USE OF CONSTRUCTION INCENTIVE: SECTORAL DIFFERENCES

Abstract

Incentive contracting has been developed to motivate agent teams to render extra effort. Typically, three types of incentive arrangements have been used: incentive/penalty for superior/under performance; risk/reward sharing; and future business opportunities. This study found that there are significant differences in the choice of incentive arrangements between private and public projects in Hong Kong. It is uncommon for public projects to use future business as a performance incentivizer, whereas private developers often signal repeated business together with heavy penalties to tie with their contractors. This study further identified various attributes affecting the use of incentives in both private and public engineering sectors of Hong Kong. The respective preferences were unveiled through a literature review, semi-structured interviews with industry experts, and a survey. The findings reveal that the public and private sectors consider the implementation issues regarding various performance targets critical to the type of incentives to be used. Whilst the primary concern of the public sector is accountability, the private sector is skeptical about the need to provide extra for the contractors for what they have already contracted for.