Real Estate

Trust and communication determine success of performance contract

May 6, 2015

Guus Theuws has researched in his MRE thesis the success of the performance contract.He demonstrated that the benefits ascribed in the literature to the performance contract can only be achieved if a number of success factors are in place. 

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The use of the performance contract helps optimize the maintenance process and manage the risks and cost of maintenance. It can thus act as an important link in deeper chain cooperation in the construction and maintenance of real estate.

With a performance contract, the contractor is paid for the provision of services and not for delivering efforts as is the case in a traditional contract. The performance approach is based on thinking and working in terms of achieved objectives and not in terms of means toward such objectives. The potency of the performance contract is high. Both clients and contractors can benefit from the performance contract. It can benefit both clients and contractors. Clients seek a better service quality, lower costs, and higher user satisfaction. The benefits for contractors lie mainly in continuity and customer loyalty.

Downsides of the performance contract

Despite these advantages, performance contracts are not applied on a large scale. There also appear to be downsides. Managing performance contracts requires special skills from both clients and contractors. In addition, drawing up a good contract is a difficult task which only few manage to do well. Performance contracts therefore do not always produce the desired result.

In his MRE thesis, Guus Theuws researched the success of the performance contract. One can speak of a success when both the client and the contractor benefit from the collaboration. Theuws evaluated 10 (maintenance) performance contracts in detail and had both clients and contractors fill in a comprehensive questionnaire. He showed that the benefits ascribed in the literature to the performance contract can only be achieved if a number of success factors are in place. The proper management of these success factors helps maximize the benefits. Trust and communication between clients and contractors are the most critical success factors.

In addition, the performance contract needs to reflect the objectives of the client. Things often go wrong when the objectives are translated into measurable performance indicators. These indicators have to be workable for the contractor and, at the same time, provide sufficient incentives. At the same time, the contract should provide sufficient room and challenges for the contractor to demonstrate its distinctive quality.

Read more

Prestatiecontracten, Guus Theuws (2014, in Dutch)
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