Ole Jonny Klakegg, Kari Hovin Kjlle,

Cecilie G. Mehaug, Nils O.E. Olsson,

Asmamaw T. Shiferaw, Ruth Woods
(editors)
PROCEEDINGS FROM
7
TH
NORDIC CONFERENCE ON
CONSTRUCTION ECONOMICS
AND ORGANISATION 2013
GREEN URBANISATION
IMPLICATIONS FOR VALUE CREATION
TRONDHEIM
1214 JUNE 2013

7
th
Nordic Conference on Construction Economics and Organisation

Trondheim

June 12-14, 2013





Editorial Board
Ole J onny Klakegg, Norwegian University of Science and Technology, Norway
Kalle Khknen, Tampere University of Technology, Finland
Gran Lindahl, Chalmers University of Technology, Sweden
Suvi Nenonen, The Aalto University School of Science and Technology,
Kim Haugblle, Danish Building Research Institute, Aalborg University, Denmark
Stefan Christoffer Gottlieb, Danish Building Research Institute, Aalborg University,
Denmark
Kristian Widn, Lund University, Sweden
Christian L. Thuesen, Technical University of Denmark, Denmark
Kari Hovin Kjlle, Sintef Byggforsk, Norway
Construction Researchers on Economics and Organisation in the Nordic region (CREON)
& Akademika Publishing, 2013

ISBN 978-82-321-0273-0 (online publishing)

This publication may not be reproduced, stored in a
retrieval system or transmitted in any form or by any
means; electronic, electrostatic, magnetic tape, mechanical,
photo-copying, recording or otherwise, without permission.

Layout:
Cover: Ole Tolstad
Foreword, introduction and paper template: The editors







Akademika Publishing
NO7005 Trondheim,
Norway
Tel.: + 47 73 59 32 10
www.akademikaforlag.no

Publishing Editor: Lasse Postmyr (lasse.postmyr@akademika.no)
i

We wish to thank the following for their contributions to the conference.

Scientific Committee

Amund Bruland
Anandasivakumar Ekambaram
Anders Bjrnfot
Anita Moum
Anne Katrine Larssen
Anne Live Vaagaasar
Antje J unghans
Aoife A.M.H. Wiberg
Asmamaw T. Shiferaw
Begum Sertyesilisik
Birgit Cold
Bjrn Andersen
Bjrn Petter J elle
Brge Aadland
Chris Harty
Debby Goedknegt
Eli Sta
Erling Holden
Eva Amdahl Seim
Geir K. Hansen
Georgio Locatelli
Gunnar Lucko
Hans Lind
Hans Petter Krane
Hedley Smyth
Helena J ohnsson
Ibrahim Yitmen
Inge Hoff
J ames Odeck
J an Alexander Langlo
J arrko Erikshammar
J ohan Nystrm
Kim Haugblle
Kirsten J rgensen
Knut Boge
Kristian Widen
Lena Bygballe
Linda C. Hald
Marit Stre Valen
Mats Persson
Matthias Haase
Mette Bye
Natalie Labonnote
Nils Olsson
Ola Ldre
Ole J onny Klakegg
Ole Morten Magnussen
Per Anker J ensen
Per-Erik J osephson
Peter Love
Poorang Piroozfar
Pouriya Parsanezahad
Ricardo Dornelas
Rolee Aranya
Rolf Andr Bohne
Ruth Woods
Siri H. Blakstad
Stefan Gottlieb
Stefan Olander
Suvi Nenonen
Sren Wandahl
Thomas Berker
Tommy Kleiven
Tore Haavaldsen
Wenting Chen
ystein Husefest Meland
ii

Editorial Board
Ole J onny Klakegg, Norwegian University of Science and Technology, Norway
Kalle Khknen, Tampere University of Technology, Finland
Gran Lindahl, Chalmers University of Technology, Sweden
Suvi Nenonen, The Aalto University School of Science and Technology,
Kim Haugblle, Danish Building Research Institute, Aalborg University, Denmark
Stefan Christoffer Gottlieb, Danish Building Research Institute, Aalborg University, Denmark
Kristian Widn, Lund University, Sweden
Christian L. Thuesen, Technical University of Denmark, Denmark
Kari Hovin Kjlle, SINTEF Byggforsk, Norway

Editors
Ole J onny Klakegg, NTNU
Kari Hovin Kjlle, SINTEF
Cecilie G. Mehaug, NTNU
Nils O.E. Olsson, NTNU
Asmamaw T. Shiferaw, NTNU
Ruth Woods, SINTEF

Organising Committee
Ole J onny Klakegg, NTNU
Kari Hovin Kjlle, SINTEF
Cecilie G. Mehaug, NTNU
Nils O.E. Olsson, NTNU
Asmamaw T. Shiferaw, NTNU
Ruth Woods, SINTEF
Pangiota Kostara, NTNU

