of the building was also very complex to construct. I think the how the team was structured played a big part in the projects’ success - particularly the innovative contributions to meet the challages faced in the development of design… under the PCG and IMT we were actively involved in the value management process.”

Managing Contractor Representative 2: “It was not foreign to us to combine forces under a relationship delivery system with common objectives. A big part of it was the management approach – by combining the expertise across the various disciplines we had greater confidence in a successful project outcome. Generally everyone in the team was willing to embrace the principles of team work.”

Consultant Representative 2: “I think the most important thing is to create an environment where all team members involved in receiving the incentive have the right to have open dialogue, where the contractor has the opportunity to speak to the engineer without retribution – open communication that ensures that everyone has control over the incentive outcome. This was tested in the project meetings and we had some interesting workshops on straight talking and communication that helped bond the team in this way and that helped. Normally subcontractors cannot challenge the Client’s views but that wasn’t the case on the convention centre. Everyone had a view and had the opportunity to express that view in an open forum through the management meetings and nobody was criticised for their view.”


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Subcontractor Representative 2: “The relationship workshops on the convention centre were pretty touchy feely but I think the monthly project meetings were really valuable in sorting out the problems we were having with the programme, and just being able to discuss issues openly was very positive for the project and really gave us an appreciation of the higher project goals we could work to, particularly at the end when we were under acceleration. I think considering the things we were up against in meeting [the] programme within budget, we did really well in the end.”

MD7: Future Work Client Representative 1: “Definitely, as one of the most iconic sites in Adelaide, the contractors were motivated to strive for the budget and time objectives because it would reflect directly on their reputation and from a marketing perspective it would be a key project for their portfolio. They were heavily committed to the project because of the importance of the project and the high level of awareness of the project’s outcomes. I think success on a project of this magnitude can really improve a contractor or consultant in their future work opportunities.”

Managing Contractor Representative 1: “We felt an obligation to the development of the industry to make this project work as an example for future projects and we were willing to form a collaborative relationship with our client and subcontractors, outside our contractual requirements. This was a motivator for us.”

Managing Contractor Representative 2: “We saw future commercial opportunities with this government and wanted to ensure that the project did succeed, particularly meeting the project deadlines.”

Consultant Representative 1: “We rely on the relationships formed and our reputation for future work in such a small market and I think nearly everyone on this project did also. We all wanted to perform well and maintain our reputation as a competitive advantage in future projects.”

Consultant Representative 2: “Our involvement in an iconic project was a big motivator and induced excitement and passion in the project all the way down to the workers on site. The brief said that it had to be an iconic outcome for Adelaide, contributing to the growth of our capital city. Although it is hard to quantify, this definitely promoted project goal commitment across the team. I think with a project of this size and magnitude, we can use it to our advantage in future work and I think this was a big motivator for the managing contractor and the consultants – the recognition we would receive by meeting all of our client’s goals in the delivery of such an iconic project.”

Subcontractor Representative 1: “We felt a strong connection to this project because it was such a significant project for Adelaide and one that we could be really proud of as a local subcontractor. It reflects the effort we put into the relationships and our work. Now of course you can’t control everything as a subcontractor but you can make sure that your work reflects well and I think it has in this project as we achieved the project goals. I think if you have a managing contractor that treats you with respect like the one we had on this project, we will be keener to work for them and our prices will reflect that. It is a basic risk assessment – the less risk of problems the lower the price we can tender and there is the loyalty factor. I think if you can get the subcontractors involved earlier in the project and maintain a good relationship throughout, [and being] rewarded at the end through potential future work, it can be more beneficial to us in comparison to the short-term monetary benefits of incentives. We really value the future work aspects and our involvement in this project has improved our standing which has lead up to bigger and better things. This is a big motivator for us and we really wanted to make sure the managing contractor and the Client were happy with our performance.”


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MD8: Budget Inaccuracies Client Representative 1: “Another area that put us under pressure was an inaccurate budget amount that wasn’t aligned with the market prices. When the managing contractor went out to subcontractor tender, subcontract prices were coming in, in some case, A$1 million over what we estimated. Most of the packages were OK; it was just three or four that were significantly over. So basically we had to go back to the drawing board and develop ways to bring these costs down, which put further pressure on the design team to get the documentation completed, increasing the risks that we would not be able to meet time and budget goals. From memory I don’t think the market was overly heated at the time, but I think we did underestimate the extent of the design and unfortunately it was not covered in the original budget. We were under such extreme pressure that it was very difficult to efficiently undertake value engineering with the managing contractor, so we didn’t get value from the ‘innovation’ incentive as much as we could have. So that was a lesson learnt.”

