Performance Contracting Research Articles

Contractual Performance, Breach of Contract and Contractual Obligations in Times of Crisis: On the Need for Unification and Codification in European Contract Law

The sanctity of contracts, a guiding principle of contract law in civil law systems, requires that both or all contracting parties be expected to meet their contractual obligations, thereby ensuring efficacy and efficiency of private ordering. Under extraordinary circumstances, however, legal systems provide for mechanisms, which may excuse contractual performance or lead to adaption or termination of contractual obligations. Since the coronavirus pandemic, these mechanisms have clearly gained traction. Drawing on five important civil law jurisdictions (Germany, Austria, Switzerland, France, Italy), this article elaborates on excuses of contractual performance and remedies for breach of contract and on adaption or termination of contractual obligations. The article aims to address the fundamental questions, whether these excuses and remedies and institutions on adaption or termination still serve their purpose in times of pandemic or whether and to what extent a uniform breach of contract action or a codification of such institutions is needed in European Contract Law. A functional and comparative approach is used to unfold and analyse these timeless questions from a contemporary perspective.

Investment restrictions and fund performance

We examine the effect of investment restrictions on mutual fund performance. Utilizing a unique panel of mutual fund contract changes, we explore several ways these changes affect a fund, including: performance, funding risk, and managerial contracting. We find that the general shift towards fewer restrictions over the period 1996–2011 has provided little benefit to mutual funds. Specifically, neither performance nor flow increased and we observe no changes in risk on average. We do find, however, an increased likelihood of management turnover when restrictions are removed. We conclude that contract restrictions do not explain the general underperformance of mutual funds, and that these investment restrictions are not binding. • The mutual fund industry has broadly decreased many of the investment restrictions. • The general shift towards fewer restrictions has provided little benefit to mutual funds. • Contract restrictions do not explain the general underperformance of mutual funds. • The investment restrictions on mutual funds are not binding.

Risk assessment in Iranian oil and gas construction industry: a process approach

PurposeSuccessful risk management is influential in different phases of construction projects. It can play a critical role in reducing the possibility of claims as well as related disputes. The risk management knowledge area in large capital projects such as oil and gas is considered a questionable problem in the construction industry. The present study makes an effort to identify the importance of process groups in improving risk management performance.Design/methodology/approachThis study is selected and ranked 36 factors leading to the claim in Iran's oil and gas industry through the Delphi method and a questionnaire. Factors categorized into a risk breakdown structure (RBS) include eight groups. Factors are linked to one of the process groups by a Delphi method. Finally, the relationship between RBS and the five process groups is analyzed using partial least squares structural equation modeling (PLS-SEM).FindingsFindings showed that the planning process group had more confirmed factors than others. Most of the supported communications belonged to the contractor and the owner parties. Also, the cause of delay in the implementation phase due to the contractor performance had a higher relative importance index.Originality/valueThis article, from a project life-cycle perspective, considers the new structure between the risks leading to claims and the key parties to the project. It can be a good criterion for identifying risks and a timelier response to them before the risks turn into disagreements.

Influence of Employee Performance Contracting on Organization Performance in Kapenguria County Referral Hospital Kenya

