Performance Contracting Research Articles

Fairness and Contractual Performance in Vertical Linkages Within an Uncertain Environment: A Case of a Tomato Value Chain

In developing countries with uncertain institutional environments, ensuring fairness in contractual arrangements within food value chains is crucial to overcome modern challenges. This paper empirically investigates the vertical relationship between tomato growers and canneries in Algerian agriculture to assess the determinants of contractual performances and price fairness implications. The study is based on an analysis of a comprehensive dataset of 9127 tomato growers engaged in contract farming over four years (2018–2021). Three regression methods were estimated, namely logit, tobit, and quantile regressions, alongside exploratory analysis. The main findings shed light on the factors influencing contractual performance among contracting producers, primarily farm scale and distance from the contracting processor. Additionally, the findings highlight the key role of contract enforcement mechanisms in influencing the contractual performances of tomato growers. Several recommendations are made to incentivize tomato growers and improve overall contractual performance within such public policy settings. Contract arrangements, including fair price negotiation and the requirement for tomato processing firms to make specific investments, are advocated to foster self-enforcement and significantly enhance the growers’ contractual performance. This is particularly important in many developing countries where the business environment is characterized by an absence of effective public enforcement institutions along with a highly uncertain environment.

The effects of government policy on performance planning for implementation of performance contracting in the government ministries in Kenya

The study sought to analyse the effects of government policy on performance planning for the implementation of performance contracting in government ministries in Kenya. A mixed-method type of design was adopted. Stratified sampling was used to sample four government ministries. In sampling staff to be interviewed, top and middle-level management totalling 831 were identified. Thirty per cent of the 831 (249 staff members) were considered to be representative enough for the study. The study adopted descriptive and inferential statistics. The study used ANOVA, regression analysis, and correlation to analyse the relationship between variables. The study finding observed that there was a strong correlation coefficient of 0.866 at p-value of 0.035 between government policy and performance planning, which implied that employees' performance planning is significant in the implementation of performance contracting; a unit standard deviation increase in effective training and development was likely to increase the standard deviation of performance monitoring by 0.096 on implementation of performance contracting; a unit standard deviation increase in top management commitment was likely to increase the standard deviation of performance reporting on performance implementation by 0.337. The study concludes that government policies have an effect on performance contracting in government ministries in Kenya. Further, the conclusion was that government policy has minimally addressed issues of training and development. Therefore, it is recommended that transfer of training be included in the next reviews of the government policy and specifically addressed in the workplace that often affect the impact of training and development.

Study on steam energy efficiency enhancement, cost management and CO2 emissions in the food industry

Malaysia’s energy intensity per unit GDP has been increasing since the 1990s, leading to the government’s efforts to promote energy efficiency via policies and initiatives such as Energy Performance Contracting (EPC). Additionally, the industrial sector in Malaysia consumed 28% of total final energy in 2018, placing it as the country’s second-largest final energy consumer [1]. This case study focuses on improving energy efficiency in the steam system of an existing plant in the food industry in Malaysia. This work was performed in collaboration with a local Energy Service Company (ESCO) to study the existing steam system, recognize its process requirements and constraints and consequently propose and evaluate retrofit opportunities. These opportunities were evaluated across 3 performance parameters (power output or energy savings, cost savings and CO2 emissions savings). Simulations were performed using the Steam System Modeler Tool (SSMT). The study found that Combined Heat and Power (CHP) was not feasible due to a combination of low steam pressure and flowrate available in the system. However, the study also found that improving condensate recovery coupled with condensate flashing from the high pressure to low pressure header offered the highest increments in overall performance.