Managing Contractor Representative 1: “One major issue with the incentive was that the original budget of A$85 million was inaccurate and very much underestimated the scope of works. It became apparent pretty early in the piece, when the documentation was developed and we were letting some early trades, the A$85 million would be under enormous pressure. There were elements of the structure that were very complex and other issues such as the building’s ability to exhaust fumes from the railway lines under the building [that] put huge strain on the budget amount, including the low contingency amount. In the honesty of the discussions that occurred, we said they had to chop something out of it, but we were told we could not cut scope, so we had to find cost-saving design and construction innovations. So we went through a host of value engineering exercises to bring the prices down, which was to be rewarded through the ‘innovation’ incentive. However, despite the innovation savings we and our subcontractors identified, the project was still going to be over budget. Therefore, what it meant was that there was no money left to be put into our incentive pool. So basically, due to the inaccurate budget estimate that we were working from which was outside our control, the cost-saving innovations we proposed were not enough to prevent budget overrun, leaving no money for the ‘innovation’ incentive pool. This was rectified with the increase in budget at the later stages of the project, but was a major concern under the original budget amount as we felt it would be difficult for us to preserve the budget and meet the project deadlines.”

Managing Contractor Representative 2: “There were some pretty significant issues with the level of documentation that was completed by subcontractor tender stage, which really put us in a bind and forced us to allocate additional resources and accelerate the project to catch up on the lost time incurred during design. This put more pressure on the project budget that was already behind because of underestimations in the project scope when it was set earlier on. In the end we had to be paid additional money that came out of the contingency to allocate additional resources. The documentation problems really pushed us back and decreased our ability to control cost from an already lean budget during construction.”

Consultant Representative 1: “In the early process in the project there were some options provided to Cabinet on which way they wanted to go and they decided on the highest cost option and delivery of an outstanding building. There was a mismatch found with this expectation through problems with early estimation. I think the QS [Quantity Surveyor] struggled in the early conceptual design because it was such an unusual project over an existing railway line and so on. So we were dealing with some significant engineering issues and struggled to cope with the budget. Once we had dealt with the engineering issues there was not much left for the external requirements and this was one of the big government expectations. As the budget was the benchmark we were all working against, it meant that it would be very difficult to achieve, especially as the completion date was set in stone. As the budget was inadequate and the time required to sort out the complexity of the project was pushed very tight, we had to allocate more


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resources at the end of the project to complete it by the deadline.”

Consultant Representative 2: “We always thought the project was too tight. There was a lot of pressure because there was a ‘drop dead’ date and it had to be finished by a certain date to meet a wine industry function. I think the project was under pressure right from the beginning. The project was all consumed about making decisions on the budget. At one stage we had three budget options between 65, 75 and 85 million and the government wouldn’t decide what was going on – we were a part of that decision process – however, the problem was that the completion date never changed to take into consideration the deliberation process and the changes in building scope. So I think the original A$85 million was inaccurate, which was realised when we let subcontracts. The managing contractor did as much as he could and I don’t think they could have done anything more than they did to preserve programme. It made it hard for them as it was very unlikely that they could get their incentive because of the original budget problems, during the earlier concept stages.”

Subcontractor Representative 1: “There were also problems with the project budget. Although we didn’t get involved too much in it, we were aware that it was going to be very difficult to get the project finished under the original budget considering we were behind in programme. I don’t think the budget really was attuned with how much it was going to cost to deliver the project. In the end the government put in more money to get it finished.”

MD9: Late Involvement Client Representative 2: “So I am a bit of a fan of getting the concept, getting approval and then bringing them [the managing contractor] in when they can focus on the design during schematics. We didn’t have the luxury of this on the convention centre as the whole approach was chosen quite late in the project timeline, but bringing them in early in schematics may have helped some of the budget problems. I am a believer that the designers should drive the project at the early stages of the project – if you don’t honour and respect their ability to come up with design solutions then I think you are lost. I am a bit suspicious about the contractors driving the project at the beginning as contractors tend to focus on commercial and pragmatic issues about the design and I think at the concept stage this is not needed; you need design-led solutions at this time.”

