Guiding Principles of Risk Allocation: 5 & 6
5. Incentive Programs
In the writer's previous academic life, he was involved in a Masters Program in Psychology. In advancing his studies, he noted the effect of positive incentives versus negative reinforcement on test rats. In dealing with people, many of the same positive and negative reinforcement techniques can be used to achieve a desired result. In the writer's opinion, the positive incentives in dealing with rats and in dealing with parties to the construction process, are to be preferred and are more likely to achieve the result that both the owner and the contractor would prefer to see.
Performance incentive programs tend to strengthen the project team members' commitment to speed the project towards completion. Incentive programs assist in aligning the contractor's motivation and performance with the owner's objectives. In order to make such an incentive system work, the owner must devise attainable and challenging goals for the construction team.
The owner must continually evaluate the performance of the contractor against a set of objective goals to ascertain if the contractor has earned the incentive, and also whether the overall project goals will be achieved based upon progress made up to that point.
In order to perform this monitoring or evaluation process, it will be necessary for the contractor and the project consultant to initiate and institute appropriate construction scheduling and monitoring techniques that will make it possible to assess the progress of the work daily, weekly, monthly, and overall. In order to do this, a full and detailed CPM schedule will often be employed.
Incentives in construction contracts usually consist of performance bonuses based upon achievement of milestone dates, as well as contractors sharing in proportion to any savings based upon stipulated cost goals set out within the contract.
6. Constructability Analysis
Constructability analysis is often referred to as "value engineering". This is a way of reducing disagreements and disputes based upon contract ambiguities. This analysis is performed during the planning, design and procurement phases, and can mitigate problems and claims during construction. Analysis is often performed by a contractor's representative who liaises with the project consultant, or by an independent construction expert consultant engaged by the owner to interact with the project consultant.
This process can identify errors, omissions and impractical design details that, if later uncovered by the contractor or supplier, would result in additional costs and delays to the project.
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Guiding Principles of Risk Allocation: 4