Establishing the effects of training and development on performance monitoring for implementation of performance contracting in the government ministries in Kenya

The study aimed to establish the effect of training on performance monitoring for implementation of performance contracting in the government ministries in Kenya. A mixed-method type of design was adopted. In sampling staff to be interviewed, top and middle-level management totalling 831 were identified. Thirty per cent of the 831 (249 staff members) considered it to be representative enough. The study adopted descriptive and inferential statistics. The study used ANOVA, regression analysis, and correlation to analyse the relationship between variables. Reliability of instruments was assessed using Cronbach's alpha coefficient, whose alpha value is equal to or greater than 0.70, which is considered sufficient. Content Validity Ratio (CVR) was calculated for each item, and items with a CVR value below 0.99 were eliminated. The final instrument comprised 22 items with CVR values ranging from 0.99 to 1.00. The study found that a unit standard deviation increase in effective training and development was likely to increase the standard deviation of performance monitoring by 0.096 on implementation of performance contracting. The study concludes that training and development have an effect on performance contracting in government ministries in Kenya. The study further recommends that transfer of training and development be included in the next review of the policy.

Characteristics and Analysis of Factors Affecting the Performance of Service Providers (Contractors) in Denpasar City in 2023

Contractors are individuals or business entities that have expertise in carrying out construction work in accordance with planning, where the appointment of contractors is mostly carried out through a tender/auction system (Sholeh, 2020). Nowadays, contractors are a business that is in great demand by the public, but the development of the quantity of construction service companies has not been followed by an increase in qualifications and performance. One of the reasons is that the business and expertise requirements (SKK) are still not met, which will later affect business reliability and competitiveness. (Priana, 2018). Seeing this situation, it is very important to research the characteristics and factors that affect the performance of service providers (contractors) in the city of Denpasar in 2023. The method used in this study is descriptive statistics as well as factor analysis is used to explain the factors that affect contractor performance. From the research that has been carried out, 1). Contractors in the city of Denpasar have good human resources, experience, finance, and equipment and are in accordance with Law No. 11 of 2020 concerning Job Creation and LPJK No. 3 of 2017 concerning Certification and Registration of Construction Implementation Services Business. 2). The most influential factor on contractor performance is in group I with a total diversity value of 32.756%.

Strategic decision-making of competitive manufacturers: Assessing the role of product substitutability in energy performance contracting

Maximizing benefits through optimized strategic decisions is a crucial concern in Energy Performance Contracting (EPC) arrangements among competing manufacturers, yet this area remains underexplored. This paper develops a model to examine EPC cooperation between two manufacturers producing substitutable products in a duopoly market. By applying game theory, the study investigates the strategic decision-making processes of these manufacturers, with a particular focus on product substitutability. The analysis of equilibrium outcomes reveals that when both manufacturers engage in EPC, total market output increases. Although EPC results in lower prices, it enhances overall consumer surplus due to the price reduction. Additionally, EPC contributes to a decrease in total energy consumption as the cost of energy-saving service rises. The study find that as product substitutability increases, the sharing ratio determined by the client in the EPC arrangement gradually decreases. Concurrently, the level of energy-saving service provided by the Energy Service Company (ESCO) increases. However, when the cost coefficient of energy-saving retrofitting services is relatively high and the sharing ratio falls within a certain range, the service level initially decreases before rising again. This research offers novel insights into the impact of product substitutability on EPC engagements between two competing manufacturers, providing valuable perspectives on strategic decision-making within a competitive market environment.

Total Quality Management Practices and Construction Contractor Performance in Abuja, Nigeria

Purpose: This study aims to assess the influence of Total Quality Management (TQM) practices on the organizational performance of construction contractors. It identifies eight key TQM practices and measures their influence on performance indicators, with a focus on providing guidance for prioritizing and implementing these practices to achieve specific performance targets. Design/Methodology/Approach: The research collected and analysed data from 275 contractor firms located in Abuja, Nigeria, with a response rate of 163. Multiple statistical methods were employed to assess the relationship between TQM practices and organizational performance. The eight identified TQM practices include top management commitment, customer focus, employee management, education/training, continuous improvement, process enhancement, supplier quality management, and information analysis. Findings: The study's findings underscore the critical role played by specific TQM practices in positively influencing the organizational performance of construction contractors. Notably, practices such as top management commitment, training, process management, and continuous improvement were found to have a significant impact. Mapping analysis was used to establish strategies for aligning TQM practices with performance indicators, providing a practical roadmap for improving specific aspects of organizational performance. Research Limitations/Implications: This research acknowledges certain limitations. Firstly, the study focused on construction contractors in Abuja, Nigeria, which may limit the generalisability of the findings to other regions or industries. Secondly, while the research identified key TQM practices, it did not delve into the specific challenges or obstacles that organizations might encounter during implementation. Future studies could explore these issues in greater depth. Practical Implications: The study offers valuable practical implications for construction organizations. It emphasizes the need for a flexible approach to adopting TQM practices tailored to support targeted performance improvements, recognizing that a one-size-fits-all approach is not suitable for all industries. Furthermore, the study underscores the significance of sustained commitment from top management in promoting the importance of TQM throughout the organization, highlighting its role as a catalyst for positive change. Originality/Value: This research contributes to the field by bridging the gap between TQM practices and organizational performance in the construction industry. It provides a nuanced understanding of which TQM practices are most influential and how they can be strategically aligned with performance indicators. This adds value by offering organizations a clear roadmap for enhancing their performance and competitiveness through the adoption of TQM principles.

