Construction Management and Economics

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Objectives and performance in construction

projects

S. C. Ward , B. Curtis & C. B. Chapman

To cite this article: S. C. Ward , B. Curtis & C. B. Chapman (1991) Objectives and performance
in construction projects, Construction Management and Economics, 9:4, 343-353, DOI:
10.1080/01446199100000027

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 Construction Management and Economics, 1991,9, 343-353

Objectives and performance in construction

projects
S . C . W A R D , B. C U R T I S and C . B . C H A P M A N
Department oJAccounting and Management Science, University of Southampton, Southampton SO9 S N H , UK

This paper considers the problems associated with the identification and use of project-related objectives
held by a project-owning, client organization. It is argued that the evaluation of projects, contractors,
professionals or procurement methods solely on the extent to which client objectives are achieved is
problematic. Difficulties include setting objectives at an appropriate level, allo~vingfor uncertainty and
interdependencies between objectives, and measuring the achievement of objectives. Proper evaluation and
improvements in performance require an examination not just of project objectives but also of the processes
involved in pursuing them.
Keywords: Objectives, project performance, management contracting.

Introduction

The motivation for this paper was research carried out by the authors into the roles, risks and
responsibilities of management contracts in the construction industry. A major concern was
the relative merits of management contracting over other forms of construction procurement
in meeting the requirements of client organizations. This raised the question of how different
procurement methods, and by implication the performance of various parties working under
different contractual arrangements, could be compared in a meaningful way.
A common approach is to evaluate performance on the extent to which client objectives
like cost, time and quality were achieved. This evaluation may be undertaken by the client,
other involved parties, or observers in the marketplace. The significance of such project
evaluations is that they influence market perceptions about the effectiveness of particular
procurement methods, and the various contracting parties.
Assessing project performance on the basis of achievement of client objectives is intuitively
appealing, but not without significant practical difficulties. Essentially, these include the
problem of measuring goal attainment, allowing for trade-offs, effects due to external factors,
and whether goals were set at an appropriate level. One important consequence is that
comparing the performance of management contracting and other forms of procurement in
terms of the achievement of objectives as measured by criteria like time or cost can be very
misleading.
This paper first looks at the role and nature of client objectives in a project setting. It next
discusses the problems involved in setting appropriate objectives or goals for achievement,
and the complications introduced by interdependencies between objectives. Subsequent
sections consider, implications for the evaluation of projects, contracting parties and
procurement methods.
0144-6193191 $03.00+.12 0 1991 E. & F.N. Spon Ltd.
344 Ward et al.

The discussion here focuses on construction projects and management contracting.

However, most - if not all - of the problems identified are present to a greater or lesser extent
in any project involving contracting parties.

The role of client objectives

Figure 1 shows the main linkages between client objectives, evaluation of project
performance and methods for procuring project performance. At the inception stage, the
client identifies a general set of value-for-money criteria based on experience and advice. The
client then formulates a view of target levels of attainment or objectives for each criterion
based on the nature of the project, experience and advice.

1 procurement method
of,the 1 , / , 1 c1;nt.s
Concerns
1
Client perceptlons
\ I of the nature I I /

Client
oblectlves
(targets for
attainment)
Client's choice of

+ I
procurement method

Roles and responslbllities

1
of p a r t i e s as percelved

Client's evaluation
of ongoing and f i n a l .
proJect performance

Fig. 1. The role of client objectives.

Objectives and pet$ormance in construction projects 345
Objectives are needed so that appropriate courses of action can be taken for their
attainment. This involves the client in:

choice of a procurement method;

communicating what is required to contracting parties (including professionals where
appropriate); and
periodically guiding the execution of the project by making decisions about process issues.