Program Committee
Petter Eiken, Bygg21
ivind Christoffersen, Statsbygg
Kim Robert Lys, Skanska
Christian J oys, Avantor
Bjrn Sund, Advansia
Morten Lie, Direktoratet for byggkvalitet
Terje Bygland Nikolaisen, Cowi
7
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Nordic Conference on Construction Economics and Organisation 2013

iii

7
th
Nordic Conference on Construction Economics and Organisation,
Trondheim 12.-14. June 2013
FOREWORD
The first Nordic Conference on Construction Economics and Organisation was held in
Gothenburg at Chalmers University of Technology back in 1999. Since then, the
conference has been held biannually (with the exception of 2005) in Sweden (4 times), on
Iceland and in Denmark. Now it is Norway's turn to host the conference, and Finland is
scheduled to take over the baton next time. We are very pleased to be carrying on the
tradition, and we hope to live up to the expectations created by previous conferences.
In 2011 in Copenhagen an initiative was taken that marked a shift in the organization of this
series of Nordic conferences: CREON was founded. The first general assembly was held
during the 6
th
Nordic conference. The CREON network is a voluntary, non-profit association
for people who study, work, teach and do research about all aspects of management and
construction. The CREON network aims to promote collaboration across Nordic knowledge
institutions and this series of conferences is an important activity for CREON. NTNU and
SINTEF, as local organizers, are proud to present the 7
th
Nordic conference on behalf of
CREON.
We, the organizers, had two specific ambitions when we started preparing for this conference:
Firstly, we wanted this conference to be acknowledged as a high quality academic conference.
We have therefore put a lot of effort in the review process. Three rounds of blind reviews is a
lot of work, but now when we see the result it was worth it. The close collaboration with
Akademika Publishing makes sure publication points can be awarded to the authors. The
papers are presented in two parallel sessions over three days here at the NTNU Glshaugen
campus.
Secondly, we wanted to establish a closer connection with the construction industry. We
therefore put together a very strong Program Committee, comprising of prominent
representatives from the Norwegian Construction Industry, who identified the main topic:
Green Urbanization Implications for Value Creation. We realized that it was not realistic to
turn an academic conference into a popular construction industry event, so we have chosen to
collaborate with NTNU in marking their new initiative for improving knowledge about the
building process. Thus the idea for the Building Process Day was born we will spend half a
conference day together with distinguished guests from the Norwegian construction industry.
The building process day will also be the scene for another conference innovation: Statsbygg
awards for best paper and best young researcher. Enjoy!
Ole J onny Klakegg, Kari Hovin Kjlle, Cecilie G. Mehaug , Nils O.E. Olsson, Asmamaw
T. Shiferaw, Ruth Woods (Editors).
7
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INTRODUCTION, CONTEXT AND SUMMARY

The construction industry plays an important role in society. Construction forms our
physical surroundings and creates the infrastructure we need to develop society. Physical
infrastructure and buildings represent approximately 70 per cent of Norway's Real Capital.
Public investments in infrastructure constitute half of all infrastructure investments in
Norway. It is also a major factor in the societys economy, representing a substantial share
of the GNP, and, for example, it represents approximately 30% of the employment in
Norway. According to Statistics Norway the construction sector is the third largest industry
in Norway, employing 350,000 workers in more than 75,000 enterprises, and has a high
turnover; over NOK 308 billion in 2011, approximately the same level as 2008 which was a
top year. The Confederation of Norwegian Enterprise (NHO) states that the construction
industry in Norway provides 10% of the total value creation. The construction industry is
truly a cornerstone of our society.
On the other hand the dwellings and construction industry is also mentioned as the 40%
industry by the Ministry of Local Government and Regional Development. This is a
reminder that the construction industry uses approximately 40% of the total energy in our
society, 40% of the materials, and produces about 40% of the waste that goes into landfills.
This indicates the industrys importance in relation to climate and other environmental
challenges. If there is one industry that really can make a difference, it is probably
construction.
Furthermore, the construction industry has a reputation of being conservative, having a low
degree of innovation, and low productivity. It is not known to be the first industry to
implement sustainable solutions. The construction industry does use low-tech solutions and
employ low skilled workers, but it does also include highly advanced New Tech solutions
to technical problems and engage some of the most qualified engineers in our society. The
truth about this industry is as complex as the problems it is trying to solve on behalf of
society.
In the next ten years, growing globalization will promote an already increasing trend of
competition among international construction companies according to The Federation of
Norwegian Construction Industries (BNL). Additionally, Norway has the following
challenges ahead:
Growing population, expected to surpass 7 million by 2060, up from todays 5 million
Increasing trend towards centralisation
Growing elderly population with needs for health care and housing
More pressure on transport infrastructure
An ever increasing immigrant workforce
7
th
Nordic Conference on Construction Economics and Organisation 2013