Sanctions compliance as a basis for non-performance of contractual obligations

Targeted financial sanctions are routinely used to combat financial crime. As they are endorsed by the United Nations and the Financial Action Task Force, the vast majority of jurisdictions have established regulatory frameworks that make provision for targeted financial sanctions. These frameworks translate into compliance obligations and expectations for so-called regulated entities, which includes banks. Although sanctions have been the subject of much discourse recently in the wake of the escalation of the Russia-Ukraine conflict, the risk of non-performance of contractual obligations due to sanctions compliance has not been explored sufficiently. The objective of this contribution is to shed light on the distinction between compliance with domestic sanctions and compliance with foreign sanctions with specific reference to the risk of non-performance of contractual obligations. It focuses on the basis and legal implications of compliance in each case within the context of the bank-customer relationship. This is undertaken primarily from a South African perspective. The contribution finds that compliance with domestic sanctions may give rise to an interference with contractual performance that is rooted in law, while compliance with foreign sanctions may necessitate an interference that is based on either a contractual provision (force majeure clause) or business and reputational considerations. In both instances, clients of banks are less certain that their payment instructions will be processed and banks, in turn, run the risk of being sued. This tension between sanctions and international banking and finance requires serious reflection by the relevant authorities.

A data-driven approach for predicting cash flow performance of public owners in building projects: insights from Turkish cases

PurposeThe cash flow from government agencies to contractors, called progress payment, is a critical step in public projects. The delays in progress payments significantly affect the project performance of contractors and lead to conflicts between two parties in the Turkish construction industry. Although some previous studies focused on the issues in internal cash flows (e.g. inflows and outflows) of construction companies, the context of cash flows from public agencies to contractors in public projects is still unclear. Therefore, the primary objective of this study is to develop and test diverse machine learning-based predictive models on the progress payment performance of Turkish public agencies and improve the predictive performance of these models with two different optimization algorithms (e.g. first-order and second-order). In addition, this study explored the attributes that make the most significant contribution to predicting the payment performance of Turkish public agencies.Design/methodology/approachIn total, project information of 2,319 building projects tendered by the Turkish public agencies was collected. Six different machine learning algorithms were developed and two different optimization methods were applied to achieve the best machine learning (ML) model for Turkish public agencies' cash flow performance in this study. The current research tested the effectiveness of each optimization algorithm for each ML model developed. In addition, the effect size achieved in the ML models was evaluated and ranked for each attribute, so that it is possible to observe which attributes make significant contributions to predicting the cash flow performance of Turkish public agencies.FindingsThe results show that the attributes “inflation rate” (F5; 11.2%), “consumer price index” (F6; 10.55%) and “total project duration” (T1; 10.9%) are the most significant factors affecting the progress payment performance of government agencies. While decision tree (DT) shows the best performance among ML models before optimization process, the prediction performance of models support vector machine (SVM) and genetic algorithm (GA) has been significantly improved by Broyden–Fletcher–Goldfarb–Shanno (BFGS)-based Quasi-Newton optimization algorithm by 14.3% and 18.65%, respectively, based on accuracy, AUROC (Area Under the Receiver Operating Characteristics) and F1 values.Practical implicationsThe most effective ML model can be used and integrated into proactive systems in real Turkish public construction projects, which provides management of cash flow issues from public agencies to contractors and reduces conflicts between two parties.Originality/valueThe development and comparison of various predictive ML models on the progress payment performance of Turkish public owners in construction projects will be the first empirical attempt in the body of knowledge. This study has been carried out by using a high number of project information with diverse 27 attributes, which distinguishes this study in the body of knowledge. For the optimization process, a new hyper parameter tuning strategy, the Bayesian technique, was adopted for two different optimization methods. Thus, it is available to find the best predictive model to be integrated into real proactive systems in forecasting the cash flow performance of Turkish public agencies in public works projects. This study will also make novel contributions to the body of knowledge in understanding the key parameters that have a negative impact on the payment progress of public agencies.