Performance contracting is a strategic technique that uses feedback loops to meet desirable targets. Introduction of performance contracting by the government was seen as effective and hopeful method for improvement of the performance in public institutions and state agencies. Past Studies on Performance contracting, and Organization performance shows that there had never been a study on how Performance Contracting influences performance of County Referral Hospitals and there lay the research gap. The research main objective was to ascertain the effect of performance contracting results on organizations performance in Kapenguria County Referral Hospital. In a specific way, the study sought to find out how performance contract target setting influence performance of the Hospital. The target population was 291 employees of Kapenguria County Referral Hospital, the study used a stratified random sampling technique to get the sample size which was 184 employees. Descriptive research design was adopted by this study. The study utilized primary data mainly collected using structured questionnaires. The data collected was then analyzed using descriptive and inferential statistics with the help of SPSS. Tables were used to present the results of the study. The study found out that there was a positive and significant relationship between Target setting and Organization performance, this, therefore, implied that setting of targets in performance contracting influenced the organizational performance. results of ANOVA established that there was a significant mean because the coefficients were all less than 0.05. lastly, all independent variables had statistically significant association with the dependent variable at 95% level of confidence. The study, therefore, concludes that performance contracting greatly influence organization performance. Going by high affirmation of the respondents, Performance contracting enhances assertion of more effort by employees to their duties and tasks, motivates employees when rewarded or recognized based on the results of evaluation, enhances work accountability in the organization among others. this study recommends that there should be adequate consultation and involvement of employees in setting of targets, this will lead to high employees’ commitment to the set targets and in turn enhance achievement of the general organizational targets.

Trading with the Dead

AbstractLate medieval Englishmen provided for their wellbeing in the hereafter by purchasing intercession for their souls. They traded valuable landed endowments for the promise of posthumous Masses and prayers whose daily observance contractual counterparties agreed to underwrite for decades, centuries, even eternally. Intercessory foundations so contracted were called chantries. Chantry contracts constituted trades with the dead in the sense that the promisees were deceased when the promisors were supposed to perform. I study the special problems that chantry contract promisees faced in enforcing their rights from the grave and analyze the devices they used for that purpose. Chantry founders wary of their fates in the afterlife showed equal concern for the challenges their contracts would encounter in this life long after they were gone. Founders met those challenges by leveraging the economics of incentives to develop a strategy of chantry contract self-enforcement: profit the living, present and future, for monitoring the contractual performance of promisors and promisors’ agents, and for punishing them should they breach. Chantry founders’ strategy was successful, enabling trade with the dead.

Building an Equilibrium: Rules vs. Principles in Relational Contracts

Effective collaboration within and between organizations requires efficient adaptation to unforeseen change. We study how parties build relational contracts that achieve this goal. We focus on the “clarity problem”—whether parties have a shared understanding of the promises they make to each other. Specifically, (a) a buyer and seller play a trading game in several periods; (b) they know their environment will change but do not know how; and (c) before any trading occurs, they can reach a nonbinding agreement about how to play the entire game. We hypothesize that pairs whose initial agreement defines a broad principle rather than a narrow rule are more successful in solving the clarity problem and in achieving efficient adaptation after unforeseen change. In our baseline condition, we indeed observe that pairs who articulate principles achieve significantly higher performance after change occurred. Underlying this correlation, we also find that pairs with principle-based agreements were more likely to both expect and take actions that were consistent with what their agreement prescribed. To investigate a causal link between principle-based agreements and performance, we implement a “nudge” intervention that induces more pairs to articulate principles. The intervention succeeds in coordinating more pairs on efficient quality immediately after the unforeseen change, but it fails to coordinate expectations on price, ultimately leading to conflicts and preventing an increase in long-run performance after the shock. Our results suggest that (1) principle-based agreements may improve organizational performance but (2) high-performing relational contracts may be difficult to build. History: This paper has been accepted for the Organization Science Special Issue on Experiments in Organizational Theory. Funding: We gratefully acknowledge financial support from the Massachusetts Institute of Technology Sloan School's Program on Innovation in Markets and Organizations. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2021.1503 .

Towards net-zero carbon performance: using demand side management and a low carbon grid to reduce operational carbon emissions in a UK public office

This paper investigates the performance of an office building that has achieved a low carbon performance in practice thanks to a performance contract and Soft Landings approach. The findings show the potential of this building for further de-carbonisation as a result of electrification of heating and load shifting to take advantage of a low carbon electricity grid. Whilst retrospective modelling based on the past carbon intensity data shows the effectiveness of demand-side management, assessment of the existing smart readiness of the building revealed that the building services and control strategy are not fully equipped with the data analytics and carbon or price signal responsiveness required to facilitate grid integration. The environmental strategy and procurement method used for this building combined with an effective grid integration strategy can serve as a prototype for low carbon design to achieve the ever stringent carbon emissions objectives set out for the non-domestic buildings.