Managing Contractor Representative 1: “Our ability to influence design was pretty limited. The concept and schematic design was almost completed and the consultants had all been appointed by the time we came on board. This made it difficult for us to propose design changes that could have aligned better with the project budget. We did have input in the constructability including the scheduling of trade packages. It was our recommendations with the sequence of construction documentation that caused some of the initial documentation problems increasing contingency spending. If we had been on board earlier, it can be argued that the documentation process could have been improved, increasing our chances to preserve the contingency.”

Managing Contractor Representative 2: “In hindsight I think the project budget should have been tested more than it was. We were only given about two weeks to put our tender submission together, which really wasn’t sufficient time to evaluate if it was an accurate budget amount. I think if we had been brought in earlier, before locking the budget, to allow us plenty of time to test the market and determine an accurate budget amount, some of the financial problems could have been avoided, which would have substantially improved our chances to achieve realistic project goals. I think the opportunity to agree to a realistic figure would be very powerful because in this project we were always chasing our tail. If you weren’t under that horrendous pressure from the inaccurate budget right from the beginning, you could really make better decisions based on the spirit of the contract rather than being forced into price wars. They ended up paying more of a realistic figure in the end. Why can’t we establish that right from the start and avoid all the pressure? I think this constant pressure did effect our commitment to the project


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goals”.

Consultant Representative 1: “The project went though a number of value management exercises because of budget problems, and a lot of cost savings initiatives were put forward prior to the managing contractor’s appointment and also when they came on board. This did cause some problems because the target cost agreed on, based on an incentive to the managing contractor, was based on an overall project scope that had already been value-engineered by the time they had come on board. So the opportunities to find savings for the managing contractor had been significantly reduced. I think for the contractor it was tough in this regard. We had discussed the incentive mechanisms [with the] agreement that the managing contractor could meet the innovation and time requirements without considering that they would find it very difficult to attain, based on how advanced the design was when they were tendered. We had misjudged the consultants’ and the managing contractor’s ability to meet the incentive goals and deliver on something that had already been through a very tight value engineering process.”

Subcontractor Representative 2: “On the convention centre project we weren’t really involved in the early design stages. I think if both the builder and ourselves were involved earlier it could have minimised some of the programme problems we had. It certainly made things difficult in the documentation process because the design team were under pressure to get the design documented. We [the managing contractor and major subcontractors] provided input into constructability and the design team had to go back and rework the design to include the changes. Also because the budget was not looking that good at the time, it put the project further behind programme, making it harder to meet the completion date within budget. I also don’t think they anticipated the costs of making the design changes. I think if we had all been involved earlier it could have prevented some of the rework and possibly helped the programme.”

MD10: Measurement Ambiguity Client Representative 2: “In the end, it [the ‘innovation’ incentive] was quite difficult to administer because it came down to matters of judgement. So the managing contractor presented us with innovative solutions that should be rewarded and the design team came back and said it wasn’t innovation and it wasn’t even their innovation, it was ours! The arguments also were that it wasn’t innovation; it was just business as usual. So we got into this really big bunfight over the definition of innovation. So that was a problem and I think it caused the [managing] contractor some confusion. Looking back we wouldn’t do it again because there was too much judgement in it and not enough fact. If you did it again you would make sure you had someone whose job it was to resolve it at every occasion to ensure that it fitted the criteria. We didn’t do that, it was allowed to slide and then it all got messy. Then people tried to argue about things that had occurred seven moths ago, so it became a problem.”

Managing Contractor Representative 1: “There was a major problem with the clarity in how the ‘innovation’ incentive was to be measured. This came down to the problem that it was difficult to define what an innovation is and this caused argument between the Client and us.

Managing Contractor Representative 2: We felt the terminology [for the innovation incentive] was so subjective to interpretation that it wasn’t a fair measurement process. For example: is an innovation a substitution of tap wear that saves the Client thousands of dollars? Now we considered it an innovation but our client didn’t, [and] regarded it as normal managing contractor practice. So this caused more problems than it was worth, so we had to accept the Client’s decision. So in hindsight, I think it is very important to make sure the incentive is clear in how it will be measured and what it is measured against. Innovation was too broad a term in this case.”

Consultant Representative 1: “There were problems with the interpretations of what was being measured under the term ‘innovation’ and it did cause some argument which wasn’t proactive under the relationship approach.”


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Consultant Representative 2: “I think the managing contractor was unsure of what they were actually working towards. It is important that you can break the incentive down into clear and measurable benchmarks, and then you can see that it is reachable.”

