in 150 - 200 words summarize andrephrase this article and get onesentence the most take away and one-sentencecriticism from this article
How do contract types and incentives matter to projectperformance?
Abstract
How collaborative contracts and contractual incentives mightinfluence project performance remains equivocal. We hypothesizedthat their effects on project performance are mediated byowner–contractor collaboration, measured in terms of relationalattitudes (relational norms and senior management commitment) andteamworking quality (inter-team collaborative processes). UsingPLS-SEM, we analyzed a sample of 113 capital projects. The resultssuggest that through better relational attitudes and teamworkingquality, projects with a partnering/alliance contract are likely toperform better than those with lump-sum and reimbursable contracts.Likewise, the projects with incentive contracts are likely toperform better than those without incentives through betterrelational attitudes and teamworking quality. There were nodifferences in project performance directly associated withdifferent contract types and contractual incentives. Takentogether, a partnering/alliance contract and incentive contracts donot necessarily result directly into better project performance butthrough relational attitudes and how they play out into actualteamworking behavior.
1. Introduction
There is a wide agreement that the choice of contract typesshould be contingent upon various circumstances such as productand/or process uncertainty, desired allocation of risk, ownerin-house capability, and market conditions (Merrow,2011, Turner, 2003, Turner and Simister,2001, Walker and Rowlinson, 2008). A proper contract type ischosen to encourage the owner and contractor to work rationallytogether to achieve the best outcomes in accordance to their commonobjectives and within the expected risk (Morris and Pinto,2007, PMI, 2008, Smith, 2002, Turner,2009, Walker and Rowlinson, 2008). However, two separateempirical studies at different times by CII(1986) and IPA (2010) suggest that there is no clearor direct relationship between the contract type and projectperformance. CII suggests that regardless of the choice of contracttype, the real issues that affect the project cost performance areassociated with the alignment between owner and contractor andtheir agreement in allocating and managing risk. In a similar vein,IPA suggests that any contract type can deliver success or failurebecause contract is a second-order concern. One contract type maywork well for some owners but fail for others because differentcontract types bring different difficulties and situations.
In this study we focused on three basic types of contractsunderlying the relationship between owner and contractor in theexecution of capital projects: lump-sum or fixed price,reimbursable, and partnering/alliancing (Smith, 2002, Turner,2003, Turner and Simister, 2001). A lump-sum contract is acontract where the contractor is paid a fixed amount for the wholescope of works defined in the contract. A reimbursable contract,commonly called cost reimbursable contract is a contract where theowner reimburses the contractor for all costs, reasonably incurredand directly associated with the amount of work done for theproject; plus a certain fee (fixed fee or percentage fee) and/or anincentive fee (Berends, 2006, Merrow, 2011). Apartnering/alliance contract is an extension to reimbursablecontract where the owner and the contractors (often includingspecialist contractors and key suppliers) jointly establish thetarget out-turn cost and share the gain and/or pain resulting fromthe actual cost (Meng and Gallagher, 2012, Ross,2003, Turner, 2003).
What is the potential influence of different contract types(partnering/alliance versus lump-sum versus reimbursable) on thenature of the relationship between owner and contractor? On oneextreme, the lump-sum contract demands less owner intervention (orless involvement) and therefore offers more flexibility and lessadministrative burden to the contractor in executing a project(Berends, 2006, Lowe, 2007). But it also has some perceiveddrawbacks. A lump-sum contract is often considered to create anadversarial relationship between the parties in dealing withchanges of circumstances during the project execution (Smith,2002, Turner and Simister, 2001). The reimbursable contract,in contrast, implies that more owner involvement and support can beexpected and thus less barriers to building a collaborativerelationship and an integrated team (Berends, 2006, Smith,2002). But a reimbursable contract also has some drawbacks from theone party's perspective toward the other party (Berends,2006, Smith, 2002). The contractor often perceives that theowner will be more demanding for achieving target cost andschedule. On the other side, the owner perceives that thecontractor will come up with additional work and thereby increasecosts over what was initially estimated. In the end, lump sum andreimbursable contracts have a quite similar implication onowner–contractor collaboration (Müller and Turner, 2005).
On the other extreme, a partnering/alliance contract focuses onthe ‘principles’ of relational contract to change projectparticipants' attitudes from being short-term and adversarialtoward a more collaborative mind-set and behavior (Cowan and Davis,2003, Larson, 1995, Macbeth, 1994, Naoum,2003, Ross, 2003, Thompson and Sanders, 1998). Apartnering/alliance contract is often advocated to be morecollaborative than lump-sum or reimbursable contract (Davis andWalker, 2008, Thompson and Sanders, 1998, Turner,2003, Turner and Simister, 2001).