Long cold winters and harsh climate, worsened by climate change which may lead to
more floods, landslides and frequent winter storms
All these challenges will lead to:
High demand for new dwellings
Need for higher investment in low energy buildings
Need for more robust buildings and infrastructure
Need for more investment in transport infrastructure
Need for a larger workforce and recruitment in all sectors
Need for good integration programmes, development of expertise and training in
relevant areas for new migrants and unskilled labour.
These are the sort of challenges that the Program Committee saw when they discussed the
profile for this event back at the beginning of 2011. They called it Green Urbanization. The
situation calls for new solutions, new knowledge, new thinking. Both small steps and huge
leaps help as long as they lead in the right direction. Is the construction industry ready for
it?
The sector is fragmented and contains many small enterprises. Thus, large companies account
for a smaller share of the construction output in Norway than in most other countries. Small
companies with highly specialized competence indicate a fragmented industry. The typical
construction project is also said to be one-of-a-kind at a hectic pace. It is obviously hard to
optimize process and solutions in such an environment.
Although to a lesser degree than other countries, the Norwegian construction industry is
currently facing the challenges that have followed the 2009 financial crisis; small enterprises
lost competence due to temporary redundancy and the investments were at a minimum level.
Therefore, the diffusion of new knowledge and investments was also at a minimum. To what
degree is the construction industry equipped to meet challenges ahead? And to what degree is
the academic community able to help this industry overcome its challenges? These are
questions that deserve to be asked, and perhaps some answers or indications may be found
among the contributions to this conference? Are the academic resources ready for it?
This introduction, its examples and identified challenges are chosen from the Norwegian
context, in full awareness of the current peculiarities of the Norwegian situation. We do have
a special and advantageous position, but Norway is still clearly a distinct part of the Nordic
context. We are also deeply embedded in the bigger international economy and global
community. Therefore, the conference profile and the Nordic conference setting feel highly
relevant in 2013.
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The contributions span a wide range of issues, organized in three tracks with three major
themes in each:
Sustainable Development of
the Urban Environment
Organizing for Execution Efficiency in Construction
The Sustainability Perspective Governance and Strategy
Implementation
The Human Aspect in
Construction
Sustainable Design Decision Making and Relations Productivity and Quality
Sustainability and People Learning from Construction
Projects
Supply Chains and Planning

The first track; Sustainable Development of the Urban Environment is the signature
track of this conference. It relates directly to the challenges addressed by the program
committee back in 2011. The invitation to authors included contributions on sustainability
in a wide sense the concept of sustainability, the framework conditions defined by
government and international agreements, the built environment, both the upgrading of
existing buildings and finding solutions for future built environments. As the papers of this
track shows, the authors cover these issues from several perspectives and cover a wide
range of issues as intended. The track provides a varied and thought provoking approach to
the term "sustainable"; one of the most oft-used terms in the construction industry today,
but which also continues to be one of the most important issues.
Key issues addressed by the papers are; different challenges in combining urbanization and
environment respect, the role and use of green certification systems, the role of
sustainability in project management, passive house building, renovation and retrofitting
from a sustainable perspective and the development of new technology to the deal with
climate and age related problems in building materials. Green has become an important
issue and two papers look at the role of green certification and policy in stimulating
company activity. It can on the one hand, as one paper suggests, become a catalyst,
stimulating more green certified buildings. On the other hand, green may mean, as the
second example shows, following the market rather than focusing on policies which benefit
clients and society. Encouraging a sustainable build is a theme which may be understood as
central in this track; it is present in the aforementioned papers and also plays a role in the
papers which focus on retrofitting, project management and the building of passive houses.
Further issues are exploring the difference between project management success and
project success; analyzing collaborative working and experienced effects on the energy
performance of a building project; an analysis of existing Norwegian retail development
and their impact on local energy consumption; and the effects of user involvement in the
briefing and design of a workplace. Scandinavian and particularly Norwegian examples
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vii

dominate the papers, but there are also case stories from USA and China and contributions
from the Netherlands and the UK.
The second track; Organizing for Execution represents a combination of new and classic
issues around governance, decision making and learning. It covers issues with a wide
perspective and long-ranging consequences for the organisations involved. Key issues are
governance mechanisms, strategy implementation, decision making, relations and learning.
Several papers discuss aspects of governance and how organisations may implement
processes and structures in order to improve their value creation and value for money in
investments. Examples presented here are the governments in the Netherlands and Norway, as
well as several anonymous companies associated with the construction industry. This has a lot
to do with designing purposeful decision making processes and using the right criteria for
prioritizing and choice of projects. Other perspectives are how to implement necessary
transformations of the organization in a changing environment. This is an important issue in a
world of increasing globalization, competition and new technologies.
One major topic in several papers is the clarity and better understanding of roles and
responsibilities in project organisations and between the project and its mother organization,
as well as other stakeholders. These relational issues include communication, motivation,
emotions and trust, just to mention some important aspects. The most fundamental topic in
these papers is perhaps learning. Learning from cases and accumulating experiences in
organisations in construction has been argued a particularly challenging thing to do. Several
papers look into these challenges.
The types of organisations represented in these papers range from large public agencies, via
industrial companies down to facilities management companies. The projects range
accordingly from large infrastructure investments via large building design and development
processes down to small and medium sized renovation and upgrading projects in existing
buildings. All in all, this track comprises discussions on some of the major issues engaging
the research community on construction projects in recent years. The picture is clearly Nordic
in the sense that most of the cases reported are documented in the Nordic region, but extended
to include Poland, France and the UK.
The third track; Efficiency in construction is the original core area of construction
economics and organisation, internationally perhaps better known as construction
management. It covers both qualitative and quantitative aspects of efficiency in construction.
The majority of the papers address the human aspect in construction, but in different ways.
Innovation, learning, daily life, scheduling, BIM, productivity, quality, procurement, contracts
and supply chains are addressed, among other issues. Roles and interfaces between different
stakeholders in a construction project are addressed in several papers.
Innovation is a key topic. It is addressed both explicitly in some papers, and implicitly in
many more papers. Innovation in the construction sector is an important topic. It is mainly
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illustrated through cases. The construction sector is characterised by cooperation between