While the project is proceeding and on completion of the project, objectives are used to
evaluate the success of the project. This involves the client deciding, perhaps subjectively, the
extent to which objectives are being or have been met. Objectives may have to be revised in
the light of ongoing performance and changing market conditions.
It follows that behaviour is required from professionals and contractors that is aimed at
achieving these objectives. This implies a need for clearly specified client objectives, a method
of setting appropriate levels of objectives and procurement systems that facilitate their
achievement. As Fig. 1 indicates, the choice of procurement method is influenced by the
nature of the project, client objectives and client expectations of the procurement method.
Client expectations of procurement methods are based on the client's experience with
previous projects and associated procurement methods, and professional advice that is in
turn based on experience and market perceptions of different procurement methods. This
information may be misleading, ill-informed or biased, particularly if it is derived from naive
assessments of goal attainment on previous projects.

The nature of client objectives

In general terms, the objectives of a client embarking on a construction project can be stated
quite simply. The client wishes to have a structure that looks and functions as intended and
that provides an acceptable return for the money expended. These general aims are normally
considered to be achievable if attention is concentrated on the three factors of cost, time and
quality. These three factors might be usefully subdivided in many situations as follows:

Cost: initial expected capital cost and subsequent expected maintenance costs.
Time: expected time required for design and construction.
Quality: expected quality expressed in terms of technical specification, function and
appearance (Walker, 1984).

In addition to the cost, time and quality considerations, an important concern, often based
on past experience, is the quality of the relationships with the other participants. Looking
back on the conduct of a project, what sticks in the mind is often not so much financial
success or early completion, but memories of other people involved and abiding impressions
of harmony, goodwill and trust or, conversely, of arguments, distrust and conflict. The
client's willingness to pursue a given procurement route to achieve a future project is likely to
be strongly influenced by these factors. Other participants, who are looking for further
business with the client, should have them very much in mind. Nahapiet and Nahapiet (1985)
reported research findings which did not reveal any clear relationship between the
satisfaction expressed by clients and project performance assessed in absolute terms, such as
346 Ward et al.
cost per unit of floor area, or floor area constructed per unit of time. Other factors such as the
smoothness and efficiency with which the industry fulfils the client's needs can play a large
part in his or her judgement of the level of success. Such concerns might be thought of as a
general concern to minimize hassle.
A factor that can be of considerable importance to a client undertaking projects in
industries that are subject to rapid developments and changes is the ease with which the client
can update the design and alter the construction work while it is in progress. Some projects
need to display or contain the latest technology. The building process has a long gestation
period and layouts and fittings appropriately selected at an early stage of the design often
become outdated. A new tenant may need different facilities from those already
incorporated. New materials and styles of appearance and usage may become available for
consideration, and a client can benefit from having the ability to incorporate these at a late
stage. The client may judge project success on the basis of having the most advanced and up-
to-date features in his project, and this could outweigh all other factors in his assessment. Of
primary importance to such a client is the need to adopt a system of procuring the
construction works that allows maximum flexibility to make changes without incurring
excessive penalties in cost, time and disruption.
Finally, clients may be concerned about the level of uncertainty associated with cost, time,
quality, hassle and flexibility. Frequently, this concern amounts to a wish to minimize
uncertainty of all kinds.