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APPENDIX E: CASE PROJECT D - DISAGGREGATED DATA

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APPENDIX E:

DISAGGREGATED DATA

CASE PROJECT D – COFFS HARBOUR HEALTH CAMPUS



drivers in Case Project D (the ‘project’), presented in the rank order of impact as shown


MD1: Equitable Risk Client Representative 1: “To us it made a lot of sense getting the builder in to give us the input on buildability issues during design development and documentation and it also gave them the time they needed to develop up a fair GCS [Guaranteed Construction Sum]. We set them a target construction sum [TCS] and they submitted the GCS that had to be within the TCS which was all open-book. From our perspective the TCS allowed us some control over the GCS. So at the end of the day if the actual construction sum came in below the GCS, the savings were shared 50:50. I think allowing them [the managing contractor] the time to develop the GCS enhanced the accuracy of the construction estimates, improving the opportunities for them to bring the project under [budget]. It would have been very difficult for them if they had to nominate the GCS earlier as we really didn’t have enough definition in the design. We thought it was [in the] best interest of the project to allow them input in the design, where they gave us a shopping list of all the things that could be cut out of the scope to meet the TCS and minimise the chances of GCS overrun during construction.”

Client Representative 2: “As the design consultants were not responsible to the managing contractor before novation, [stage 1] helped ensure that [the government] controlled the design decisions. It helped [the government] manage the design’s direction. Also, with the late novation, the managing contractor became intimate with the design so that they could more accurately estimate costs [through the GCS]. It promoted collaboration through price negotiation, which certainly increased the commitment to identifying cost-saving opportunities, as it was all open-book.”

Managing Contractor Representative 1: “I think it [the GCS negotiation process] was fair, given the level of control we had over the design once we put in our price. It’s up to you to define what’s in your price when you do your GCS. When we tendered the job our initial risk position was our fees. So it’s the time it’s going to take to get to an accurate GCS, and then the time it’s going to take to deliver once you’ve got that. That was our real risk position, but allowing enough time to get up to speed on the design and then nominate our GCS certainly helped us manage


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our risks”

Managing Contractor Representative 2: “As we had worked through the design with the design consultants earlier in the project there weren’t that many unknowns, which certainly lowered our risk of cost overruns [as opposed to if the managing contractor had been forced to submit a GCS at Stage 1 tender]. It gave us greater control over our budgets and possibly securing savings.”

Consultant Representative 1: “[The managing contractor] had a very good way of managing the design whilst we were up at the hospital going through the design development. They worked on it with us through design development, and then at the second stage tendered on the design. As [the managing contractor] had a greater understanding of the design, particularly because they were involved throughout design development, they were more set up for managing contractor role - they had a better mentality of the design intent and it made it easier for them to price [GCS]. The negotiation was all open-book. There was also feedback during that process - during the tender process for the second stage - that fed back into the design. [Such] that, to be able to achieve the scope for the GCS there needed to be some design changes. So simply, this process gave them greater opportunity to identify savings opportunities and bring it in below budget.”

Subcontractor Representative 1: “I honestly think if the Client pays the builder a fair price, it then allows them to pay us a fair price - so we are not being stretched too far. This means everyone can get along and we are not constantly arguing over issues to preserve our small profit margins. Generally margins were good on this project, and I believe [the managing contractor] was quite comfortable with their pricing, which meant that they weren’t stretching us too far.”

Subcontractor Representative 2: “I think [the managing contractor] was in a good financial position. Although they kept the pressure on us, they didn’t push us too hard and we came out OK in the end. I definitely think that if you have a good builder and they are not being forced to cut corners, they will treat us fairly. Unfortunately, there are a lot of jobs where the builder, who is under pressure to bring the project on budget, pushes that pressure down to us and we are the ones that end up losing.”

MD2: Future Work Client Representative 2: “I think there had to be significant motivation through the potential for future work with our department, outside the contract or the incentive. An example I can think of that displayed this motivation was the security strongroom in the pharmacy. There was a difference of opinion in what was stated in the documentation and compliance with particular requirements and the outcome was that the managing contractor decided to spend an extra A$40,000, that wasn’t in their calculations, to provide steel linings. Now they probably weren’t happy about paying that money, but were willing to do it for the sake of their reputation and the project relationship. So, I felt their decision to contribute extra money was not a purely economic decision. So we ended up getting the result we wanted, and if the managing contractor had been driven totally by their bottom line, I think there would have been much more argument about it and I think that represented their attitude and commitment to the project.”

