Document Detail

Title: RS114-1 - Innovative Contractor Compensation
Publication Date: 9/1/1998
Product Type: Research Summary
Status: Tool
Pages: 27
Summarizes the work of the Contractor Compensation Research Team, which examined the competing interests between owner and contractor that are inherent in traditional compensation contracts. Offers strategies that go beyond concepts of alliances and incentives.
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The Contractor Compensation Research Team was established to develop breakthrough approaches to contractor compensation. Founded on the premise that traditional engineering and construction contracts perpetuate competing interests between owners and contractors, the team began with the goal to rethink contractor compensation in order to align contractor performance more closely with owner objectives. Compensation was interpreted broadly to include reward, recognition, money payment, future opportunities, expanded roles, and reduced risk.

The team found innovative contracting strategies that go well beyond traditional concepts of alliances, team autonomy, and incentive contracting. No single breakthrough strategy or set of metrics, however, was applicable to all projects.

The development of contractor compensation plans that lead to owner success is highly individualized to the specific project and the personalities and philosophies of project leaders that craft the contract. Timing of development of the contracting strategies, however, is not as important as establishing: (1) a trust-based relationship among project team members and (2) the willingness to develop the compensation plan jointly. These two factors are most important in establishing innovative compensation plans, but are often the largest barriers to success.

The application of innovative contractor compensation strategies should not be considered an “end all” solution to project performance improvement. Such strategies instead should be considered one more important tool in a project team’s “tool kit” to be applied in conjunction with other CII best practices such as partnering, team building, team alignment, open communications, setting project objectives, and pre-project planning.