2. Construction Incentivization in Perspective

Construction incentivization in this book is used as a collective term for all forms of incentive arrangement that aim to engender extra effort of the contracting parties for the improvement of project performance. It is quite often assumed that all enterprises are seeking continual performance. In this regard, incentives in various forms have been used as performance motivator. In construction projects, incentive schemes have also been used to engender performance. Typically, incentive arrangements in construction involve setting cost, schedule, and outcome performance targets. Moreover, the success of incentive schemes is not guaranteed. It had also been found that many projects with incentives still end with project overruns, huge claims, and embarrassing defects. This study identified several design assumptions of conventional incentive that may not suit the ever-increasing complex projects. First, the targets for incentives are often set without consultation with the ultimate project performer. Second, the targets are quantified thus are outcome based. Third, no consideration is given to the behavioral aspect of the incentive. Fourth, there is no appropriate arrangement to solicit superior performance. With reference to the commonly used theoretical underpinnings of incentive arrangements, it is suggested that to have effective construction incentivization, it is necessary to have the scope jointly formulated by the major stakeholders. In this connection, the outcome targets must be agreed. Ideally, risk allocation can be much enhanced should construction incentivization can be used ex post to address ex ante unidentified risks. To bring about superior outcome, incentivization should embrace elements of behavioral performance.