Stackelberg game analysis of the energy performance contracting considering altruistic preferences

The Stackelberg game analysis of an Energy Performance Contracting(EPC) is established to correctly analyze the impact of altruistic preference behaviors on the decision-makers, energy service companies(ESCOs) and energy-consuming units(EUs). Its motivation comes from the fact that, to achieve a win-win situation, EUs usually engage in altruistic behaviors, but the implementation results of the EPC are always contrary to their expectations. Using nonlinear optimization theory, analyzed the decisions of the Stackelberg models under different altruistic preference attributes, and then compared the impacts of altruistic preferences on decisions and profits. Results reveal: (1)compared to a situation lacking altruistic preference, when the leader, the EU, has an altruistic preference, the EU only needs to transfer a small part of its own interests to significantly increase the ESCO's profit and ultimately improve the overall EPC profit; (2) the altruistic preference of the ESCO functions akin to a "poison," engrossing the company in the satisfaction derived from the increased revenue of the energy-consuming entity and gradually eroding its own profits; and (3)the altruistic preference behavior of both parties is a kind of “benefit transfer behavior,” which is conducive to stable operation and long-term development of EPC industry. The research results can provide a theoretical reference to enhance the development of energy-saving service industry.

How does contractual governance affect construction project performance? The mediating role of the contractor’s behavior

ABSTRACT The contractor’s performance behavior is fundamental in improving project performance. However, few studies have investigated the impact of contractual mechanisms on contractor’s performance behavior and how this impacts project performance. Therefore, this study developed and tested a theoretical model to examine the mediating role of contractor’s performance behavior between risk allocation(contractual governance) and project performance. A total of 208 valid questionnaires collected from project managers in the Chinese construction industry were analyzed by partial least squares structural equation modeling (PLS-SEM) to test the theoretical hypotheses. The empirical results show that proper risk allocation can induce both contractors’ perfunctory and consummate behavior and restrict opportunistic behavior, thus achieving basic project performance. Although the mediating effect of perfunctory behavior is insignificant, consummate and opportunistic behavior can mediate between proper risk allocation and value-added project performance, where the mediating role of consummate behavior is more critical. The findings contribute to the impact of contractual mechanisms on the construction project performance and guide the owner’s contract design strategy and the contractor’s choice of performance strategy.

EXPRESS: Monitoring Technologies in Industrial Systems

Monitoring technologies, which are at the heart of the industrial Internet of Things (IOT) ecosystems, promise significant transactional efficiencies by making it easier to track product performance and contract compliance. These efficiencies are particularly compelling in industrial multi-vendor, multi-component systems, where complex component interdependencies often cause disputes around liability in the case of product failures. Drawing on transaction cost theory, fieldwork, and a national survey of industrial original equipment manufacturers we estimate how product performance contracts are specified in these contexts, and how these monitoring technologies can impact ex-post exchanges between OEMs and their suppliers. We find that systems architecture associated with the multi-component systems, as well as the presumed efficiencies of monitoring technologies, drive the contract designs through their potential impact on the disputes, monitoring, and contract writing costs faced by the OEM. However, we also find there are clear limits to the benefits offered by these monitoring technologies. The greater monitoring facilitated by these technologies appears to exacerbate disputes. This counterintuitive finding comports with the view that, when unforeseen interdependent failures occur, detailed data from monitoring may trigger a spate disputes over new and unexpected information, as well as over the appropriateness of existing protocols for failure metrics and remedies.

