Toward an Equity-Based Analysis of Construction Incentivization
Publication: Journal of Construction Engineering and Management
Volume 147, Issue 11
Abstract
Construction incentivization (CI) is a collective term that covers the range of incentive schemes that are commonly used in construction projects. Typically, either a carrot or a stick is used as the motivator for the contracting parties to commit to the attainment of certain quantitative outcome targets in regard to costs, scheduling, quality, and safety terms. The working of most CI is thus based on extrinsic motivation. It is proposed that CIs can also engender intrinsic motivation that is more enduring for performance enhancement. This study advocates that the use of CI can be extended beyond the conventional use for project performance improvement. Restoring fairness perception and bridging the equity gap (EG) are also necessary for CI planning. In this study, the equity gap in construction contracting means the disparities and asymmetry between contractual parties in terms of information, risks, power, and expected return. This study advocates that the equity gap is a minefield of opportunism, a source of dispute, and a barrier against collaboration. Thus, addressing the equity gap would provide intrinsic motivation for project performance. This study pioneers the use of CI to bridge the equity gap in construction contracting. A conceptual framework is proposed based on equity theory to analyze the functions of CI at bridging EGs and enhancing project performance. Using the data collected from 142 senior project professionals and partial least-squares structural equation modeling (PLS-SEM) analysis, the validity of the conceptual framework is statistically supported. Equitable contracting has long been recognized as one of the pillars of collaborative working. Moreover, one-sided contracts are commonly used. Prospect theory suggests that the perception of unfairness induces opportunism practices. This study addresses a practical issue of enabling the ex post alleviation of an equity gap created ex ante. It is proposed that CI can be used as a flexible tool to address the equity gap and thereby raise the intrinsic motivation to perform.
Get full access to this article
View all available purchase options and get full access to this article.
Data Availability Statement
Some or all data, models, or code that support the findings of this study are available from the corresponding author upon reasonable request.
Acknowledgments
The work described in this paper was fully supported by a CityU SRG (Project No. 7005557).
References
Abu-Hijleh, S. F., and C. W. Ibbs. 1989.“ Schedule-based construction incentives.” J. Constr. Eng. Manage. 115 (3): 430–443. https://doi.org/10.1061/(ASCE)0733-9364(1989)115:3(430).
Adams, J. S. 1963. “Toward an understanding of inequity.” J. Abnormal Soc. Psychol. 67 (5): 422–436. https://doi.org/10.1037/h0040968.
Adams, J. S. 1965. “Inequity in social exchange.” Adv. Exp. Soc. Psychol. 2 (3): 267–299. https://doi.org/10.1016/S0065-2601(08)60108-2.
Alfie, K. 1993. “Why incentive plans cannot work.” Harv. Bus. Rev. 71 (5): 54.
Boukendour, S., and W. Hughes. 2014. “Collaborative incentive contracts: Stimulating competitive behaviour without competition.” Constr. Manage. Econ. 32 (3): 279–289. https://doi.org/10.1080/01446193.2013.875215.
Bower, D., G. Ashby, K. Gerald, and W. Smyk. 2002. “Incentive mechanisms for project success.” J. Manage. Eng. 18 (1): 37–43. https://doi.org/10.1061/(ASCE)0742-597X(2002)18:1(37).
Bresnen, M., and N. Marshall. 2000. “Motivation, commitment and the use of incentives in partnerships and alliances.” Constr. Manage. Econ. 18 (5): 587–598. https://doi.org/10.1080/014461900407392.
Bubshait, A. A. 2003. “Incentive/disincentive contracts and its effects on industrial projects.” Int. J. Project Manage. 21 (1): 63–70. https://doi.org/10.1016/S0263-7863(01)00078-3.
Ceric, A. 2013. “Application of the principal-agent theory to construction management: Literature review.” In Proc., 29th Annual Association of Researchers in Construction Management Conf., editied by S. D. Smith and D. D. Ahiaga-Dagbui, 1071–1081. Belfast, UK: Association of Researchers in Construction Management.
Chan, D. W. M., P. T. I. Lam, A. P. C. Chan, and J. M. W. Wong. 2010. “Achieving better performance through target cost contracts—The tale of an underground railway station modification project.” Perform. Meas. Manage. Facil. Manage. 28 (5–6): 261–277. https://doi.org/10.1108/02632771011031501.
Chapman, C., and S. Ward. 2008. “Developing and implementing a balanced incentive and risk sharing contract.” Constr. Manage. Econ. 26 (6): 659–669. https://doi.org/10.1080/01446190802014760.
