In progress Contracting strategies in complex capital projects: example of the offshore wind sector

Reference:
ERIM PhD 2016 RSM LIS SCM 2

Abstract

Contractual governance in large capital projects has certain features that may make the general contract studies’ findings not directly applicable to them. Because of the high level of product and process complexity and high levels of outsourcing the contracts in capital projects tend to be complex as well; they also play a key role in such projects. Due to traditionally low levels of collaboration and partnering in the capital construction firms often heavily rely on contractual rather than on relational governance. Thus, quality of the contracting process (right choice of a contract, proper development of clauses and its effective management) is very important for success of large capital undertakings.
The dissertation is aimed to fill several gaps that exist in the academic literature and that were also confirmed as relevant questions by the practitioners in a series of interviews held in the offshore wind firms. First, It will empirically identify the antecedents of the contracting strategy choices that have been conceptualized but not sufficiently confirmed by industry studies; it will also make an attempt in comparing effectiveness of available contracting strategies. Next, it will focus on factors that are considered in allocating risks to project parties through contracts and hopefully will shed light on if and how such process is different in single- versus multi-contracting approach; a view of contractor frequently neglected in the risk-related studies will be investigated. Finally, it will look at the learning-to-contract phenomenon in the project-based firm by taking a holistic look at this process, including not only learning between same two partners covered in the previous studies, but also learning from the external sources such as other firms or industries.
All three studies are aimed at finding answers to yet uninvestigated questions and also potential improvements to the contracting strategies applied in the offshore wind sector. The research will also add to the knowledge about contractual governance of complex capital projects in general, and hopefully will help the offshore wind sector to find more effective contracts that are very important in reducing the cost of wind farm development - the key industry challenge.

Keywords

project-based firm, offshore wind, construction, contracting strategy, risk allocation, learning, contract

Time frame

2016 - 2020

Topic

Subtheme: Purchasing and Supply Management

Our research on Purchasing and Supply Management focuses mainly on relational and contractual governance in buyer-supplier relations, and on purchasing strategy. The domains where we study these processes have been extended from manufacturing sectors to the public and service sectors, where for instance research is currently conducted on the use of performance-based contracts in healthcare and public infrastructure, and its impact on product and process innovation.

Performance-based contracting in service triads. Recently there has been an increasing interest in outcome-based or ‘performance-based’ contracts both in practice and in the academic literature. Traditional contracting literature, however, has focused on the context of a dyadic buyer-supplier relationship. Little or no research has been done on performance-based contracting in triadic relations, where a buyer contracts a supplier to deliver services to the buyer’s customers. This project uses and extends prior literature, in particular classical transaction cost, agency and management control theories, and the emerging literature on inter-organizational triads, to study the antecedents and effects of contractual and relational governance, in the specific context of performance-based contracts in buyer-supplier-customer triads. For further information: prof.dr. Finn Wynstra: fwynstra@rsm.nl.
Performance-based healthcare procurement. In many countries, healthcare spending is on the rise and projections of spend seem to indicate that current healthcare systems are unsustainable in the long run. Policymakers in various countries are looking for ways to make high quality and accessible health care services available to their citizens against affordable public and private costs. Some countries, like the Netherlands and the United States, have chosen to implement a system of regulated competition, in which healthcare purchasing is separated from healthcare provision. The idea is that healthcare providers compete to deliver healthcare services to the people that are represented by the healthcare purchasers (e.g., insurance companies or employers). Healthcare providers compete on a combination of quality and price, and are incentivized to provide high quality care at a competitive price. This project investigates how incentives for cost containment, quality and accessibility can be designed in the pre-contractual and post-contractual phases of the healthcare procurement process. For further information: dr. Erik van Raaij: eraaij@rsm.nl.

Supervisory Team

Finn Wynstra
Professor of Purchasing and Supply Management
  • Promotor
Erik van Raaij
Professor of Purchasing & Supply Management in Healthcare
  • Promotor