many stakeholders. Design, planning and execution are typically carried out by project-
oriented organizations. Deliveries of building components and materials are carried out by
manufacturing companies. Interestingly, we also have comparisons between the construction
sector and other sectors, as well as the use of analytical models used in other industries but
here applied in a construction context.
Contracts and supply chain are addressed in several papers. The contractual relationships in
the construction industry are illustrated, with special focus on incentives and stakeholder
relations. Planning is addressed in a quantitative way, but from different perspectives. We
also have a terminology overview related to planning.
The track includes examples of technology advancement in the construction industry,
including Building Information Modelling (BIM).The track includes BIM approaches in a life
cycle perspective.
Cases and data come from a wide array of countries, and are not limited to the Nordic region.
The research approaches represent an interesting mix of theoretical work in the form of
literature reviews and conceptual papers, development of decision models and understanding
of observed performance in real situations, as well as documenting learning from cases and
demonstration projects. The empirical side is not surprisingly dominated by document studies
and interviews. Several papers are based on case studies. Some papers have a more theoretical
approach, while others are very empirical and data driven. In total these proceedings represent
a good cross section of contemporary research in the field of construction economics and
organization in 2013.

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TABLE OF CONTENTS

Track1:SustainableDevelopmentoftheUrbanEnvironment
TheSustainabilityPerspective
GREENORMATURING?"ENVIRONMENTALSUSTAINABILITYINMARKETINGANDBUSINESS
DEVELOPMENTAMONGSTCONSTRUCTIONMAJORS
1
HedlySmyth

INCENTIVESTOCATALYSEGREENBUILDINGCERTIFICATIONSFORBUILDINGCONSTRUCTION 13
RadhlinahAulin,FilipElland

ESTABLISHINGASTAKEHOLDERFRAMWORKFORECOCITYDEVELOPMENT
WITHACASESTUDYOFCHINESEECOCITY
24
YaoYao,HansLind,TinaKarrbomGustavsson

THEFIRSTGREATMETROPOLITANPARKOFTHE21STCENTURY:AMANIFESTATIONOF
GREENURBANIZATION
36
EricR.P.Farr,PoorangPiroozfar

THEROLEOFSHOPPINGCENTRESINTHESUSTAINABLETRANSITIONOFNEIGHBOURHOODS 48
MatthiasHaase,RuthWoods

GREENPLANNINGCHALLENGESANDOPPORTUNITIESASYSTEMDYNAMICSPERSPECTIVE 59
PeterHeffron
SustainableDesign
SUSTAINABILITYEVALUATIONOFRETROFITTINGANDRENOVATIONOFBUILDINGSINEARLY
STAGES
70
PerAnkerJensen,EsmirMaslesa,NavidGohardani,FolkeBjrk,StratisKanarachos,
ParisA.Fokaides

SUSTAINABLETRANSFORMATIONOFEXISTINGBUILDINGSACASESTUDYOFA
TRANSFORMATIONOFABARNATCAMPHILLROTVOLL
81
AlisePlavina,MatthiasHaase

PARTNERINGFORTHEDEVELOPMENTOFANENERGYPOSITIVEBUILDING.CASESTUDYOF
POWERHOUSE#1
92
TorillMeistad

LCAOFNANOCOATEDWOODENCLADDINGSUTILIZINGACCELERATEDAGEINGTEST
RESULTS
102
SelamawitM.Fufa,BjrnPetterJelle,RolfAndrBohne,CarineGrossrieder

7
th
Nordic Conference on Construction Economics and Organisation 2013

THEROLEOFACCELERATEDCLIMATEAGEINGOFBUILDINGMATERIALS,COMPONENTSAND
STRUCTURESINTHELABORATORY
111
BjrnPetterJelle

SustainabilityandPeople
ONTHEDIFFERENCEBETWEENPROJECTMANAGEMENTSUCCESSANDPROJECTSUCCESS 123
HallgrimHjelmbrekke,OlaLdre,JardarLohne

SUSTAINABLELOWCOSTHOUSINGFORTHESOCIALLYDISADVANTAGED:THEVASSNESET
EXAMPLE
134
RuthWoods,KariHovinKjlle,LarsGullbrekken

RESPONSIBILITYFORADHERINGTOSUSTAINABILITYINPROJECTMANAGEMENT 145
DebbyGoedknegt

WORKPRACTICEIMPACTONUSERSASSESSMENTOFUSABILITY 155
SiriHunnesBlakstad,KariHovinKjlle

Track2:OrganizingforExecution
GovernanceandStrategyImplementation
PARTNERSHIPSINCOMPLEXPROJECTS:AGENCY,INNOVATIONANDGOVERNANCE 166
KimHaugblle,FrdricBougrain,MarianneForman,StefanChristofferGottlieb

THENORWEGIANPROJECTGOVERNANCESYSTEM:WEAKNESSESANDIMPROVEMENTS 178
AsmamawTadegeShiferaw

MANAGINGPUBLICINFRASTRUCTURENETWORKS.ONTHEHORNSOFSEVERALDILEMMAS 191
WimLeendertse,JosArts

THEDUTCHPROJECTGOVERNANCESYSTEM:WEAKNESSESANDIMPROVEMENTS 203
AsmamawTadegeShiferaw

ENHANCINGCUSTOMERORIENTATIONINCONSTRUCTIONINDUSTRYBYMEANSOFNEW 215
PiviJvj,SunilSuwal,JannePorkka,NusratJung

EXPERIMENTALDESIGNSTRATEGYASPARTOFANINNOVATIVECONSTRUCTIONINDUSTRY 227
G.MaartenGjaltema,RogierP.P.Laterveer,RubenVrijhoef