Managing Contractor Representative 1: “Future work is a major motivator for us to secure savings and be seen to be improving value for money, especially with government. We took on [the project] with a plan of moving forward and doing a number of the health jobs that have been touted for the last ten years. We took on that job, and probably delivered in the environment of saying, hey, we are the people you should want to be working with. We can deliver what you want delivered. They took on a relationship approach and we jumped straight on board because we knew we could align with the type of procurement and achieve those higher level objectives and it’s a client we wanted to become a repeat client.”

Managing Contractor Representative 2: “I think we were all working [on this project] to uphold our


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reputation as a top contractor in this market, and sure, it was a factor that motivated us to achieve the savings. I definitely think if it is a staged project and we perform well and are able to return money to government, we should be looked on favourably for future stages. I think it is the way to go. What was very frustrating for us on [a previous government health project] was that we had a great relationship and delivered on the project and achieved the incentive goals, but we lost the next stage, which we think may have been selected only on price. That can be very demoralising. Viewing it as one project is a pretty limited approach. So as we wanted to get the ongoing roll out of health projects across New South Wales and also get involved in Victoria, there is nothing better than having testimonials or having a good reputation with another health department. I think project by project the financial model is important but holistically you have to be looking at the opportunity of further work.”

Consultant Representative 1: “Future work opportunity was a big motivator [for the managing contractor] to perform well and be seen to have brought the project under budget outside what else was on offer, such as the incentives. This motivator is especially relevant in government health jobs as you only get the work if you have done it before so you can demonstrate expertise in health projects. The managing contractor on this project was a very long-term player in health. They would probably see themselves as one of the most expert contractors for these types of projects. I think that they very much work on reputation as well. Whereas other builders I have worked with, you can see on a day to day basis that they are only there for the profits on that particular job, but how government health projects are let plays a big part in the motivation of [the managing contractor].”

“When it comes to the big government projects, the players are generally in it because they want to be in that industry. They are generally not in it because it is a way to make a fast buck and move on. If they do that sort of work, then they are more likely to be in commercial projects. And certainly on this project we were all working toward getting the best outcome for our client for other things than a fast buck - and being the first managing contractor type project in NSW, we all wanted to make it work.”

Consultant Representative 2: “I think reputation was a big driver for the [managing contractor] because they realise that their product is important in the big picture of things, for getting the next job compared to just one individual building, and whether that team managed to make a lot of money, or make their incentives. No doubt financial incentives still are a major motivator to them but the awareness of the ‘bigger picture’ is becoming more and more prevalent and therefore motivations are changing. They are becoming more considerate of the design and its intent and realise that if they just do a slap-dash, dirty builders job on it they will fail to secure future jobs with the big clients like government.”

Subcontractor Representative 1: “Future work was a big motivator for us, particularly on this one because it was the largest job we had worked on. I’m sure future work was also a big driver for [the managing contractor] to bring the project under budget.”

Subcontractor Representative 2: “I think reputation is very important for everyone in the industry. I think those who burn bridges by not performing really suffer when the market slows, especially if you want to get the bigger jobs. There are not that many builders around that do these types of jobs. So it is important to make a name for yourself as a reliable and professional operator. I think it works both ways as the builder wants to make a name for themselves with the big clients, like government, but also they want reliable tradesmen as well.”

MD3: Value-based Tender Client Representative 1: “Well, the selection of the managing contractor firstly involved establishing a pre-tender list of preferred contractors. We got ten expressions of interest. Now we did that purely through non-price criteria, as it was an expression of interest. We then went out to


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tender for the managing contractor fee and we chose those tenderers based on price and non-price. I think it [the non-price/price tender selection process] definitely motivated [the managing contractor], as it made it clear that [the government’s] expectations were high and that we were selecting them based on their ability to work with us during stage one to develop the design and nominate their GCS, which followed on to their engagement under stage two.”

Client Representative 2: “We were involved in the selection of the managing contractor right from the initial short listing. I think this project could have been very adversarial if [the government] hadn’t selected the right people right from that stage. There is no doubt that the short listing process, which included prior experience and ability [as selection criteria] contributed to the successful outcome and I think [the managing contractors] were pleased with their selection.”

Managing Contractor Representative 1: “Some builders would cut their fees on the expectations that they would get the incentive. This is a risky undertaking and generally we don’t do that. As with this project, the Client made sure that our margins were adequate and I think this exercise as a part of the tender processes can prevent budget problems. So they are selecting a builder who is capable and is not depending on the incentive to make a profit, but see the incentive for what it is - as a bonus if they perform well.”