Cheung, S. O., W. K. Wong, T. W. Yiu, and H. Y. Pang. 2014. Construction dispute research, construction dispute. Berlin: Springer.
Choi, T. N. Y., D. W. M. Chan, and A. P. C. Chan. 2011. “Perceived benefits of applying pay for safety scheme (PFSS) in construction—A factor analysis approach.” Saf. Sci. 48 (6): 813–823. https://doi.org/10.1016/j.aap.2011.04.015.
Choi, T. N. Y., D. W. M. Chan, and A. P. C. Chan. 2012. “Potential difficulties in applying the pay for safety scheme (PFSS) in construction projects.” Accid. Anal. Prev. 48 (Sep): 145–155. https://doi.org/10.1016/j.aap.2011.04.015.
Cook, K. S., and R. M. Emerson. 1978. “Power, equity and commitment in exchange.” Am. Sociol. Rev. 43 (5): 721–739. https://doi.org/10.2307/2094546.
Cropper, S., M. Ebers, C. Huxham, and P. S. Ring. 2008. “Introducing inter-organizational relations.” In The oxford handbook of inter-organizational relations, edited by S. Cropper, M. Ebers, C. Huxham, and P. S. Ring, 1–23. Oxford, UK: Oxford University Press.
Davcik, N. S. 2014. “The use and misuse of structural equation modeling in management research.” J. Adv. Manage. Res. 11 (1): 47–81. https://doi.org/10.1108/JAMR-07-2013-0043.
Deci, E. L., and R. M. Ryan. 1985. Self-determination. New York: Wiley.
De Melo, R. S. S., A. D. Granja, and G. Ballard. 2013. “Collaboration to extend target costing to non-multi-party contracted projects: Evidence from literature.” In Proc., 21st Annual Conf. of the Int. Group for Lean Construction, 237–246. Fortaleza, Brazil: International Group for Lean Construction.
Donaldson, L., and J. H. Davis. 1991. “Stewardship theory or agency theory.” Aust. J. Manage. 16 (Jun): 49–66. https://doi.org/10.1177/031289629101600103.
Easterby-Smith, M., R. Thorpe, and A. Lowe. 1991. Management research: An introduction. London: SAGE.
Eisenhardt, K. M. 1989. “Agency theory: An assessment and review.” Acad. Manage. Rev. 14 (1): 57–74. https://doi.org/10.5465/amr.1989.4279003.
Emerson, R. M. 1962. “Power-dependence relations.” Am. Sociol. Rev. 27 (1): 31–41. https://doi.org/10.2307/2089716.
Enshassi, A., R. M. Choudhry, and S. El-ghandour. 2009. “Contractors’ perception towards causes of claims in construction projects.” Int. J. Constr. Manage. 9 (1): 79–92. https://doi.org/10.1080/15623599.2009.10773123.
Fornell, C., and D. F. Laecker. 1981. “Evaluating structural equation models with unobservable variables and measurement error.” J. Marketing Res. 18 (1): 39–50.
Fu, Y., Y. Chen, S. Zhang, and W. Wang. 2015. “Promoting cooperation in construction projects: An integrated approach of contractual incentive and trust.” Constr. Manage. Econ. 33 (8): 653–670. https://doi.org/10.1080/01446193.2015.1087646.
Gunduz, M., and E. A. Abdi. 2020. “Motivational factors and challenges of cooperative partnerships between contractors in the construction industry.” J. Manage. Eng. 36 (4): 04020018. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000773.
Hair, J. F., W. C. Black, B. J. Babin, and R. E. Anderson. 2010. Multivariate data analysis. London: Pearson Education.
Hair, J. F., M. Sarstedt, C. M. Ringle, and J. A. Mena. 2012. “An assessment of the use of partial least squares structural equation modeling in marketing research.” J. Acad. Market. Sci. 40 (3): 414–433. https://doi.org/10.1007/s11747-011-0261-6.
Hair, J. F., M. Sarstedt, C. M. Ringle, and J. A. Mena. 2014. A primer on partial least squares structural equation modeling (PLS-SEM). London: SAGE.
Holmstrom, B. 1979. “Moral hazard and observability.” Bell J. Econ. 10 (1): 74. https://doi.org/10.2307/3003320.
Hosseinian, S. M. 2016. “An optimal time incentive/disincentive-based compensation in contracts with multiple agents.” Constr. Econ. Build. 16 (4): 35–53. https://doi.org/10.5130/AJCEB.v16i4.4983.
