INGENIEUR
Payment
=
Amount Not
Subjected to
Performance
+
Performance Payment
(PP)
- Total LD
Amount
- LD KPI-2
- LD KPI-2
(PP for KPI-1) +
=
0.8 * CP
+
(PP for KPI-2) +
(PP for KPI-3)
0.2 * CP
=
0.8 * CP
+
[ (0.5 * APS KPI-1 ) +
(0.3 * APS KPI-2 ) +
(0.2 * APS KPI-3 ) ]
Table 3: The payment formula for this PBC
Rewards and Remedies
The 3 rd Generation PBC is designed not only
to allow payment for performance, but also
to influence the contractor’s behaviour. As
achievement of a particular behaviour is linked
to both positive and negative consequences,
the “carrot and stick” approach is employed
to motivate commitment and incentivise the
contractor in a positive and negative manner. The
types of rewards and remedies that are commonly
used in PBCs today are shown in Table 4.
PBC is trying to encourage contractors to
deliver their services in accordance with the
performance levels specified in the contract
through a reward and remedy mechanism. As
the most damaging form of remedy, contract
termination is the possibility that most
contractors will try to avoid. For good performing
contractors, contract tenure extension is the most
effective reward as it brings lasting business,
organisational stability and reputation. Under
3 rd Generation PBC, “rolling wave” Award Term
model is used since it is a fair option. As shown
in Figure 5, a “rolling wave” model is awarding
tenure extension on a yearly basis immediately
after the contractors’ performances have been
reviewed and verified through a formal annual
review process.
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74
VOL
2018
VOL 76
55 OCTOBER-DECEMBER
JUNE 2013
REWARD
Performance
Payment REMEDY
Withhold Payment
Pain Share / Gain
Share Remediation Plan
Incentive Payment
Award Term/
Tenure Extension
Stop Payment
Liquidated Damages
Contract Termination
Future Work
Recognition
Scheme
Table 4: Common rewards and remedies in PBCs
Performance Implementation Plan
Immediate implementation of a PBC is sometimes
unnecessary and can be unfair to the contractor.
Although contracting parties may have concluded
the contract negotiation and agreed on the PMF,
in certain circumstances, PBC requires a period
of time after the commencement of contract to
allow personnel of both parties to get used to
the reporting and scoring requirements and to
enable uncertainty regarding performance levels
be resolved to avoid initial unrepresentative
performance discrepancies.