Optimal investment of distribution energy resources via energy performance contracts: An evolutionary game approach

Investment in distributed energy resources (DERs) is crucial for the expansion of distribution networks. However, traditional methods often lack comprehensive project management throughout their entire lifecycle and precise matching between distribution network operator (DNO) and energy consumer (EC) at the investment level. To address these issues, this paper proposes a novel investment model based on energy performance contracts (EPCs). Three EPC mechanisms are introduced: energy shared savings model (ESSM), energy guaranteed saving model (EGSM), and energy cost trust model (ECTM). Additionally, DERs investment strategies under EPC mechanisms are proposed to satisfy full-process management of project and precise matching between EC and DNO. The investment and operation problem is solved by an evolutionary game theory that ensures bounded rational agent to achieve satisfactory expected returns through repeated dynamic games. Results from the case study of an actual urban 37-bus system demonstrate that different EPC mechanisms are suitable for various scenarios depending on the EC's profit demand and project scale. The proposed model provides a comprehensive framework for DERs investment, considering the interests of both DNO and EC, and promotes the optimal expansion of distribution networks in a more practical and effective manner.

Evaluation of a building envelope Heat Transfer Coefficient in use: Bayesian approach to improve the inclusion of solar gains

ABSTRACT Accurately measuring the actual building performance would be a significant step toward performance contracting. Methods under occupancy have operational advantages but come with additional constraints due to the variability of weather and occupancy conditions, which cannot be overlooked. Especially in recent, well-insulated buildings, since solar gains are a larger contribution to the global heat balance. This work aims to enhance the accuracy of the Heat Transfer Coefficient estimation in an occupied building by taking better account of solar gains in multilinear regression models. The approach adopted here considers solar gains from both the incident solar heat flux through glazing and from the opaque elements of a building by calculating an equivalent outdoor temperature. This model feeds a multilinear regression model whose parameters are estimated by Bayesian inference. Our model for estimating HTC is validated against a set of virtual data from a simulated detached house under different weather conditions.

Selection of Small and Diverse Suppliers and Contractual Performance: Do Set-Asides Pay Off?

Selection of Small and Diverse Suppliers and Contractual Performance: Do Set-Asides Pay Off?

Systematic Review of Risks in Energy Performance Contracting (EPC) Projects

Systematic Review of Risks in Energy Performance Contracting (EPC) Projects

SEM Analysis of Contractor Performance in Accelerating Electrical Construction Project: Insights from Herzberg's Dual Factor Theory

In the rapidly developing electrical construction industry, the success of organizations is directly linked to the performance of their business partners. This study focuses on Indonesia's state-owned electrical enterprises, where a notable decline in Key Performance Indicators (KPIs) has raised concerns, hypothesizing that deficiencies in contractor performance are a major barrier to the timely completion of electrical construction projects. At the core of this issue is the role of human resources, identified as a pivotal factor in contractor performance that directly impacts project completion. The aim of the research is to elucidate the complex dynamics between motivator and hygiene factors, which are fundamental to Herzberg's dual factor theory, and their impact on the performance of the contractor's employees. Using Structural Equation Modeling (SEM), the study analyzes data from questionnaires distributed to 250 industry professionals. The analysis provides key insights into how these factors significantly influence job satisfaction and, ultimately, employee performance. These insights play a critical role in strategically planning contractor management practices. By emphasizing the need to understand the key factors driving employee satisfaction and performance, the study lays a solid foundation for designing effective employment contracts and management strategies. The practical implications of this research are significant, offering a pathway for contractors to enhance employee satisfaction and performance. This ultimately leads to the delivery of high-quality electrical infrastructure projects efficiently and promptly, underlining the study's relevance and importance in the contemporary industrial landscape.