Setting objectives

Whatever objectives are set, there is a need for realistic levels, otherwise contractual parties
will not be fully motivated to achieve them. At the same time, it is in the client's interests to set
objectives that are challenging. Tight but achievable goals ought to act as a control on
contractors and professionals, encouraging them to employ their 'best endeavours'. Detailed
risk analysis can be helpful here. Explicit recognition and assessment of risks enables
objective setting to reflect exposure to risks. Thus objectives may be set that are conditional
on the non-occurrence of specified risks or that include contingency allowances, and revised
targets may be agreed if these risks are realized.
The above observations imply a need for very detailed planning and explicit recognition
throughout the project of the achievement of cost, time, quality, flexibility and other
objectives. However, the qualitative nature of some value-for-money criteria, such as quality
and flexibility, and the uncertainty inherent in any project plan, means that setting finely
judged, challenging but achievable objectives may be very difficult.
Relying on market forces to set objectives, e.g. by accepting the lowest fixed price bid, is
one way of fixing a cost objective. This is likely to produce a challenging objective for the
contractor, but it may not be considered attainable once the project is underway. Several
studies have concluded that selecting the lowest fixed price bid often means the selection of
the contractor who has most underestimated the complexity of the work or who has made the
most mistakes in pricing the work. The concept of the 'winner's curse' is well known.
Determining a suitable time-related objective can also be difficult. Clients' expectations of
the time needed for pursuing a particular type of development are normally based either on
their own experience of similar works or on advice received from specialist advisers. To the
extent that a new project is not the same as any predecessor due to differences in location,
Objectives and performance in construction projects 347
ground conditions, access, availability of resources and other environmental factors, project
durations will be uncertain. Inexperienced clients are very dependent upon their professional
advisers, who may argue for a short completion time in order to persuade their client to go
ahead, or a long completion time to facilitate an easy pace and a claim of time saving on
completion.
Objective setting also requires a clear, unambiguous statement of quality-related
objectives in the form of detailed specification of works, and roles and responsibilities of
contractors and professionals. Even then, uncertainties inherent in project execution may
produce uncertain deviations from these objectives, particularly when indirect as well as
direct effects are taken into account. An assessment of the implications of these uncertainties
requires further detailed appraisal in the form of risk analysis. This may be impractical or not
considered cost-effective for some projects, but may be essential for others.
In recognition of project uncertainty, objectives may be modified as the project progresses.
For example, a progressive refinement of cost targets typically takes place as a project moves
through the uncertainty of the exploratory and feasibility stages into detailed design. It is
only when the design is complete that a reasonably clear idea of construction costs will
emerge. Even so, costs will depend on contractors' pricing levels and any adjustments that
have to be made for variations to the design and unforeseen problems.

Interdependencies between objectives

If the level of attainment on each objective is independent of levels attained on other criteria,
any client might be expected to seek maximization of quality, assistance and flexibility, and
to seek minimization of cost, time, uncertainty and hassle. However, these objectives are
interdependent, and potentially incompatible. Therefore, in setting goals for attainment on
each objective, trade-offs must be made between levels of attainment on each objective. In
particular, it has long been recognized that some degree of trade-off is likely when setting
objectives in respect of time, cost and quality. For example, Barnes (1988) represents these
three objectives as the vertices of an equilateral triangle, and suggests that the combination of
objectives in any particular project can be designated by a point within the triangle, such that
an emphasis on any one objective pulls the focus of attention away from one or both of the
others.
Unfortunately, the problem of trade-offs is in most cases complicated by uncertainty about
the nature of interdependencies between the different value-for-money criteria. To simplify
the problem, consider the three basic criteria of time, cost and quality. The potential pair-
wise effects of one upon another are shown in Fig. 2. As Fig. 2 indicates, pair-wise effects do
not always work in one direction, and may depend on the circumstances. A decrease in the
time taken to complete a project can cause an increase in total project cost, but it may cause a
decrease. Similarly, improvements in quality can mean an increase or a decrease in project
time associated with an increase or a decrease in project cost.
Setting different levels of cost, time or quality objectives can have varying effects on the
achievement of the other objectives. These effects depend on a variety of situational factors,
not least of which are the nature of the project and the behaviour of the contractors and
professionals employed. For example, good quality building work is fostered by allowing
contractors time to analyse and properly price what is required, and to conduct the work
without excessive haste and paring of costs.
 Ward et al.
-7
++ b
TIME -- QUALITY
0 +7

-?
+7 b
COST TIME
-?
Q

--
COST
++
- -
* QUALITY

Fig. 2. Interdependencies between time, cost and quality.

Faced with these factors and a concern with several value objectives, clients and other
parties involved in construction procurement usually adopt a pragmatic approach. For
example, the client's representative on the building site might accept work of lower
performance than specified in the contract where specifications appear excessively tight, in
exchange for work of higher performance in other areas, to secure an overall balance in the
terms of exchange. Literal enforcement of the contract terms in each such instance might
otherwise lead to disruptions or work stoppages which would not be in the client's best
interests (Reve and Levitt, 1984). Project objectives are often expressed in terms of satisfying
target levels of achievement, which are assumed to be mutually compatible.
Trade-offs may be expressed simply in terms of one objective having clear priority over
another. For example, under JCT 87 Management Contract conditions there is an implied
instruction to the management contractor to put completion on time before cost control
(Joint Contracts Tribunal, 1987b, p. 5). Any trade-offs of time against other project
objectives require agreement between the client and management contractor on an ad hoc
basis.
In setting one project-related objective, it is important to understand what the
implications are for other objectives. This can only be achieved by breaking down the project
into component activities and building up project goals from plans associated with the
components. Trade-offs between elements of cost, time and quality need to be considered in
more detailed form: costs in terms of capital and future maintenance costs; time in terms of
design time and construction time; quality in terms of technical specification, function and
appearance; and flexibility in terms of ability to incorporate alterations both during and after
construction.