Several in-depth case studies of partnering/alliance practices,however, reveal that this contract type does not always eliminatethe underlying adversarial attitudes. Lack of top managementcommitment, lack of collaborative mind-set, and insufficientinitial effort to establish shared culture remain in practice(Aarseth et al., 2012, Alderman and Ivory, 2007, Bresnenand Marshall, 2002, Chan et al., 2012, Smyth and Edkins,2007). Contemplating the practical difficulties ofpartnering/alliance projects, it is questionable whether apartnering/alliance contract is better than other contracttypes. Merrow (2011) coins a controversial view on therole of alliance contracts, “…, even if everything possible hasbeen done to prepare the project (industrial megaprojects)…Alliance contracts … do nothing to help us understand who isresponsible for what” (p.293). This contradiction provokes animportant research question, to what extent do different contracttypes actually enact different quality of collaborativerelationship between owner and contractor and in turn affectproject performance?
This paper adopts Suprapto et al.'s(2015) conceptualization of owner–contractor collaborativerelationship as a set of norms and the manifested interactionalprocesses by which the project parties (owner and contractor)jointly act and decide on the issues emerging during the course ofa project in order to bring mutually satisfactory project outcomes.Owner–contractor collaborative relationship includes twodimensions: (1) relational attitudes; and (2) teamworking quality.Relational attitudes refer to norms and commitmentdeveloped and shared by the senior management from both owner andcontractor to govern their project-specific relationship. Theessential elements of relational attitudes include fairness,inter-organizational trust, transparency, and no blame culturealongside the commitment of senior management to support theproject teams (Cheung et al., 2006, Rahman and Kumaraswamy,2008, Suprapto et al., 2015). Building on the works of Hoegland colleagues (Hoegl and Gemuenden, 2001, Hoegl andParboteeah, 2007, Hoegl et al., 2004), Salas et al.(2005), Pinto et al. (2009), and Suprapto et al.(2015) define teamworking as a set of underlyingmechanisms reflecting the task-related and social interactionsbetween owner team and contractor team in executing a project.They operationalize teamworking quality as a higher-order constructcapturing the quality of inter-team interactions and including 5facets of task-relatedinteractions: communication, coordination, balancedcontribution, aligned effort,and mutual support; and 2 facets of socialinteractions: cohesion and affectivetrust.
The efficacy of relational attitudes and teamworking quality onproject performance (in terms of efficiency, effectiveness,perceived satisfaction, and perceived success) has been empiricallysubstantiated whereas relational attitudes indirectly influenceproject performance through teamworking quality (Suprapto et al.,2015). Extending Suprapto et al.'s research model, we addressed theresearch question by examining the effects of contract types(partnering/alliance, reimbursable, and lump-sum) and contractualincentives on project performance through two mechanisms: (i)directly and (ii) indirectly through the mediation of relationalattitudes and teamworking quality.
By quantifying such direct and indirect effects, this paperattempts to make three contributions. First, we extend the scope ofanalysis by considering the ex-post effects ofcontract types and incentives on the quality of owner–contractorrelationships and project performance that have beenassumed ex-ante and lacking empirical support.Second, by moving beyond the direct effects, this study is thefirst to assess potential indirect effects of contract types andincentives on project performance through the parties' relationalattitudes and their inter-teamworking quality. Third, the findingsprovide explanation to which contract type is better than theothers toward project performance and what mechanisms areunderlying it.
The paper is structured asfollows. Section 2 presents the theoreticalbackground on the relationships between contract types, contractualincentives, relationship quality, and projectperformance. Section 3 describes the researchmethodology used to test thehypotheses. Section 4 presents the results andfinally Section 5 discusses the implications andfuture research directions.
6. Conclusions
Researchers and practitioners have acknowledged the importanceof the more collaborative contracts to achieve better projectperformance by promoting a better working relationship betweenowner and contractor. However, mixed results of different contracttypes on project performance suggest the need for research onintermediate mechanisms linking the effects of contract types toproject performance. This study applies a mediation model in whichrelational attitudes and teamworking quality mediate the effects ofcontract types and contractual incentives on project performance.The results support the notion that a partnering/alliance contractis likely to be more collaborative than a lump-sum or reimbursablecontract. However, there is no evidence that a reimbursablecontract is more collaborative than a lump-sum contract.Furthermore, it is supported that through better relationalattitudes and teamworking quality, projects with apartnering/alliance contract are likely to perform better thanthose with lump-sum and reimbursable contracts. In the same way,projects with contractual incentives are likely to perform betterthan those without incentives through better relational attitudesand teamworking quality. The results also suggest the efficacy ofrelational attitudes and teamworking on project performanceregardless of the contract types and the presence of incentives.All in all, contract types and contractual incentives per se arenot the game changer but the parties' attitudes towardcollaborative relationship and how they play out throughout theproject into actual teamworking behavior.
in 150 - 200 words summarize and rephrase this article and get one sentence the most take away and one-sentence criticis
-
- Site Admin
- Posts: 899603
- Joined: Mon Aug 02, 2021 8:13 am