Performance Contracting Research Articles

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.

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

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.

Complexity of CEO compensation packages

This paper examines complexity in CEO compensation contracts. We develop a measure of compensation complexity and provide empirical evidence that complexity has increased substantially over time. We document that complexity results not only from factors reflecting efficient contracting, but also from external pressures from compensation consultants, institutional investors, proxy advisors, and attempts to benchmark to peers, with these external factors having greater impact in more recent years. Examining consequences of contract complexity, we find an association with lower future firm performance that is related to the influence of external factors on compensation design. We further find this relation is partially mitigated when a contract's performance metrics are more highly correlated, consistent with information processing costs hampering decision-making. Collectively, these findings confirm concerns raised by investors and the media regarding compensation complexity and can inform boards in their design of CEO pay packages.

Implementation of Multi Extension in Blockchain-Based IoT Platform for Industrial IoT Devices

The rise of the Internet of Things (IoT) has led to the creation of technologies to improve human life. IoT involves integrating the Internet with the physical world, spanning applications like smart homes, industries, supply chains, academia, and more. By the end of 2020, around 212 billion IoT devices were globally deployed, presenting substantial opportunities for manufacturers and diverse applications. There have been numerous implementations of IoT across various fields, including Blockchain IoT (B-IoT), Artificial Intelligence of Things (AIoT), Digital Twin, and new communication protocols like the Matter protocol. We conducted a comprehensive testing of the blockchain (B-IoT) extension system on various bandwidths and scenarios, such as blockchain API execution time, speed, retention performance, and smart contract vulnerability testing. Our testing has been successful, and several messaging systems were used. Kafka was recommended to overcome the pending transaction problem caused by unprocessed messages. Our smart contract exhibited high severity. The Artificial Intelligence of Things extension, tested on real environments for person and vehicle counters, has shown successful results. Digital Twin, integrated into the IoT platform to perform and control 3D assets such as the postgraduate PENS building, has demonstrated efficient performance. Matter protocol achieved an average task execution speed of 0.48 tasks per second. Matter P2P communication was also successfully tested in this research by implementing the Access Control List (ACL) command.

Improving project management “closeout” phase outcomes: evidence from a large general contractor in Iran using “X-inefficiency theory”

PurposeOptimal clean-up procedures lie at the heart of the closeout phase of construction projects under contract law. However, due to its complexity involving multiple issues, potentially unfulfilled contractual obligations, performance claims and counter-claims, combined with consequently deteriorating stakeholder relationships, the management of closeouts is fraught with difficulties leading to suboptimal outcomes. This is particularly true where general contractor (GC) organizations do not have a claims management office (CMO) dedicated to improving such suboptimal clean-up outcomes. Thus, this study aims to develop a model by which CMOs’ may effectively manage the clean-up phase in an environment of closeout claims.Design/methodology/approachX-inefficiency theory was utilized as the theoretical lens guiding this study. The theory helps identify closeout strategies implemented by a GC, which manages completion claims through a CMO. Data were received and analyzed from a large GC, which served as the firm case study. In this case, managing the closeout completion claims was the main function of the CMO.FindingsThe average delay of closeout completion was four times greater than construction phase delays. The GC results highlighted the “economic destruction tsunami of projects,” as a root cause for these completion delays. Wrap-up activities under contract law are identified, including within the domains of statements of completion, project handover and debt settlement. Behavior strategies are also defined, including relational and contractual approaches. Moreover, a process for improving closeout claim performance is described, comprising project closeout identification, rational intra-firm behavior, closeout completion and program closeout practice.Originality/valueFindings from this work can significantly contribute in X-inefficiency theory in relation to how a decrease of X-inefficiency will lead to better closeout claim performance. It also offers practical insights into how best to minimize delayed closeout completion while providing valuable lessons for stakeholders in complex infrastructure projects. Further, a model is developed that may be utilized by owners, consultancies, designers and other contractor organizations in an effort to improve closeout claim performance.

Investment Strategy and Benefit Analysis of Power and Heat Hybrid Energy Storage in Industrial Parks Based on Energy Performance Contracting

To solve the problems of a single mode of energy supply and high energy cost in the park, the investment strategy of power and heat hybrid energy storage in the park based on contract energy management is proposed. Firstly, the concept of energy performance contracting (EPC) and the advantages and disadvantages of its main modes are analyzed, and the basic scheme of EPC for parks is proposed combined with the actual demand. Furthermore, the multiple energy storage model for power and heat storage in parks is established, which includes lithium batteries and heat storage tanks. Based on this, minimizing the annual operation cost of parks is taken as the optimization goal, and the capacity optimization model for power and heat storage is constructed, which considers the investment costs, operation and maintenance costs, purchased energy costs, peak-shaving subsidy, and environmental subsidy. Finally, an industrial park is selected as an example of EPC to verify the effectiveness of our proposed investment strategy. The results show that compared with the situation before the energy-saving renovation, the park can save 35.14 ten thousand CNY in annual cost expenses. When the unit power price of the lithium battery exceeds 3900 CNY/kW, the unit capacity price exceeds 5460 CNY/kWh, the unit power price of the heat storage tank (HST) exceeds 6000 CNY/kW, and the unit capacity price exceeds 1000 CNY/kWh, the configuration of the lithium battery and HST in the park is no longer the optimal choice to perform the energy-saving renovation.

Research on the Driving Factors for the Application of Energy Performance Contracting in Public Institutions

Building energy efficiency in public institutions is crucial for achieving energy conservation and emissions reduction goals. The application of energy performance contracting (EPC) can effectively reduce energy consumption in these buildings and promote the development of the energy-saving service industry. However, there is a lack of initiative among public institutions to adopt EPC. This study aims to investigate the factors that drive the intention and behavior of public institutions to apply EPC and enhance their proactive engagement in building energy efficiency retrofitting. By considering the current status of EPC application in public institutions and drawing on relevant decision-making and behavioral theories, this paper identifies the key factors that drive the intention and behavior of public institutions, and constructs a theoretical model of the intentional and behavioral driving factors. In the empirical testing phase, research data are collected through online questionnaires. Structural equation modeling is employed to validate and analyze the extent of the driving factors and their interrelationships. The key findings are that (1) perceived usefulness, trust, and perceived risk significantly drive the behavior intention of public institutions to apply EPC; (2) perceived behavioral control and perceived ease of use significantly positively drive the behavior of public institutions, with behavior intention being the most influential factor; and (3) policy system and organizational support play a significant moderating role in the process from intention to behavior. Based on these findings, this paper proposes the critical tasks and suggests countermeasures for stakeholders in EPC projects.

Five-year Performance Contracts and Service Delivery in Local Authorities in Zimbabwe: The Case of Ruwa

Globally, public sector institutions are struggling to offer public services effectively and efficiently. Zimbabwe has introduced five-year performance contracts in the public sector in order to address challenges bedeviling the public sector institutions. This study sought to analyse the impact of five-year performance contracts on local authorities’ service delivery. The literature reviewed showed that Zimbabwe’s public sector organization have a long-standing history of under performance. Performance contracts were therefore, introduced to rectify performance challenges in the public sector. A qualitative inquiry of a case study indicated that political interference, financial challenges, lack of skills of the employees and lack of commitment of the leaders are among the factors leading to poor implementation of performance contracts. As a way forward research recommends the transformation of the structural mechanisms underlying the implementation of performance contracts, training of employees, reimbursement of local authorities by the central government and inclusion of the lower-level employees in setting of targets. Widespread awareness-raising campaigns of both the need for performance contracts and the benefits of such measures are needed.