Application and risk assessment of the energy performance contracting model in energy conservation of public buildings

Abstract With the development of China’s economy, the total area of public buildings is continuously increasing, and higher energy consumption in this field is gradually becoming prominent. In order to improve this situation, China has been working on energy savings in public buildings since 2007. Energy-saving models and energy policies have become the lifeline of sustainable energy development. Furthermore, the energy-saving renovation of public buildings, as a key project, has attracted the attention of governments and scholars. In the report of the 18th National Congress of the Communist Party of China, energy conservation and emission reduction were given a prominent place. The 13th Five-Year Plan (2016-2020) aims to further promote China’s energy conservation work. On the one hand, administrative and legal measures should be taken to strengthen energy conservation. On the other hand, it is necessary to speed up the establishment of a long-term market-based energy-saving mechanism and to rely on market forces to remove various obstacles to energy conservation. Energy performance contracting (EPC) is a practical and effective method applied in energy conservation. Therefore, this research aims to put forward a relatively perfect energy-saving risk management system for EPC public building projects based on analysis of the factors influencing investment risks of energy-saving projects and the use of quantifiable risk management models, thus providing some theoretical support for the risk decision-making of energy service companies.

Your Competitive Side Is Calling: An Analysis of Florida Contract Performance

Abstract Competition over the allocation of scarce resources motivates many public policy choices, and increasingly influences the management of public organizations. With the rise of the business‐like approach espoused by adherents of “new public management,” competitive mechanisms are increasingly used in the public sector to improve organization and program performance. Despite the wide acceptance of competition as a viable method to improve public management, little large n empirical work has been done to determine whether competition improves performance, especially in the networked, cross‐sectoral setting of modern governance. Analyzing nearly 20,000 Florida contracts over a three‐year period, this research explores whether competitive sourcing procedures lead to improved contractor performance. Results show that competitive sourcing may be associated with higher contract spending and undesirable contract outcomes. Other factors, including experience, existing relationships, and lower transaction costs, are more likely to lead to better performance. Practitioner Points Competition is theorized to drive down costs, encourage innovation, and help hold contractors accountable for their work. Competitively sourced contracts are more likely to experience cost overruns and to terminate early than noncompetitive contracts, suggesting that competition may not always be the best approach. Instead, agency‐contractor relationships and goal alignment are better predictors of good performance.

When no bad deed goes punished: Relational contracting in Ghana and the UK

Experiment evidence to date indicates that subjects follow a trigger strategy in finitely repeated games: they punish bad contractual performance by reducing future offers and the threat of punishment disciplines opportunistic breach. This behavior contradicts standard game theory predictions. We conduct a repeated prisoner's dilemma (PD) game experiment with university students in Ghana and the UK. The experiment is framed as an employment contract. Each period the employer makes a irrevocable wage offer to the worker who then chooses an effort level. UK subjects use a trigger strategy to discipline workers, in line with previous experiments: wage offers reward high effort and punish low effort in the past; this induces workers to choose high effort; and gains from trade are shared between workers and employers. We find no such evidence with Ghana subjects: employers seldom reduce wage offers after low effort and, if they do, workers respond by lowering effort; employer often reduce wages after high effort; and employers earn a zero payoff on average. Introducing competition or reputation does not significantly improve workers’ effort. We conclude that the use of trigger strategies in repeated labor transactions is not a universally shared heuristic.