Hughes, D., T. Williams, and Z. Ren. 2012. “Is incentivisation significant in ensuring successful partnered projects?” Eng. Constr. Archit. Manage. 19 (3): 306–319. https://doi.org/10.1108/09699981211219625.
Hughes, W., I. Yohannes, and J.-B. Hillig. 2007. “Incentives in construction contracts: Should we pay for performance?” In Proc., CIB World Building Congress, Construction for Development, edited by R. Milford and T. C. Haupt, 2272–2283. Rotterdam, Netherlands: Centraal Invorderings Bureau.
Krawiec, K. D., and K. Zeiler. 2005. “Common-law disclosure duties and the sin of omission: Testing the meta-theories.” Virginia Law Rev. 91 (8): 1795–1888. https://doi.org/10.2139/ssrn.614501.
Kumaraswamy, M. M., and A. M. Anvuur. 2008. “Selecting sustainable teams for PPP projects.” Build. Environ. 43 (6): 999–1009. https://doi.org/10.1016/j.buildenv.2007.02.001.
Laffont, J.-J., and J. Tirole. 1988. “The dynamics of incentive contracts.” J. Econ. Soc. 56 (5): 1153–1175. https://doi.org/10.2307/1911362.
Liu, J., and G. Ma. 2020. “Study on incentive and supervision mechanisms of technological innovation in megaprojects based on the principal-agent theory.” Eng. Constr. Archit. Manage. 2020 (Aug): 71602107. https://doi.org/10.1108/ECAM-03-2020-0163.
Locke, E. A., G. P. Latham, and M. Erez. 1988. “The determinants of goal commitment.” Acad. Manage. Rev. 13 (1): 23–39. https://doi.org/10.5465/amr.1988.4306771.
Lui, S. S., and H. Ngo. 2004. “The role of trust and contractual safeguards on cooperation in non-equity alliances.” J. Manage. 30 (4): 471–485. https://doi.org/10.1016/j.jm.2004.02.002.
Luo, L., Q. He, J. Xie, D. Yang, and G. Wu. 2017. “Investigating the relationship between project complexity and success in complex construction projects.” J. Manage. Eng. 33 (2): 04016036. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000471.
Luthans, F., and R. Kreitner. 1975. Organisational behaviour modification. Glenview, IL: OUP Catalogue.
Macneil, I. R. 1974. “A primer of contract planning.” South. Calif. Law Rev. 48: 627–704.
Mahpour, A., and M. M. Mortaheb. 2018. “Financial-based incentive plan to reduce construction waste.” J. Constr. Eng. Manage. 144 (5): 04018029. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001461.
Meng, X. 2015. “Incentive mechanisms and their impact on project performance.” In Handbook on project management and scheduling. New York: Springer.
Meng, X., and B. Gallagher. 2012. “The impact of incentive mechanisms on project performance.” Int. J. Project Manage. 30 (3): 352–362. https://doi.org/10.1016/j.ijproman.2011.08.006.
Oliver, P. 1980. “Rewards and punishments as selective incentives for collective action: Theoretical investigations.” Univ. Chicago Press J. 85 (6): 1356–1375. https://doi.org/10.1086/227168.
Oliver, R. L. 1974. “Expectancy theory predictions of salesmen’s performance.” J. Marketing Res. 11 (3): 243–253. https://doi.org/10.1177/002224377401100302.
Pang, H. Y., S. O. Cheung, M. C. Choi, and S. Y. Chu. 2015. “Opportunism in construction contracting: Minefield and manifestation.” Int. J. Project Organ. Manage. 7 (1): 31–55. https://doi.org/10.1504/IJPOM.2015.068004.
Richmond-Coggan, D. 2001. Construction contract incentive schemes: Lessons from experience. London: Construction Industry Research and Information Association.
Rose, T., and K. Manley. 2011. “Motivation toward financial incentive goals on construction projects.” J. Bus. Res. 64 (7): 765–773. https://doi.org/10.1016/j.jbusres.2010.07.003.
Ross, S. A. 1973. “The economic theory of agency: The principal’s problem.” Am. Econ. Rev. 63 (2): 134–139.
Schieg, M. 2008. “Strategies for avoiding asymmetric information in construction project management.” J. Bus. Econ. Manage. 9 (1): 47–51. https://doi.org/10.3846/1611-1699.2008.9.47-51.
Skinner, B. F. 1961. Analysis of behaviour. New York: McGraw-Hill.
Su, P., Y. Peng, Q. Hu, and R. Tan. 2020. “Incentive mechanism and subsidy design for construction and demolition waste recycling under information asymmetry with reciprocal behaviors.” Int. J. Environ. Res. Public Health 17 (12): 1–26. https://doi.org/10.3390/ijerph17124346.