IMPLICATIONSOFSTRATEGYININDUSTRIALIZEDHOUSEBUILDINGALONGITUDINALCASE
STUDY
239
LouiseBildsten

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IMPLEMENTATIONOFSTRATEGIES:ACASESTUDYOFAMUNICIPALITYOWNEDHOUSING
COMPANY
247
TobiasAlfljung,EbbaBirging,SigridGunnemark,SaraLindskog,LorenzMcNamara,
GranLindahl,PernillaGluch

BOARDOFDIRECTORSRESPONSIBILITYFORCONSTRUCTIONPROJECTS 257
OleJonnyKlakegg,DavidShannon

DecisionMakingandRelationships
THENEWCOMMONGROUND:UNDERSTANDINGVALUE 269
HallgrimHjelmbrekke,OleJonnyKlakegg

FACILITIESMANAGEMENTANDCONSTRUCTIONCONVERGEINARENOVATIONPROJECT 282
TerttuVainio,VeliMttnen,TimoKauppinen,AnneTolman

USORTHEM?ACASESTUDYOFTWOINTERNALPROJECTTEAMSDURINGCONSTRUCTION
OFANEWCORPORATEHQ
290
SiriHunnesBlakstad,NilsO.E.Olsson

USEOFCOLLABORATIVEWORKINGINCONSTRUCTIONPROJECTSWITHHIGHENERGY
AMBITIONS
302
TorillMeistad,MaritStreValen,JardarLohne

THEINTERPLAYOFEMOTIONALINTELLIGENCEANDTRUSTINPROJECTRELATIONSHIPS 314
NicholasBootHandford,HedleySmyth

MANAGINGSTAKEHOLDERRELATIONSHIPSINPPPPROJECTS 324
J.Siering,A.Svensson,G.Lindahl

LearningfromProjects
EXPLOITATIONOFEXPLORATORYKNOWLEDGE:AMULTIPLECASESTUDYOFKNOWLEDGE
DIFFUSIONFROMDEMONSTRATIONPROJECTS
335
AndersVennstrm,PerErikEriksson

WHATHAVEWELEARNEDABOUTTHESOCIALASPECTINLEARNINGINTHECONTEXTOF
CONSTRUCTIONPROJECTSBYNOW?AREVIEWOFTHEEARLIERSTUDIES
346
AnneKokkonen

LEARNINGINTHEEARLYDESIGNPHASEOFANINFRASTRUCTUREDEVELOPMENTPROJECT 357
ThereseEriksson

INFORMAL,INCIDENTALNATUREOFKNOWLEDGESHARINGINCONSTRUCTIONPROJECTS 368
AnandasivakumarEkambaram,HansPetterKrane

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Track3:EfficiencyinConstruction
Thehumanaspectinconstruction
EMPLOYEEENGAGEMENTININNOVATIONFORTHEBUILTENVIRONMENT 379
NatalyaSergeeva

USINGCOMMUNITIESOFPRACTICETOINTEGRATEINDUSTRIALKNOWLEDGEINTO
COOPERATIVERESEARCHONSUSTAINABILITYINSTEELCONSTRUCTION
390
GregorNuesse,M.Limbachiya,R.Herr

THEDAILYLIFEOFACONSTRUCTIONCONTRACTORMULTIPLICITYINPRODUCTION
STRATEGIES
404
HelenaJohnsson

BOUNDARYSPANNINGINCONSTRUCTIONPROJECTS:TOWARDSAMODELFORMANAGING
EFFICIENTCOLLABORATION
415
TinaKarrbomGustavsson

ASSESSINGCONSTRUCTIONENDUSERVALUES 427
AndersBjrnfot,LeifErikStorm,EskildNarumBakken

OPENINNOVATIONINPROJECTBASEDINDUSTRIES:THECASEOFANOPENINNOVATION
PROJECTINCONSTRUCTION
440
MarianneForman,KimHaugblle

MANAGINGEXPLORATIONANDEXPLOITATIONINCONSTRUCTIONPROJECTS 451
PerErikEriksson,HenrikSzentes

Productivityandquality
AHOLISTICAPPROACHTOACQUISITIONOFBUILDINGINFORMATIONFORAMORE
EFFICIENTCOLLABORATION
461
PouriyaParsanezhad,VinoTarandi

CHALLENGESINENGAGINGTHECLIENTDURINGTHECAPTURE,TRANSLATION,
TRANSFORMATIONANDDELIVERY(CTTD)OFCLIENTREQUIREMENTS(CR)WITHIN
THEBUILDINGINFORMATIONMODELLING(BIM)ENVIRONMENT
469
FaraAtiquahShahrin,EricJohansen

IMPROVINGINTERORGANIZATIONALDESIGNPRACTICESINTHEWOODBASEDBUILDING
INDUSTRY
479
ChristophMerschbrock,B.E.Munkvold

LOSSANDPRODUCTIVITYINPERFORMANCEOFCONCRETESTRUCTURE:ACASESTUDY 490
AlbertoCasadoLordsleemJr.,FbiaKamillyAndrade,SuenneCorreiaPinho

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PROGRAMOFPERFORMANCEINDICATORSFORCEMENTBASEDTECHNOLOGY
CONSTRUCTION
501
AlbertoCasadoLordsleemJr.,SuenneAndressaCorreiaPinho

