Value-based contract models in the construction industry

The project “Value-based contract model in the construction industry” was initiated based on a hypothesis that a core problem is which contract model and compensation mechanism are used for engineering work while considering the incentives as well.

It has “always” been a challenge that regardless of which type of contract and compensation format is used, the incentives become nonbeneficial.

  • with a fixed price, the supplier is rewarded for using junior resources and the least possible time to create quality
  • with an hourly based price, it is more profitable to use expensive resources and a lot of time

None of these correlates with the delivered value to the customer, but with today’s compensation/business model this becomes far more challenging.

The value of what architects/consultants deliver has not diminished, perhaps on the contrary. Here, new thinking is needed, probably toward a model for “value-based” pricing, where the price of delivered solutions is calculated based on the value creation they will contribute.
To meet all these challenges, this R&D project set to find answers to questions such as:

  • Advantages and disadvantages of current contract types and business models for designers and project work?
  • Is it possible to define parameters and obtain data for the value creation that the designers contribute through their services?
  • How can future business and contract concepts be designed to ensure that the designers are incentivized to contribute to the projects getting the highest possible social benefit (where the price reflects the delivered value, not the number of hours or other resources), take into account values created by new digital technologies and working methods (value creation from automatic processes, data, etc.), and give the correct pricing of the risk the actors undertake, etc.?
  • How should the distribution of roles between the actors in projects be when project models, contract formats, computer tools, etc. change?

Final report of 19 May 2022

The project has been carried out by researchers from NTNU, OsloMet and Sintef in collaboration with a number of architects, advisers, builders and industry associations. It will build on the work from the OSCAR-prosjektet and the initiative Arkitektur skaper verdi.