Suprapto, M., H. L. M. Bakker, H. G. Mooi, and M. J. C. M. Hertogh. 2016. “How do contract types and incentives matter to project performance?” Int. J. Project Manage. 34 (6): 1071–1087. https://doi.org/10.1016/j.ijproman.2015.08.003.
Vroom, V. H. 1964. Work and motivation. Oxford, UK: Wiley.
Wigfield, A., and J. S. Eccles. 2002. “Expectancy–Value theory of achievement motivation.” J. Asynchronous Learn. Network 6 (1): 68–81. https://doi.org/10.1006/ceps.1999.1015.
Williamson, O. E. 1979. “Transaction-cost economics: The governance of contractual relations.” J. Law Econ. 22 (2): 233–261. https://doi.org/10.1086/466942.
Wong, P. S. P., S. O. Cheung, and P. K. M. Ho. 2005. “Contractor as trust initiator in construction partnering—Prisoner’s dilemma perspective.” J. Constr. Eng. Manage. 131 (Feb): 168–175. https://doi.org/10.1061/(ASCE)0733-9364(2005)131.
Xiang, P., J. Zhou, X. Zhou, and K. Ye. 2012. “Study on the use of industrialised building system in Malaysian private construction projects.” J. Constr. Eng. Manage. 138 (11): 1303–1311. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000548.
Zaghloul, R., and F. Hartman. 2003. “Construction contracts: The cost of mistrust.” Int. J. Project Manage. 21 (6): 419–424. https://doi.org/10.1016/S0263-7863(02)00082-0.
Zhang, S., S. Zhang, Y. Gao, and X. Ding. 2016. “Contractual governance: Effects of risk allocation on contractors’ cooperative behavior in construction projects.” J. Constr. Eng. Manage. 142 (6): 04016005. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001111.
Zhu, L., and S. O. Cheung. 2018. “The implementation of incentive schemes in construction contracting.” In Proc., 11th Int. Cost Engineering Council World Congress and the 22nd Annual Pacific Association of Quantity Surveyors Conf. (ICEC-PAQS Conf. 2018), 1–9. Sydney, Australia: International Cost Engineering Council.
Zhu, L., and S. O. Cheung. 2019. “Motivators of implementing construction incentivisation in Hong Kong.” In Proc., 16th East Asia-Pacific Conf. on Structural Engineering & Construction (EASEC16), edited by C. M. Wang, V. Dao, and S. Kitiporncha, 2053–2063. Singapore: Springer. https://doi.org/10.1007/978-981-15-8079-6_188.
Zhu, L., and S. O. Cheung. 2021. “Equity gap in construction contracting: Identification and ramifications.” Eng. Constr. Archit. Manage. https://doi.org/10.1108/ECAM-09-2020-0725.
Zhu, L., S. O. Cheung, X. Gao, Q. Li, and G. Liu. 2020. “Success DNA of a record-breaking megaproject.” J. Constr. Eng. Manage. 146 (8): 05020009. https://doi.org/10.1061/(ASCE)co.1943-7862.0001878.
Zou, P. X. W., and G. Zhang. 2009. “Managing risks in construction projects: Life cycle and stakeholder perspectives.” Int. J. Constr. Manage. 9 (1): 61–77. https://doi.org/10.1080/15623599.2009.10773122.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 147 • Issue 11 • November 2021
Copyright
© 2021 American Society of Civil Engineers.
History
Received: Jan 29, 2021
Accepted: Jul 2, 2021
Published online: Aug 28, 2021
Published in print: Nov 1, 2021
Discussion open until: Jan 28, 2022
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.
Cited by
- Nan Cao, Sai On Cheung, Voluntary Mediation as a Tenable Resolution Mechanism for Construction Disputes, Journal of Construction Engineering and Management, 10.1061/JCEMD4.COENG-14075, 150, 6, (2024).
- Conghan Wang, Shuibo Zhang, Ying Gao, Qing Guo, Lei Zhang, Effect of Contractual Complexity on Conflict in Construction Subcontracting: Moderating Roles of Contractual Enforcement and Organizational Culture Distance, Journal of Construction Engineering and Management, 10.1061/JCEMD4.COENG-12822, 149, 5, (2023).
- Liuying Zhu, Sai On Cheung, Incentivizing Relationship Investment for Project Performance Improvement, Project Management Journal, 10.1177/87569728221132782, 54, 1, (70-87), (2022).