Dispute Resolution over Music Performance Contract Cancellation Due to the Effects of Controversial Actions

This research aims to analyze the category of music performance contract cancellations due to controversial actions and the forms of non-litigation dispute resolution between the event organizer and 1975. This study combines normative and empirical research methods. Subsequently, the collected data were analyzed qualitatively to describe the problem and address the research purposes. The results show that the controversial actions of The 1975 vocalist in Malaysia, leading to the cancellation of their performance at “We the Fest 2023” in Jakarta, constitute a breach of contract. This cancellation not only reveals the direct impact on the event but also highlights the importance of clauses in contracts that specifically regulate public behavior and the potential consequences of such behavior, both legally and ethically. Furthermore, the dispute resolution between the Event Organizer and The 1975 following the cancellation of their performance was achieved through negotiation. The dispute resolution process between the two parties was effective and took only two days, demonstrating that negotiation is a quick and efficient non-litigious method. Therefore, it is recommended that event organizers and artists, singers, or bands include and clarify clauses in performance contracts related to public behavior and its potential consequences. These clauses should detail the fines or legal consequences that may arise from controversial actions that could negatively affect the execution of the contract or the reputation of the involved parties. Additionally, Event Organizers are advised to set behavior standards that band personnel must adhere to while on stage, thereby minimizing the risk of future music performance cancellations. Lastly, both Event Organizers and music bands should prioritize non-litigation as the initial step before pursuing litigation, as negotiation has proven efficient and effective in resolving disputes arising from breaches of contract due to controversial actions.

The Effect of Performance Appraisal Strategies on Employee Performance in IEBC Nyanza Central and South Region, Kenya

Performance appraisal at the Independent Electoral and Boundaries commission’s staff remains a challenge. Due to poor administration and supervision of the performance contracts, employees have developed negative perception and reduced morale to embrace performance contracts. This affects negatively on work performance. The purpose of this study was to establish the influence of performance appraisal on the performance of Independent Electoral and Boundaries Commission staff in Nyanza Central and South Region, Kenya. The study adopted McGregor's Theory X and Theory Y. The study was modeled on a case study design. The population of study consisted of the 100 employees working under the arrangement of performance appraisal in the Independent Electoral and Boundaries Commission in Nyanza Central and South Regions. Instruments of data collection were questionnaires and interview schedule. Descriptive analysis was done to study distributions of variables in terms of means and standard deviation, while correlation analysis was used to show the direction and strength of the independent variables. Data which was collected was analyzed both descriptively and in correlation analysis. Data was presented using percentages, graphs and charts. The study anticipated that its findings would help build in the body of knowledge. The study found that performance appraisals impact employee performance in the IEBC Nyanza Central and South Region, Kenya. The study recommends that the IEBC in Kenya, in partnership with the IRA, should revise their performance appraisal policy to better support employees. The IEBC should incorporate effective reward management into their personal rewards. Furthermore, the IEBC in Kenya should enhance their training programs to include academic support and develop a comprehensive career development policy.

An ANALYSIS OF CONTRACTOR PERFORMANCE FOR ROAD REHABILITATION WORK USING SPECIAL ALLOCATION FUND OF 2022 IN MALANG REGENCY

Road is one of basic infrastructure playing crucial role in development process. Good condition of road creates properes transportation system. It, in turns ensures smooth movement of men and goods. Good transportation will make price of public goods cheap. So far, road rehabilitation works in Malang regency are conducted by usin Special Allocation Fund raising severeal problems such as late down payment, material queue and other. This study aims at analysisng performance of contractor of road rehabiitation using Special Allocation Fund of 2022 in Malang Regency. Customer Satisfaction Index analysis is used to analyse the contractors performance. In addition, Importance Performance Analysis is employed to find out performance variabel that should be improved or maintained. Then, simple linear regression analysis is used to find out the correlation between stakeholders’ level of satisfaction and performance importance on the part of contractors of road rehabilitation works using Special Allocation Fund of 2022 in Malang Regency. The findings shows that stakehoders are higly satisfied with performance of contractors of road rehabilitation works using Special Allocation Fund of 2022 in Malang Regency. It is shown by score of CSI 86,99%. It is also found that there is positive and significant correlation between stakeholders’ level of satisfaction and performance importance on the part of contractors of road rehabilitation works using Special Allocation Fund of 2022 in Malang Regency. However, there are some performance variables that should be improved by the contractors.