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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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
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.
viii
TABLE OF CONTENTS ABSTRACT .................................................................................................................................................... v
TABLE OF CONTENTS................................................................................................................................ viii
LIST OF FIGURES ....................................................................................................................................... xiii
LIST OF TABLES .........................................................................................................................................xiv
LIST OF ABBREVIATIONS ...........................................................................................................................xv
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
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
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.
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:
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
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
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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
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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,
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.
Key: FP: Fairness of Measurement Process IJ: Interactional Justice
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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.
Relationship Management
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.
Design and Construction Management
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.
Design and Construction Management
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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Motivation Driver (Label)
Description Project Source
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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4.2.3 Tender Selection
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
The following discusses Case Project B (the ‘project’) characteristics in detail. This
information has been sourced from interviewee accounts, project contract
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.
5.1.1 Project Background
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.
The table below describes in further detail the motivation drivers presented in Table 8,
identifies the project source from which each driver arose, and summarises the
indicators which were impacted by each driver.
Table 9 Project B - Motivation driver descriptions
Motivation Driver (Label)
Description Project Source
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.
Design and Construction Management
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.
Design and Construction Management
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
MD6. Relationship Workshops
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.
Relationship Management
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.
Relationship Management
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.
Design and Construction Management
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.
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
Positive Motivation Drivers
Negative Motivation Drivers
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
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.
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CHAPTER 6: CASE PROJECT C – ADELAIDE CONVENTION CENTRE
EXTENSION
6.1 PROJECT CHARACTERISTICS
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.
6.1.1 Project Background
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)
6.1.2 General Procurement Approach
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.
6.1.3 Contract Risk Profile
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.
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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.
6.1.4 Management Structure and Engagement Stages
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
PROJECT STAGES (not to scale)
6.1.5 Tender Selection
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
Client and Client Representatives
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
Design Documentation
(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.
6.1.6 Relationship Approach
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.
6.1.7 Financial Incentive Mechanism
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.
6.1.8 Project Conditions
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.
6.2 CRITICAL ANALYSIS AND INTERPRETATION OF MOTIVATION DRIVERS
Based on the analysis processes described in Chapter 3, Table 10 shows the positive
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
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).
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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
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 2 2 2 0 2 16 MD1. Inclusion of an Acceleration Agreement to the FIM during the final construction stage
Key: FP: Fairness of Measurement Process IJ: Interactional Justice
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The table below describes in further detail the motivation drivers presented in Table 10,
identifies the project source from which each driver arose, and summarises the
indicators which were impacted by each driver.
Table 11 Project C - Motivation driver descriptions
Motivation Driver (Label)
Description Project Source
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
MD3. Relationship Workshops
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.
Relationship Management
GC, IJ 14
MD4. Value-based Tender
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.
Design and Construction Management
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).
Relationship Management
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.
Design and Construction Management
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.
Design and Construction Management
GC 9
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Motivation Driver (Label)
Description Project Source
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
Positive Motivation Drivers
Negative Motivation Drivers
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.
6.2.1 Contract Design
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.
6.2.2 Design and Construction Management
The design and construction management processes yielded three motivation drivers:
‘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.
6.2.3 Tender Selection
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.
6.2.4 Relationship Management
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
Relationship Workshops
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.
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CHAPTER 7: CASE PROJECT D – COFFS HARBOUR HEALTH
CAMPUS
7.1 PROJECT CHARACTERISTICS
The following discusses Case Project D (the ‘project’) characteristics in detail. This
information has been sourced from interviewee accounts, project contract
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.
7.1.1 Project Background
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
Key: FP: Fairness of Measurement Process IJ: Interactional Justice
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The table below describes in further detail the motivation drivers presented in Table 12,
identifies the project source from which each driver arose, and summarises the
indicators which were impacted by each driver.
Table 13 Project D - Motivation driver descriptions
Motivation Driver (Label)
Description Project Source
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).
Relationship Management
GC, IJ 16
MD3. Value-based Tender
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.
Relationship Management
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.
Design and Construction Management
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.
Design and Construction Management
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.
Design and Construction Management
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
Positive Motivation Drivers
Negative Motivation Drivers
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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.
7.2.1 Contract Design
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.
7.2.2 Design and Construction Management
The design and construction management processes yielded three motivation drivers:
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’.
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
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.
- 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)?
- 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?
- 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.
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.”
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
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
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.”
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
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.”
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
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
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
“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
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.”
This section presents example interviewee quotes supporting the definition of motivation
drivers in Case Project B (the ‘project’), presented in the rank order of impact as shown
in Table 9. See Chapter 5 for analysis of motivation driver impact data.
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
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.”
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
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
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.
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
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
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.”
CASE PROJECT C – ADELAIDE CONVENTION CENTRE EXTENSION
Example Interviewee Quotes
This section presents example interviewee quotes supporting the definition of motivation
drivers in Case Project C (the ‘project’), presented in the rank order of impact as shown
in Table 11. See Chapter 6 for analysis of motivation driver impact data.
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
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.”
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.”
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.”
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
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.”
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.”
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
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
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.”
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.”
This section presents example interviewee quotes supporting the definition of motivation
drivers in Case Project D (the ‘project’), presented in the rank order of impact as shown
in Table 13. See Chapter 7 for analysis of motivation driver impact data.
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
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
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
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,
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
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
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
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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