Project evaluation

As has already been suggested, a project tends to be assessed by all involved parties by the
extent to which their own objectives are achieved or surpassed. This goal approach to
performance evaluation has a number of significant weaknesses.
Objectives and performance in construction projects 349
One problem is measuring achievement of objectives. For example, achievement of criteria
such as flexibility and quality may be very difficult to measure. How much flexibility is
provided may be particularly difficult to assess if the flexibility provided has not been fully
utilized. Quality achievement may be assessable by checking whether the works conform to
original plans and specifications, but what of care in construction associated with invisible
aspects which may only be assessable in the longer term?
Another problem is one of complexity and interaction (Mohr, 1982). One aspect is the
interdependencies of objectives already discussed in the context of client objectives. If the
realization of one goal inhibits attainment of another (and as we have seen even this is
unclear), then there is a need to know what trade-offs have taken place to produce the
completed project, and how the achievement of one objective is valued in comparison with
the achievement of another. It seems that most clients do not explicitly value such trade-offs
when setting objectives. It seems even fewer do so at project completion, let alone on a
consistent basis over time related to initial assessment.
A second aspect of complexity and interaction is that performance of the procurement
process is affected by the external context, especially by the other activities or projects that
parties are engaged in. What it takes to get a job done may depend on what else the parties
concerned are trying to accomplish at the same time (Mohr, 1982). Failure to achieve certain
objectives, or over-achievement of objectives, may be the result of events beyond the
contractors' or professionals' control. For example, extremely adverse or fortuitous weather
conditions, or the sudden loss of key personnel, may have a dramatic effect. In principle, such
events might be taken into account when comparing project out-turns with original
objectives. Alternatively, objectives ought to be revised during the project in the light of such
uncontrollable developments. In practice, such revisions do take place but negotiations
concerning adjustments may result in inadequate adjustments or compromise.
A third problem with a goal attainment approach to performance assessment is the
problem discussed earlier of setting objectives at an appropriate level. Apparent success in
terms of meeting or exceeding an objective may just reflect an easily achieved objective. For
example, a large number of road contracts are publicized as finishing well ahead of the
advertised completion date. Such apparent success could be due to either exceptional
procurement performance motivated by incentive payments, or very generous time
allowances (objectives).

Evaluating contractor/professional performance

Problems with the goal attainment approach for assessing overall project performance are
even more pronounced when the same approach is used to assess the performance of
individual parties to the contract. An associated difficulty is separating out the contribution
of any one particular party. To whom, if anyone, is a failure to achieve a given objective, such
as a completion date, attributable? Moreover, measuring the relevant outputs from a
particular professional or contractor may be difficult, especially where a service, as opposed
to a physical result, is involved.
A worrying aspect from the perspective of contractors and professionals is client
assessment of the reasonableness of the level of profit earned by contractors and
professionals. Where this assessment is based on hindsight, there is some likelihood that
clients will regard monies paid to contractors to shoulder 'risks that never materialized' as
350 Ward et al.

