Client recommendations for financial incentives on construction projects

The paper seeks to provide recommendations for construction clients who design and implement financial incentive mechanisms (FIMs) on projects.

Four large Australian building projects commissioned by government clients under managing contractor contracts and completed between 2001 and 2005 were examined to explore the “drivers” that promoted motivation toward financial incentive goals. The results were triangulated across data sources, projects and stakeholder types.

FIM design should incorporate: flexibility to modify goals and measurement procedures over time; multiple goals covering different project areas; distribution of rewards across all the key organisations contributing to team performance (e.g. potentially not just the contractor, but the subcontractors and consultants) and a reward amount sufficient to be valued by potential recipients. FIM benefits are maximised through the following complementary procurement initiatives: equitable contract risk allocation; early contractor involvement in design; value‐driven tender selection; relationship workshops; and future work opportunities.

This paper provides practical recommendations to industry and hence does not emphasise theoretical aspects.

The uptake of these recommendations is likely to increase the impact of FIMs on motivation and improve project and industry outcomes. Although the study focuses on government clients of building projects, all the recommendations would seem to apply equally to private‐sector clients and to non‐building projects.

In order to improve motivation and reward high performance, clients are increasingly using FIM in their construction contracts. Despite the rising use of financial incentives, there is a lack of comprehensive construction‐specific knowledge available to help clients maximise outcomes. The study addresses this gap in the literature.