Promoting sustainable policy in construction: Reducing greenhouse gas emissions through performance-variation based contract clauses

Abstract

With the growing global concern about construction industry emissions, a potentially useful approach to reduce such emissions could be to obligate the contractual parties to establish emissions-related construction contract provisions. Unfortunately, implementation of such initiatives has been limited in the practice. This study is motivated by the realization from previous studies that it is feasible to use contract clauses to regulate contractor use of equipment in a manner that reduces emissions and that there exist opportunities to establish frameworks that could facilitate implementation. In this paper, a framework is developed for designing and evaluating a green-performance variation clause. The framework involves a model whose objective is to maximize the net present value (NPV) by minimizing greenhouse gas emissions from the contractor's equipment fleet. The model addresses the uncertainties associated with the analysis inputs using Monte Carlo simulation, and the model outcomes are the probabilities of a positive NPV of emissions associated with the Owner and the contractor separately. The framework is demonstrated using a case study in road construction. The case study results yielded the following probabilities that a positive NPV for each of the two parties: 52% and 70% for the Owner and the contractor, respectively. This result suggests that using the developed framework, contract clauses can be designed at the pre-procurement phase to promote mutual and voluntary adoption of emissions-reducing practices at the subsequent phase (construction) of road development. This is shown to yield outcomes that are attractive (thereby, encouraging obligated parties to pursue emissions reduction) and the attractiveness is consistent across the parties. The proposed framework, which is consistent with green contracting, can generally help promote sustainability-related goals and outcomes related to construction projects.