excessive profit. At the very least, risk premiums are likely to be revalued downwards with
hindsight, unless significant risks have been realized, when contractor losses may be viewed
as appropriate given the risk premium charged. However misguided, such assessments can
have an adverse impact on contractors and professionals in respect of future earnings.
Reve and Levitt (1984) suggest that a client's ability to evaluate professional performance
is often dependent on the client's technical familiarity with the professional services rendered.
As a result, qualitative aspects of the relationship between the client and professional are
often taken as a proxy for the evaluation of technical and economic performance, in much the
same way as the skill and expertise of a well-liked physician might be judged by his or her
bedside manner.
During the procurement process, each party in the project coalition is primarily concerned
not with the effectivenessof the procurement process per se, but with ensuring effectiveness of
its own organization. In this behaviour organizations seem to be adopting an approach to
their own effectiveness, which Yuchtman and Seashore (1967) call the 'system resource'
approach. This approach defines organizational effectiveness in terms of the degree to which
an organization is successful in acquiring and utilizing scarce and valued resources to meet its
needs. In terms of processes, this perspective focuses on the ability of an organization to
exploit its environment. This implies that an organization will be most effective when it
maximizes its bargaining position, and optimizes resource procurement by avoiding
depletion of its resources or the stimulation of countervailing forces within the environment
(Yuchtman and Seashore, 1967). Thus, a contractor may seek claims or additional time, but
must be careful to avoid what the client or other parties regard as excessive claims, lest a
backlash of tighter controls and counter-claims occurs. Such concerns apply to all members
of the project coalition, including the client.
The need to manage acquisition of resources suggests a further, more political view of
organizational effectiveness: an effective organization is one that is able to fashion accounts
of itself and its activities in ways which other parties find acceptable (Gaertner and
Ramnarayan, 1983). With this perspective, effectiveness is a characteristic of relations not
outputs. It is negotiated rather than produced. Those subject to controls in the procurement
process, such as professionals and contractors, direct their efforts to looking good along
conspicuous performance parameters (Levitt and Logcher, 1976). Thus progress data are
manipulated to such an extent that delays and cost over-runs often come as surprises to the
client in the final stages of project work. Typically, what is reported during the project is that
'nothing unusual is happening' and that everything is in accordance with plans (Kreiner,
cited in Reve and Levitt, 1984).
It is important to recognize that contractors and professionals, like all other market-
oriented organizations, will attempt to manage their image, and the image portrayed to a
client need not correspond to reality. Those features of their organization and performance
which are visible to clients will receive attention with respect to image management, those
aspects which are not visible to clients will be ignored.

Evaluating procurement methods

Attempting to evaluate and compare procurement methods on the basis of goal attainment is
also likely to be problematic and potentially misleading.
As a first step in attempting to compare the efficacy of different procurement methods, it is
Objectives and performance in construction projects 35 1
obviously important to be clear what is being compared with what. As one legal adviser
remarked: 'clients debating whether or not to embark on a management contract may be
influenced by their own or others' experience of what was termed a management contract but
which was in fact something totally different' (Curtis, 1989). The introduction of the JCT 87
standard conditions will obviously help reduce confusion, but to the extent that variations
are employed, the problem will remain.
A further important requirement for comparison is that apart from the procurement
methods being compared, everything else should be equal - like must be compared with like.
For example, in order to make a direct comparison between management contracting and its
own more conventional form of contract, the Property Services Agency used both forms of
contract on prison building projects, where two identical designs were constructed at the
same time. The prison built using a management contract was completed 15% earlier, was
33% more costly but considered to be of better workmanship (Curtis, 1989). The problem
with comparisons of this kind is that other things are never equal. In this case, the designs and
perhaps even client objectives were identical, but what of environmental factors, works
contractors and other personnel involved on the projects? A serious difficulty in making
valid comparisons between procurement methods is the need to distinguish between effects
on the procurement process and final outcomes which are due to the procurement method,
and those which are due to other factors.
It follows that opinions and expectations of procurement methods based solely on
assessing project performance at project completion are misconceived. That such
perceptions may be erroneous is even more likely when the practical difficulties of assessing
project performance and the influence of individual contributing contractors and
professionals are taken into account. In particular, studies which try to draw conclusions
about the efficacy of different procurement methods via statistics about project costs and
time are bound to be inconclusive.
For example, in an attempt to evaluate management contracting, Sidwell(1983)compared
10 major management contracts with 32 other projects on construction cost and time. His
data suggested that the management contracts were started very quickly compared with the
other projects, although construction times for the management contracts were only
sometimes shorter than times for the other projects. Three of the management contracts that
took longer to construct than many of the other projects appeared to cost significantly more.
Such results are interesting, but need to be interpreted with extreme caution. Variations in
the type of project and differing cost-time trade-off decisions are just two factors which make
it impossible to draw firm conclusions, even if the data show clear patterns.
As another example, consider a statement like 'management contracting costs more than
other forms of procurement'. Such a statement is difficult if not impossible to prove. A
fundamental difficulty is that we cannot tell what would have happened on a given project if a
different procurement method had been used. In the case of management contracting, there
are indeed factors which might be expected to increase project costs, but there are also factors
that are likely to reduce costs. Even if attention is focused on specific additional costs,
attributing cause may be difficult. As one management contractor pointed out: how does the
client know if extra costs are due to the inefficiencies of the professional team or the
management contractor or other causes? (Curtis, 1989). For example, sometimes it is
necessary for the management contractor to ask works contractors to accelerate their work.
The works contractors naturally want extra money, but the client objects to paying as he
thinks that the extra costs have arisen due to the inefficiency of his professional team or their
352 Ward et al.