Digital building twins and blockchain for performance-based (smart) contracts

Servitization business models can use performance-based contracts to consider overall life-cycle costs rather than just production costs. However, practical implementation of performance contracts has been limited due to challenges with performance evaluation, accountability, and financial concepts. As a solution, this paper proposes the connection of the digital building twin with blockchain-based smart contracts to execute performance-based digital payments. First, we conceptualize a technical architecture to connect blockchain to digital building twins. The digital building twin stores and evaluates performance data in real-time. The blockchain ensures transparency and trusted execution of automatic performance evaluation and rewards through smart contracts. Next, we demonstrate the feasibility of both the concept and technical architecture by integrating the Ethereum blockchain with digital building models and sensors via the Siemens building twin platform. The resulting prototype is the first full-stack implementation of a performance-based smart contract in the built environment.

Key drivers and obstacles for performance among forest harvesting service contractors – a qualitative case study from Sweden

ABSTRACT The extensive outsourcing of forest harvesting operations means that the operational performance of contractors has an immense impact on the forest industry supply chain. This study describes perceived drivers and obstacles for strong performance in harvesting service based on semi-structured interviews with four production supervisors and eight contractors. The analysis of interview data revealed a wide array of factors considered to drive or hinder the performance. The factors were categorized into five types: Capability, Incentives, Commitment, Involvement and External factors. Factors concerning Capability, especially resources and competence, were most frequently considered by production supervisors as both drivers and hinders. The contractors considered most commonly Incentives to affect performance, especially motivation and strategy, as drivers and the economy as hinder. Both parties considered lack of resources as hinder to performance. For competence, relationship and collaboration interface, on the other hand, the two parties had different views on whether they acted as drivers or hinders. The knowledge presented in this paper is of interest to researchers or practitioners who wishes to understand the complexities underlying successful harvesting service performance. The insights can contribute to the reshaping of business practices to better target and leverage the mechanisms that most strongly affect performance.

Alternative PSS Business Models of ESCO: Towards an Innovative New Model

Product System Service (PSS) was an excellent way to create new customer value under hyper-competition. Both product and service components were not used individually but in integrating product, service, and system and their valid combinations. This paper investigated the case study and was performed between June 2019 and April 2020. The is study aims to explore the introduction of the study's purpose of exploring the company was introducing the latest PSS model in its own " Energy Saving Company (ESCO) model" with its capitals in Indonesia. This new business model was able to tap potential business opportunities in the energy-saving industry. The study used these three methods – Soft System Methodology (SSM), General Morphological Analysis (GMA) & Business Model Canvas (BMC). In this paper, the authors performed SSM to reduce the gap that exists in the real world. GMA and BMC as other tools to ensure collaboration to form the new business model. The result showed that through PSS, the company could develop their own "ESCO model" under Energy Saving Agreement (ESA) or Energy Saving Performance Contract (ESPC), which was known as "saving back arrangement financing." By adopting PSS, the company could gain a competitive advantage since there was increasing demand for energy and limited supply in Indonesia; hence there was a vast, untapped opportunity in the energy-saving industry. Keywords: BMC, Case study, ESCO, Morphological, PSS, SSM

Energy performance analytics and behavior prediction during unforeseen circumstances of retrofitted buildings in the arid climate

During the COVID-19 pandemic, the energy consumption profile has been changed in several facilities as a response to the lockdown and other precautionary measures. Lockdown has reduced the electrical load consumption in commercial buildings. Accordingly, the energy cost savings have been reflected in the energy bills. However, such savings were not due to improvement of energy performance and equipment efficiency, but because of changes that occurred in the operating conditions and parameters. As a result, it was complicated to identify the real energy savings in the energy retrofit projects during this period. For the energy conservation and refurbishment projects, a challenge was faced to calculate an accurate energy savings amount and to track the energy pattern and performance during these lockdown months.This study discusses the energy behavior of retrofitted buildings that follows the energy performance contracting. It shows the improvement of energy consumption for one year for 30 studied buildings. It discusses the strategy to follow in the calculation of the energy savings during a full lockdown period. This article addresses the approach to be taken into consideration and its consequences to monitor the energy profile as per the International Performance Measurement and Verification Protocol.