Managing Contractor Representative 2: “I think it is a great idea [to implement a share of savings incentive]. If we can value add during the project, we can make procurement gains. So, if we can add value to the design to save the Client money, the bottom line saves us both money and I think that should be shared. It’s obviously a good motivator for us and if you can control your performance it will work well. But for it to work you need to make sure that you have a good project team selected on their prior performance and their capability to deliver the project and not just price, and that way you have greater chance of a successful project.”

Consultant Representative 1: “The [government] was very keen to get people they could work with and that became a part of the selection process. I know that they pushed hard for a consultant team and a contractor who could work well together and deliver the project above the norm, with lesser emphasis on our fees. I think this was a big factor in our ability to meet the project goals and how committed the team were to a successful delivery.”

Subcontractor Representative 1: “The relationship was strong from the start and I reckon we were partly engaged because we were a local company and we had personal stake in the hospital because of its importance to the local community, even though we hadn’t had a lot of experience on jobs of that size. Our price was definitely competitive and it probably was the lowest, but I doubt that price was the only thing we were selected on. I’m sure it would have been the same for [the managing contractor] and we all wanted prove we were, you know, up to the task.”

Subcontractor Representative 2: “I cannot speak more highly of the people that were involved for this project. It was not particularly the companies they represented, but the people who managed the project that stood out. From our perspective we knew the [the managing contractor] would pay us on time and this meant that we would get along. So I think that knowing that everyone was out to do the right thing, not just what is spelt out in the contract, made it a good job. I think the government should select a builder on their reputation as the good ones are those who will treat us fairly and sure, I think we all value being selected on our ability and reputation and not just on price, because most of the time the lowest price means that something has been left out.”

MD4: Teamwork Meetings Client Representative 2: “I had contact with everyone on the team and universally the individuals were very positive. I think the personal relationships that were formed at the meetings and so on certainly helped develop a harmonious team. I admit we had some problems at the end of the project in maintaining the momentum and getting the managing contractor to move on defects,


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and that problem lasted longer than it should have. But by and large it was an extremely positive experience for everyone involved and this is a view that is shared by the end-users.”

Managing Contractor Representative 1: “We had a couple of early relationship sessions. I though it was quite good, I didn’t mind the whole reporting process that we had and [it] certainly built the team up to manage the project. I think it’s a smart way to contract. We didn’t spend a lot of time talking about relationships and focusing on relationships in the meetings, but just thinking about the way the job should be managed. I think we had a pretty strong relationship with public works which certainly helped in the delivery.”

Managing Contractor Representative 2: “There were very few difficulties as far as relationships were concerned. The bigger concern was the logistics. I think everyone got along well and it was because of the people on the teams. I think provided there is a reasonable approach from the Client, and provided we’re doing what we are supposed to do, and delivering things on time, then that relationship should work by default. If you are professional with what you are doing, then that relationship should work. I think there was a good framework for developing the relationship through the project but it really came down to the professionalism of the team.”

Consultant Representative 1: “The relationships can complement the financial incentive. As most of us will agree what you can lose through bad relationships is a lot more than what you can win through incentives. But they can be complementary. It can be really difficult where you have difficult relationships. So I think the whole relationship building process that was present in the project developed through, like you mentioned before, the meetings, increased the power of the incentive.”

Consultant Representative 2: “Developing that project culture that aligns the committed individuals within the organisations into the team environment is of utmost importance to the success of a project like this. The success of building projects is significantly controlled by the individuals who manage them and I think we had some good people on this job as it definitely showed in the levels of commitment even though everyone wasn’t offered a share of the incentive. The way that you feel towards the project, and how committed you are in doing a good job will impact significantly on your motivation. So the company as a whole may be in a difficult financial situation, but as you [are the] person working on it, it’s your baby and you have been working on it for years and years, and you want it to turn out really well for your company and be satisfied with the outcome, especially on socially significant projects such as hospitals - you just want to do it right. Certainly, the early team meetings encouraged teamwork and enthusiasm for what could be achieved.”

MD5: Stakeholder Locations Client Representative 1: “Unfortunately, as the project was a regional project we [the managing contractor, consultants and client representatives] had some issues with communication because we were based in different locations. These communication issues did affect the management of the project, as a few problems were not sorted out as quickly as we would have liked, such as the engineering services which were definitely under-resourced, resulting in problems at the end of contract to complete work.”