QUALITYPROGRESSMODELFORBUILDINGCONSTRUCTION 512
JussiM.Savolainen,KalleE.Khknen

Supplychainsandplanning
CHARACTERISTICSOFSUPPLYCHAINMANAGEMENTINSYSTEMSBUILDINGAND
IMPLICATIONSFORSMALLBUSINESS
520
JarkkoErikshammar

INCENTIVEBASEDPROCUREMENTINCONSTRUCTIONPARTNERING 530
EmilioJohansson,Robertgren,StefanOlander

AWAYTOEMPIRICALLYDEFINECONTRACTINGFORMSINCONSTRUCTION 539
JohanNystrm

COORDINATEDSUPPLYCHAINPLANNINGINCONSTRUCTION 546
MicaelThunberg,FredrikPersson,MartinRudberg

SINGULARITYFUNCTIONSFORINTEGRATINGTEMPORALANDFINANCIALCONSTRAINT
MODELOFCONSTRUCTIONPROJECTS
557
GunnarLucko,RichardC.Thompson

TOWARDSATAXONOMYOFPLANNINGANDSCHEDULINGMETHODSINTHECONTEXTOF
CONSTRUCTIONMANAGEMENT
570
HammadAlNasseri,KristianWidn,RadhlinahAulin

ADDRESSINGTHEDUEDATEDELIVERYPROBLEMOFDESIGNINCONSTRUCTIONPROJECTS 582
KaiHaakonKristensen,BjrnAndersen,OlavTorp

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539



A WAY TO EMPIRICALLY DEFINE CONTRACTING FORMS IN
CONSTRUCTION
Johan Nystrm
VTI, Stockholm, Sweden
e-mail: johan.nystrom@vti.se
Web page: www.vti.se

Abstract. Fixed price and cost-plus contracting differ in risk allocation between the contractor and
the client. The former contract provides high-powered incentives for the contractor to cut cost while a
cost-plus arrangement is optimal with a risk-averse contractor and a high cost for monitoring quality.
There is a difference between the standard theoretical definitions of these contracts and how they are
actually used. In reality there are no pure versions of these contracts but instead a continuum between
these theoretical definitions. This paper provides a detailed model more in line with the actual usage
of the contracts. The refined model also provides a new way of approaching the empirical question of
how contract forms affect final cost outcome. This question does not have an obvious answer, with
two opposing mechanisms in play. The fixed price contract comes with a risk-premium making it,
ceteris paribus, more expensive ex ante but the cost-plus contract does not provide any incentives to
hold back cost during the contract, which could outweigh the risk mark-up. With a limited amount of
data from Swedish road maintenance a first step to approach this empirical problem is made,
showing that The Swedish Transport Administration (Trafikverket) takes the bulk of the risk.
KEYWORDS: Contracting, road maintenance, productivity

1 INTRODUCTION
The discussion on the effectiveness of contracting forms in the construction industry is
mostly held on a theoretical level and is lacking empirical results. One could state that all
important theoretical issues have been resolved at this high conceptual level. We know that
design and build contracts puts the risk on the contractor and the other way around with
traditional prescriptive contracts (designbidbuild). Fixed price payment schemes provides
high-powered incentives for the contractor to cut cost, while cost-plus contracts is optimal
with a risk-averse contractor and a high cost for monitoring quality (McAfee and McMillian,
1988). Different twists of these have been studied in a number of theoretical articles (see e.g.
Berends 2000; Maskin and Tirole, 2008; Mandell and Nystrm, 2013. The next step must be
to analyze contracting forms in an empirical way.

The lack of empirical papers can be explained by a shortage of data (Nilsson, 2012,
Riksrevisionen, 2012) but also by a lack of detailed models to fully capture contracting
forms. This paper will focus on the latter by providing a quantitative definition of contracting
forms. The definition provides a first step towards explaining how contracting forms affect
final cost and quality.
2 CONTRACTING FORMS IN CONSTRUCTION
There are different terms to describe contracting forms in construction. A distinction can
be made between responsibility for design and payment schemes. Both can be seen as subsets
J ohan Nystrm
540

of the term contracting forms. The difference between traditional prescriptive- and design and
build contracts has to do with responsibility for the design. In a traditional prescriptive
contract the client provides the design and the contractor builds accordingly. If something is
wrong in the design, e.g. the dimensioning of a bridge, it is the responsibility of the client.
But it is up to the contractor to build according to the plan, e.g. fulfill the prescribed
dimension.

In a design and build contract, both the design and the construction is the responsibility of
the contractor. The client provides an idea of what he wants that the contractors present a
design to fulfill and build accordingly.

A third version often discussed is performance contracting, which means that the client
defines what he wants in terms of functions e.g. a road with high friction, low roughness
(IRI), low cracks etc and the contractor is free to fulfill these requirement any way they want.
Hence, prescriptive, design and build contract and performance contracting has to do with the
responsibility of the design. These contracts can be combined with different forms of
payment schemes.

Payment schemes are usually described as fixed price or cost plus contracting (McAfee
and McMillian, 1988). The fixed price contract stipulates that the client pays the contractor a
predetermined price regardless of the final project cost. The predetermined price p comes
from the lowest tender b, accordingly


i i
b p = , where { }
n i
B B B b ,..., , min
2 1
= (1)

In this setup, the contractor has a strong incentive to cut costs in order to maximize profit.
Under the assumption of ex post information asymmetry (i.e. that the client cannot monitor
the contractor perfectly), this can entail shirking on quality. The difference between the price
and the actual cost may be negative as well as positive. This potential deviation is carried by
the contractor, who bears all risk under this contracting form.