Managing minority opinions in risk evaluation by a delegation mechanism-based large-scale group decision-making with overlapping communities

Energy performance contracting (EPC) mechanism is a good choice for conducting energy-saving renovation projects of public buildings. Furthermore, risk analysis is critical to smoothly implement these EPC projects. Therefore, this paper intends to set up a large-scale group decision-making (LGDM) framework based on delegation mechanism to rank risk factors of EPC projects. Firstly, some risk factors and evaluation criteria are identified. Meanwhile, the assessment is expressed as picture fuzzy numbers (PFNs) to handle conflicting opinions and refusals. Then, a novel bidirectional projection measure that considers both distance and included angle is defined, which can better describe the difference between two PFNs. Next, this paper uses a suitable algorithm to cluster experts and presents a delegation mechanism to allocate trust weights of external experts to internal experts. Then, a new method to protect minority opinions is presented. In addition, we use preference risk coefficient to integrate the uncertainty of decision information in consensus-reaching process (CRP), which reduces the risk of LGDM. We come up with an extended MULTIMOORA method to make full use of three parts of MULTIMOORA method. Moreover, the proposed framework is successfully implemented in a case study and some risk mitigation measures and management implications are presented.

Analysis of Local Content Policy Implementation in Company NJH

Oil and gas companies, contractors and suppliers, under the regulation by the Ministry of Energy and Mineral Resources (EMR), must implement local content implementation in procuring materials and services for oil and gas activities. Company NJH, as one of Production Sharing Contractors, faces problems in the inefficiencies of implementing the local content policy. Three main problems became apparent: unrealistic roadmap implementation, unstandardized contractor performance, and NJH’s human reso urces constraints. Qualitative methodology through interview sessions is used to analyze the current situation within NJH to understand the underlying issues, identify alternative solutions and formulate business solution proposal. Fishbone analysis is used to find the root cause of the inefficiencies. PDCA cycle analysis is also used to formulate business process improvement. The formation of a market research team is recommended to help resolving the roadmap implementation inefficiencies. The goal is to analyze the current SKK Migas PTK 007 Revision 4’s (PTK 007) roadmap adoptability and formulate optimized roadmap to be more practical to contractors and suppliers. A guidance program to support contractor’s documentation format and standards combined with the hiring of local content experts are also recommended as business solution with a goal to expedite verification processes.

Contractual Risk and Performance of Manufacturing Firms in Kenya

The study sought to examine the influence of contractual risk on performance of manufacturing firms in Kenya. With the growing need for logistics outsourcing among the manufacturing firms, the risks surrounding the entire process are also on the rise. This comes at a time when most of the manufacturing firms are at the verge of minimizing costs and sustaining their performance, while a couple of these companies are facing performance challenges. It therefore remains unclear whether the contractual risk as one of the logistics outsourcing risks could have any influence on the performance of these firms, hence the subject of the study. Both descriptive and explanatory research designs were adopted. The unit of observation was the supply chain administrators of manufacturing firms in Kenya. Stratified sampling was conducted on all the one thousand one hundred and twenty three manufacturing firms registered by KAM, simple random sampling was carried out on the strata to identify a sample size of 295 firms. The study relied mainly on primary data which was collected through semi-structured questionnaires that were administered to administrators charged with the management of supply chain within the selected firms. Data analysis was done using descriptive statistics and inferential statistics through SPSS version 24. The findings from the study revealed that contractual risk had a significant and positive influence on the performance of manufacturing firms in Kenya. Information flow had a significant moderating effect on the relationship between contractual risk and performance of manufacturing firms. It was concluded that through the contractual risk and managing the risks appropriately, the manufacturing firms are able to save on operational costs and achieve the best out of outsourcing logistics, thus enhancing performance.