Managing Contractor Representative 1: “I think it is a different environment to when you are working in a capital city project where you have got all those people at your site every day. Some of those consultants had local representatives, which was fine and design solutions went through them. But as the architects were based in Sydney it caused some communication problems. I don’t think it substantially affected the project’s outcome but it was a problem I guess. We also had subcontractors coming from Sydney, Brisbane, Coffs [Harbour], Taree, Gosford, Grafton - all over. The difficult thing for us, but as is typical for any regional you do, is that a lot of the local trades might put their hands up and say, no worries, I can do a million dollar plastering job. Can


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they really? Can they really handle the cash flow and the resources to actually deliver with certainty on those things? So that was quite an experience for us which did increase our risks.”

Managing Contractor Representative 2: “As everyone was spread out, it made it challenging [to manage the design]. One of the issues that I was involved in came from the complexity of the roof on the project. The various hips and the angles were quite complex. It didn’t help that we had a structural steel company in Brisbane and an architect in Sydney. So the architect and the engineer brought the design up to a certain level. It’s then the draftsman’s responsibility to bring that from a detailed design to delivery on site. So that left that gap to fill. One of the major concerns we had was getting all those parties together and having sessions to ensure that discrepancies between the drawings and what actually had to be built can be filed. It resulted in program delays and there was a bit of a financial implication to it. Also as it was one of the first projects that we used [web based project collaboration] on, so it was quite limited. When it started off on the project, all the architectural drawings were on it, but none of the engineering [drawings] were, so we were kind of half into it, and half out of it. So I don’t think the geographical issues would have been an issue if the system was fully functional as it is now.”

Consultant Representative 1: “The working relationships during the design stages were very good. They sort of fell apart a bit during construction, which I think was due to the problems with communication. So the big problem was that the users were near the site, the builders were in Brisbane and the designers were in Sydney. In hindsight, I think [the managing contractor] would agree, that they [the managing contractor] should have either sent someone down to reside during the design process in Sydney, or we should have had someone from our team with them. The only time we ever came together with them was when we were visiting the site, when we were up there for meetings and things. So that caused us some headaches. I think it affected the momentum and made the project more difficult to control.”

Consultant Representative 2: “I think we had most of the communication devices we have now [when the hospital was constructed], but because we didn’t know the working environment that well, it impacted on our ability to resolve design issues. This was because the managing contractor was based in Brisbane and we [the consultants] were based in Sydney. I guess in hindsight by having that experience, next time you think, OK, we will find alternative means to keep the communication going. But because it was one of the first that we had been involved [with] under these conditions, we never really sorted it out which can affect performance. I think when you get closer to the people you are working with on both a personal and business level you are able to discuss issues more openly. As we weren’t in close proximity to one another, assumptions on what was going on crept in and the decision-making process suffered, making it more difficult for the team. In an environment where you are more willing to openly talk about problems [you] can really improve the relationships and the ability to rectify problems.”

MD6: Variation Approval Client Representative 1: “A clear set of documents that set the scope of the GCS made sure we had a very closely controlled request for change process after the GCS was agreed. This meant that there would be no question over what the GCS covered and how a request for change would be managed through the approval and pricing, [and what] would finally be allowed for in the GCS. I think these clear processes and documentation control also ensured that conflicts didn’t arise over variations to scope and delay entitlements with [the managing contractor], which can have a big effect on performance. In the end we had about 10% variations on the final price which was excellent.”

Managing Contractor Representative 1: “Variations on the project were all open-book, so any variations that were submitted had to be justified and had to reasonable. I think [the government’s] system in how variations were considered and approved was good, providing they were legitimate. Their cost planner came down once a month, so we went through progress


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claims and we went through variations and, providing the back up was there and the due diligence was done on our behalf, it was smooth sailing. We got the impression that they were very receptive [to variations] - it certainly was a fair system.”

Consultant Representative 1: “If a fair [approval] system is set up in the beginning and all the mechanisms are in place for the things that may happen along the way, it will complement the relationships and boost motivation - knowing that you will get reimbursed for extra work through variations is all that you can ask for. You make money on jobs where there are good relationships. That is where you make the money, and you loose big time where there are not. So, on this job it was important that we could rely on the mechanisms in place, that we would be paid fairly and could trust each other not to renege on our commitments.”

