A Study Into The Effects Of Using Pain/Gain Sharing Mechanisms To Improve The Contract Management In The Supply Chain

Designing A Strategic Framework To Implement Pain/Gain Sharing Mechanisms

Master thesis (2023)

Authors

A. Al Saadi Civil Engineering & Geosciences

Contributors

E.M. Bruggeman (mentor)
M.G.C. Bosch-Rekveldt Integral Design & Management - CEG (graduation committee member)
L.P.I.M. Hombergen Integral Design & Management - CEG (graduation committee member)
Erik Segers (graduation committee member)
Faculty
Civil Engineering & Geosciences, Civil Engineering & Geosciences
Copyright: © 2023 Aia Al Saadi
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Published Date

30-06-2023

Language

English

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Faculty

Civil Engineering & Geosciences

Abstract

The Dutch construction industry faces the recurring issues related to delays and conflicts, resulting in adverse effects on construction projects. Researchers have proposed pain/gain sharing mechanisms as a potential solution to address these issues. However, there is a gap between theoretical suggestions and practical implementation. This empirical study aims to bridge this knowledge gap by investigating the practical implementation of pain/gain sharing mechanisms in the Dutch construction industry. The objective is to explore how these mechanisms can provide value to contractors.

The literature review reveals that the NEC4 contract ECS4 Option C is commonly used for implementing pain/gain sharing mechanisms. Additionally, secondary option clauses such as Option X6 (bonus for early completion) and Option X20 (key performance indicators) are identified. While these mechanisms have primarily been applied in alliances or client-contractor relationships, they can also be adapted for contractor-subcontractor relationships.

Through in-depth analysis of three case studies and eleven semi-structured interviews, it is found that essential conditions for successful pain/gain sharing mechanisms are often missing. Transparency, aligned objectives, consideration of each other's interests, and early involvement of parties are identified as crucial factors for success.

To address the identified gaps in the implementation process, a comprehensive framework is developed, which is well-received by industry experts. The framework aids in selecting the most suitable pain/gain sharing mechanism and ensuring all parties understand its benefits and implications. Two options, an escape plan or commitment to the mechanism, are proposed to provide flexibility.

The developed framework enhances the understanding and implementation of pain/gain sharing mechanisms in the construction industry. By respecting and guaranteeing agreements, the optimal effectiveness of these mechanisms can be realized. This research contributes to bridging the gap between theoretical suggestions and practical implementation, paving the way for more successful construction projects in the Dutch construction industry.