Claim study of contractors in Commercial Berth Project in Duqm Port in Oman

The claim during the implementation of projects is very important for the contractor and the consultant. As for the owner, it is considered expensive and cumbersome,and therefore the project contract must be very clear so that there are no gaps or defects against the owner.The aim of this research is to analyze and study deeply contractor's claim.The objectives of this study are to study the main factors for the contractor's claim to the commercial pier project in the Sultanate of Oman,including eleven factors. The second objective is to study the impact of the contractor's claim on the commercial pier project in the Sultanate of Oman, and it includes five factors, as the questionnaire was distributed to customers and various segments of society.The results of analyzing 16 factors to identify the key factors and the impact of the study of the contractors claim conclude that the main factors affecting the contactor's claim to the pier project.The factors and impacts are valid to the study after conducting analysis on the obtained data. The factors include the development unexpected weather conditions, inconsideration of the time frame, government approval of delays,poor coordination with the project parties, poor site management and supervision,a change in the clients requirements, the lack of experienced staff, incompetence among teams, low items in the bill of products,and misunderstanding the scope of work and specifications.The impacts to the completion of the Berth project include payment delays, delays in the extension of time,issuing variation order,value implementation engineering and cost reduction,and contractor's performance.

Effect of Recruitment and deployment practices on Performance of Healthcare Workers in Kenya.

This study sought to determine the Effect of Recruitment and deployment practices on the Performance of Healthcare Workers, a case of Nursing officers, Ministry of Health, Nyeri County in Kenya. Various organisations employ different human resources initiatives to increase efficiency. The most common initiatives employed to improve efficiency include performance contracts, internal contracting, contracting-out and outsourcing of services, among others. Employing such initiatives are considered among the primary Human Resource Management (HRM) practices, which are aimed at determining the equilibrium between workforce supply and the ability of healthcare practitioners to practise effectively and efficiently to ensure improved and quality care in healthcare systems. This study adopted a cross-sectional descriptive research design. The respondents constituted all nursing staff and managers in Nyeri County health facilities and at the County Director’s Office. Stratified random sampling was used to come up with a sample of 248 respondents. Data was collected using a questionnaire. Descriptive statistics were used in the analysis of data with the help of SPSS 23. Chi-square analysis was used to establish relationships. The researcher found that recruitment processes in Nyeri County comprised internships (f=109, 44%) and field placements (f=82, 33%). Selections were made via individual interviews (f=225, 91%), while job orientation (f=237, 96%) was the main technique. The researchers found that there were gaps in the deployment practices with a mean value of 2.73, SD=1.132. Deployment in some departments was deemed disciplinary action (M=3.09, SD=1.325), and managers response to deployment needs per department or ward or facility (M=3.07, SD=1.218) were rated to a moderate extent. The study concluded that recruitment does not affect the performance of health workers. Although the county was found to use only a few recruitments, selection and orientation approaches and techniques, this did not affect the Healthcare Workers. The study further concluded that deployment practices do not affect the performance of Healthcare Workers.

A Contractor-Centric Construction Performance Model Using Non-Price Measures

Selecting a better performing contractor at the procurement stage is crucial in achieving a successful outcome for a construction project. The construction industry lacks a systematic and purpose driven method to assess performance of contractors using objective metrics. There are many approaches to measuring construction performance, but most are complicated and have high dependency on data that is difficult to attain. This paper aims to create a model for evaluating construction contractors’ performance based on directly attributable measures that are quantitative and easy to gather. This makes such a model more attractive and easier to use. Initially, a detailed literature review revealed different categories of measures of performance (MoP) and corresponding critical measures of performance (CMoP). Through a series of Delphi-based expert forums, the set of measures were fine-tuned and shortlisted. Fuzzy analytic hierarchy process-based comparisons were then used for developing a contractors’ performance model to quantify their level of performance based on a limited set of organisation-specific and project-specific measures. The results indicate a shift from traditional measures and a higher preference towards non-price measures. The performance model can be further developed to systematically rank the prospective contractors at the procurement stage based on seven non-price measures.