The roles and risks of incentives in construction projects

In construction projects, financial incentives such as target cost arrangements are often considered essential to create joint goals and support collaboration, especially in partnering relationships. Still, research has shown that many incentive schemes are limited and inconsistent and that management is often lacking in rigour. A starting point for this paper is that a wider framework of the roles and effects is needed to understand practitioner strategies for the design and management of financial incentives. Based on the literature on motivation and trust and an interview survey with Swedish clients and contractors, we identify three roles of financial incentives in interorganisational relationships: sources of extrinsic motivation, symbols of trust and efficiency and generators of communication processes. Symbolic roles are primarily related to the expectations and perceptions of trust and efficiency in the early stages, while process aspects influence the development of constructive collaboration as the relationship unfolds. Four client strategies are described, differing in the degree of elaboration and relational orientation, and we conclude that both practitioners and researchers need to consider all three incentive roles to understand the full range of effects of a particular strategy.