contractors. Thus clients have been known to suspend paying fees to their architects when
requests for extra money for site works have been submitted (Curtis, 1989). Similarly,
increasing construction costs may be caused by scarcity and market trends rather than
caused by the use of a particular procurement method per se.

Conclusion

This paper has considered the fundamental role played by client objectives in the
procurement process. At the simplest level, objectives are needed so that appropriate courses
of action can be taken for their attainment. Performance criteria that clients might consider
are cost, time and quality. In addition, clients are likely to be concerned about expending
resources unproductively in the procurement process, flexibility to incorporate changes, and
uncertainty about all of the foregoing concerns.
Setting finely judged, challenging but achievable objectives that encourage contractors
and professionals to employ their 'best endeavours' is difficult. Part of the problem is the
existence of project-related uncertainty and the interdependencies between objectives.
Bearing this in mind, it is important for clients to:

1. Set clear objectives.

2. Subject objectives initially set to careful trade-off analysis.
3. Consider objectives carefully when choosing a procurement method.
4. Communicate objectives clearly to other involved parties and avoid conflicting guidance
to different parties.
5. Ensure that reaction to unexpected events involves proper revision and consideration of
client objectives.

A further shortcoming of assessing effectiveness in terms of goal attainment is that this

does not focus attention on identification of shortcomings and strengths in the procurement
process. If the concern is with understanding or seeking to improve effectiveness, then
organizations need to be able to specify not just the tasks or objectives they are trying to
accomplish, but also the processes that are involved in accomplishing them.
Concern with understanding and improving the processes involved in organizational
effectiveness has led to the distinguishing of a number of useful perspectives on effectiveness
in the organization literature. One particularly helpful perspective for present purposes is the
system needs approach. Regarding the procurement process as the relevant system (as
opposed to focusing on a single party to the process), then the following generic system needs
should be addressed (Georgopoulos, 1973):

1 . Adaptation: an ability to adapt favourably to environmental changes.

2 . Allocation: an ability to deploy and allocate resources in the most appropriate manner.
3. Co-ordination: of energies and efforts to the solution of the system's problems and
objectives.
4 . Integration: of individual members to develop common organizational values and share
norms.
5. Tension management: an ability to minimize and resolve tensions and conflicts.
Objectives and performance in construction projects 353
6 . Productivity: an ability to reach and maintain high levels of output, implying an ability to
maximize efficient and reliable performance.
7. Integrity: a n ability to preserve identity and integrity as a distinct problem-solving system
regardless of changes constantly occurring inside and outside the system.

This generic list of needs provides a useful, comprehensive agenda for those seeking to
improve the effectiveness of construction procurement processes. Given a procurement
process that involves a temporary coalition of individuals from different organizations with
potentially conflicting objectives, many of these agenda items are problematic. They do,
however, suggest areas for more detailed consideration.

Acknowledgements

This research was supported by SERC Grant GR/E 48343.

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