On the other side of the scale, we have the cost-plus contract with the client bearing all the
risk. The price, p, that the contractor is paid coincides with his cost, c, accordingly

1 1
c p = , for the winning contractor 1 (2)

Here, the incentive for the contractor to cut cost is weak.

To summarise, the contractor bears all the risk in a fixed price contract and therefore has
high powered incentives to cut costs, which might affect the quality provided in a negative
way. Cost-plus contracts have the client bearing all the risk, with weak incentives to both cut
cost and shirk on quality. With the contractor bearing all the risk it is it is expected that the
fixed price ex ante bid should be higher due to the risk-premium.

It is important to differentiate between type of design responsibility and payment schemes,
when talking about contracting forms. In principle it is possible to e.g. combine a design and
build contract with a fixed price- or a cost plus contract. This paper will however focus on the
payment schemes.

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541

In order to test how fixed price and cost-plus contracts affect final cost, the contracting forms
from above needs to be defined in a more concrete way. A problem with the standard
McAfee and McMillian (eq. 1-3) descriptions of the contracts is that they do not exist in
reality. There are no such extreme versions of these contracts, at least in Sweden (Mandell
and Nystrm, 2013; Nystrm, 2012). The reality is much more complex. In order to capture
the real design of the payment scheme, one has to break down these contracts in more detail.
This is done by modelling unit price contracts (UPCs).
2.1 A refined model
Unit price contracting (UPC) is commonly used in procurement auctions throughout the
world (Ewerhart and Fieseler, 2003). It is frequently used in the construction and
maintenance of infrastructure (e.g. Gupta et al 2012).

Infrastructure is often the responsibility of the state, which entails that the public client is
bound by some procurement regulation. Using a UPC, the client prepares the design and
takes legal responsibility for it. The design consists of a bill of quantities, i.e. a list of the
units to be produces and their respective quantities. These quantities are connected to
technical descriptions and manuals. Contractors then submit bids in the form of price vectors,
one unit price for each quantity. The lowest vector product of prices and quantities, i.e. the
lowest total price, is awarded the contract and takes legal responsibility for the construction.
The simplicity of this contracting form is appealing in comparison to its alternative, the
design and build contract where the contractor is responsible for both design and construction
(Nilsson and Mandell, 2010).

The list of quantities in a unit price consists of adjustable and non-adjustable quantities.
These are defined ex ante in the procurement documents and should be included formal
description of the contracts.






Let us first introduce a new cost function, as follows,

| | | |
(
(
(

+
(
(
(

=
m
m
n
n
OR
OR
ap ap
R
R
ap ap c
1
1
1
1
,..., ,..., (3)

or


= =
+ =
n
i
m
j
j j i i
OR ap R ap c
1 1
(4)

Where n i ,... 1 =

indicates adjustable quantities (R), n j ,... 1 = indicates non-adjustable
quantities (OR) and their unit price vectors ap
i
andap
j
.
1


1
Formally the ap
j
should be seen as a constant ad not a vector as it is fixed after the procurement.
J ohan Nystrm
542



Thus, the cost-plus contract (2) can be modified by inserting (4), which gives



= =
+ =
n
i
m
j
j j i i
OR ap R ap p
1 1
(5)

The introduction of adjustable quantities also rejects extreme version of fixed price
contracts described in (1), as the bid, b, is no longer fixed, but can be specified as follows,

( )
i i i i
R ap R ap b b =
^
, (6)

Where is the original adjustable quantities from tender specifications and b' is the adjusted
bid i.e. the ex post outcome.

Introducing adjustable quantities also changes the fixed price contract, as the bid function
(6) is changed. Applying (6) to the fixed-price contract (1) gives this expression,

) * * ( (
`
i i i
R ap R ap b p + = (7)

Including OR and R to these models improves the connection to reality and enables a
better understanding of how these contracts work in order to make better projections of
outcome. Hence if all of the quantities are R, the contract coincides with a cost plus contract
and the other way around, with a hundred percent OR for a fixed price contract.
2
The
extended model opens up for extended analysis such as ex post adaptation (Bajari et al 2012)
and unbalanced bidding (Mandell and Nystrm, 2013).

Also, breaking down the contracts allows empirical testing of the contracting forms effect
on final cost. Instead of portraying the difference between the contracts in a binary manner, it
can now be analyzed as continuum.

3 DEFINING CONTRACTING FORMS: EXAMPLE FROM ROAD
MAINTENANACE
The refined model of contracts enables a quantitative way of defining the payment
schemes. This is done by relating the ex ante value of the all the adjustable quantities to the
contracting sum. Such a calculation will result in a percentage figure, indicating how much of
the contracting sum is made up out of adjustable quantities. The measure can be interpreted
as a proxy for quantifying and separating cost-plus and fixed price contracting. If all
quantities are adjustable, we get a figure of 100 percent, which also constitute a pure cost-
plus contract.