MD7: Late Involvement Managing Contractor Representative 1: “Testing the market is a major advantage of getting in early, [and] you are able to develop the design with the Client. As the managing contractor in a two-stage arrangement, you can test contractor pricing in Stage 1. By the time you put your GCS on, it’s generally pretty well considered. But the earlier the better, so you can get accurate prices and really contribute more value to the design... So getting us in earlier, they could have probably turned out more value, maybe during schematic design. I think it depends on the knowledge of the builder, and how much the builder is interested in adding more value.”

Managing Contractor Representative 2: “We are a big believer in getting [the managing contractor] in early. But some of the architects can be a little bit difficult about it. I think we may have come on a little late in this project as we had to play catch-up in some areas, most notably the design. I think coming in during schematic design may have been better and we may have been able to sort out some of those design issues earlier.”

Consultant Representative 1: “The way it was intended to work on this project is that you can lock down the bits of the design that are critical to the operation of the hospital and how efficient it is going to be operationally. But then the buildability part of the design, which is not as critical to the operation of the hospital, how the structure works for instance, you can get the buildability input from [the managing contractor]. And whilst in theory it was good, we didn’t bring the [managing contractor] on early enough to really establish the relationship and get everyone working together. Sure it was great for them to implement a staged GCS negotiation to settle on a reasonable construction sum, but I think you still get problems like we did on this project where you have to re-document early construction because the buildability issues hadn’t been ironed out. From a management perspective there are some major problems there. I think it all comes down to having good relationships and you know, it’s all the things that every one says, you have got to trust each other and whatnot, to really boost motivation. If you have got good relationships on a project and there is a lot of trust and good communication then the earlier the [managing contractor] is on board the better.”

MD8: Single FIM Goal Managing Contractor Representative 1: “When we submitted the GCS, we had a pretty firm grasp on the building scope. Securing savings really comes down to whether you can do anything that is equivalent to that scope or work... that is bound to be cheaper during the procurement process. Really, the savings that you really get are procurement savings and better management of deliverables. So just focusing on savings does limit the incentive opportunities. But generally, if you can control it as an experienced builder you can improve your chances to secure a share of the savings.”

Consultant Representative 1: “We were a bit sceptical on how the share of saving financial incentives would really motivate a builder, as the procurement approach gives them a lot of


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control over design and quality, and if they are financially thin on the ground I think they tend to take short cuts. So I think there definitely needs [to be] consideration of other things in measuring the performance of [the managing contractor], to prevent them taking short cuts. I don’t think the incentive arrangement really pushed [the managing contractor] in all the areas it could have. Just about everybody knows a fast project is a good project and I think that this is an area well worth rewarding. And not only that, it is something the builder has most control over. So it probably should have been considered as a part of the incentive on this project as [the managing contractor] was the only one being rewarded.”

Consultant Representative 2: “From a general point of view as a government project, you are trying to save money, and not spend too much taxpayer’s money, and all the rest of it. But what you want to get at the end is the best possible facility for the amount of money - the best possible outcome for the money available. Not just the cheapest one. You might as well have just given it a lower budget. As [design consultants], I think we are always sceptical of a share of savings incentive that really puts pressure on the contractor to do this as cheap and as easy as possible. Is that really what we wanted from a project like this one? I don’t think so - if the government takes a share and redistributes it back into the project, that can be beneficial, but I think the goals need to be carefully considered so that not too much emphasis on cost performance can potentially hinder other important project priorities such as quality. In our area I can say this did happen on occasion and I really think an incentive program should cover multiple areas to prevent negative effects in other important areas.”

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APPENDIX F: INTER-JUDGE RELIABILITY TEST RESULTS

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APPENDIX F:

INTER-JUDGE RELIABILITY TEST RESULTS

This appendix presents the results of the inter-judge reliability test conducted at the

conclusion of the research data analysis. As detailed in Section 3.3.2, this test was

conducted to ensure that the content analysis of the primary interview data was reliable

and inadvertent bias was minimised. The figures in red below represent discrepancies in

the panel members’ classifications.

Table 16 Inter-judge reliability test results

Expert Panel Members’ Classifications Quotes Researcher’s Classifications

Panel Member One Panel Member Two Panel Member Three

1 1 1 1 1

2 8 8 8 8

3 4 4 4 4

4 1 1 1 1

5 7 7 2 7

6 5 5 5 5

7 7 7 7 7

8 8 8 8 8

9 3 3 3 3

10 2 2 2 2

11 3 3 3 3

12 4 8 4 4

13 2 2 2 2

14 5 5 5 5

15 6 6 6 6

16 6 7 1 6

AGREEMENT 87.5% 87.5% 100%

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