An example can be taken in Swedish road maintenance contracts. The market for road
maintenance was deregulated in 1992, allowing private contractors to perform the tasks
previously carried out in-house by The Swedish Transport Administration (Trafikverket). The

2
We have chosen to interpret a cost plus contract as a contract with all quantities being adjustable. Another
definition used by Bajari et al 2012 is that all of the clients cost are forwarded to the client, i.e. just forward all
invoices from the subcontractors plus the contracts own costs.
J ohan Nystrm
543

Swedish road network is broken down into 123 maintenance areas, each one corresponding to
a unique contract. On average the maintenance areas cover 750 kilometers of road and the
duration of the contracts are usually four years. The maintenance contracts consists of winter
maintenance (snow-ploughing, salting and sanding), washing of signs, fixing potholes,
cutting vegetation on the side of the road etc. Winter maintenance makes up the largest part
of the contract sum. All these contracts use unit price contracting, with an opportunity at
regional level (Trafikverket is organized in five regions) to decide on the amount of
adjustable quantities ex ante. The final quantity of an adjustable item is decided by the client,
but in discussion with the contractor during the contract. Asphalting is not included in these
maintenance contracts but procured separately.

Data for the following example is taken from a dataset of final cost per year for 137 road
maintenance contracts between 2004-2009. This is not the procured ex ante cost but the final
ex ante payment per year to the contractor. Deviations between these are due to the adjustable
quantities in the contract. Data come from Trafikverkets own accounting system (VERA).

However, Trafikverket could only provide detailed data on adjustable and unadjustable
quantities for 16 contracts. Out of these 16 contracts, the average value of the adjustable
quantities amounts to 70 per cent as seen in table 1.

Table 1 : Percentage of adjustable quantities in road maintenance contracts
Mean Median Max Min Number of contracts
70% 71% 79% 57% 16

The descriptive statistics indicate that most of the road maintenance contracts are closer to
cost-plus design than a fixed price, hence the client takes all the risk.

Having defined a way to quantify the continuum of contracting form, the next step is to
analyze how it affects final cost and quality.

4 THE CONTRACTING FORMS EFFECT ON FINAL COST A FIRST
EMPIRICAL GLANCE
At a first glance it might be easy to predict that cost plus contracts, with no high-powered
incentive to hold back cost, will be more expensive. However, this is not that obvious. One
can expect the cost plus contract to be cheaper ex ante in the procurement stage, due to the
fact that fixed price contracts include a risk-premium. As the contractor takes on more risk,
he wants compensation. But as the contract starts, the contractor has no incentive to hold
back cost. This reasoning is based on the realistic assumptions that the contractor is risk
averse and that the client does not have full information about the project ex ante. Hence,
there are two opposing mechanisms at play and it is hard to predict which one is of most
importance i.e. which contract form is most cost effective.

A first step towards this empirical question can be taken in our limited example of road
maintenance. Figure 1. plots cost per km and contracting form, the latter as defined as above.

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544


Figure 1: Final cost/km vs contracting form for 16 maintenance contracts
No conclusion of the contracting forms effect on final cost can be drawn from the
descriptive data presented in figure 1. The sample is too small and figures needs control
variables such as quality indicators and geographical differences in order to conclude on the
unique effect of the contracting form.

However, this small sample indicates that the client takes most of the risk and all the
studied contracts can be categorized as cost plus. The spread of contracting forms is not very
extensive.

4 CONCLUSIONS
Empirical studies regarding contracting forms effect on productivity is absent in
construction. This can be explained by a lack of data but also that the definitions of
contracting forms do not capture the complexity of the real contracts.

This paper takes an initial step towards empirically evaluating different contracting forms
in construction. The traditional way of modeling, without including adjustable and non-
adjustable quantities, does not coincide with how the contracts are used in practice. There are
no clear cut versions of cost plus and fixed price contracts as the model describe. A refined
model is presented in this paper. It uses vectors of adjustable and non-adjustable quantities
that represent the real contracts in an improved way. This enables a way to define cost-plus
and fixed price contracting in a quantitative manner, by relating the value of the adjustable
quantities to the ex ante contract sum.

A small sample of Swedish road maintenance contracts exemplifies this definition. All of
the 16 contracts in the sample can be categorized as cost plus.

The contribution of this paper in an improved and more detailed definition of contracting
forms is necessary step towards evaluating the cost effectiveness.

REFERENCES
Bajari, P., Houghton, S., Tadelis, S., (2012). Bidding for incomplete contracts: an empirical
analysis of adaptation costs. Forthcoming American Economic Review.
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545

Berends, T. C. (2000). Cost plus fee contractingexperiences and structuring. International
Journal of Project Management, 18(3), 165171.
Ewerhart, C., and K. Fieseler (2003). Procurement auctions and unit-price contracts. Rand
Journal of Economics. 34 (3): 569581.
Gupta, D., Azadivar, J ., and Chen, Y. Incentive Functions for Transportation Procurement
Auctions. Working paper SCORLAB University of Minnesota
Mandell, S., and J -E. Nilsson (2010). A Comparison of Unit Price and Fixed Price Contracts
for Infrastructure Construction Projects. Working paper VTI.
Mandell, S., and Nystrm, J (2013). Too much balance in unbalanced bidding. Forthcoming
in Journal of Microeconomics.
Maskin, E and Tirole, J (2008) Publicprivate partnerships and government spending limits
International Journal of Industrial Organization, 26:(2), 412-420
Nystrm, J . (2012) Quality assurance of the Swedish Transport Administrations data on road
maintenance costs. VTI report N11-2012
McAfee R.P and McMillan J , 1988. Incentives in government contracting. University of
Toronto Press.
Riksrevisionen (2012) Statens satsningar p transportinfrastruktur valuta fr pengarna?
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