When you buy a service, what do you believe is the contractor's primary goal? A. Pride; B. To employ people; C. To make you happy; or D. To maximize the difference between his receipts and his cost? While A, B, and C are noble goals, the reason the contractor is in business is D: to make money.
In a similar vein, service providers should ask that question about you. As the owner, what is your primary objective? A. To employ the contractor's people; B. To build the contractor's resume; C. To be a good citizen; or D. To maximize the value you receive for each dollar spent? Obviously, your primary objective is D: to maximize value received.
Is it easy to see that these two goals might not be in alignment? In fact they could end up being 180 degrees out of alignment. Then, what can you do to motivate the behavior of the contractor to be consistent with your goals and objectives?
The answer to this question can be found in the behavioral sciences. Expectancy theory argues that the motivational force to perform or expend effort is a multiplicative function of the expectances concerning future outcomes and the value of those outcomes.
This concept of expectancy then has two specific components:
1. Expectancy or probability of success associated with each behavior, and 2. Association of certain outcomes with every behavior.
If we apply these concepts, we find that motivation will be greatest when:
The behavior of a contractor is linked to certain attractive outcomes (increased receipts) which are tied to obtainable performance measurements. These performance measures gauge the contribution of the contractor to those drivers, which maximize the value received by the owner.
Kellogg Brown & Root has been working with incentives in our contact maintenance business for over 15 years. We have had successful incentive plans, and some plans which were not so successful. Advantages and disadvantages of incentive plans we have observed are outlined in the accompanying section "Pros and Cons of an Incentive Plan."
The success of incentive clauses in maintenance contracts is a product of a variety of factors. The following observations are offered as suggestions for consideration during the development of a maintenance service agreement:
The incentive clauses in the service agreement must be designed around the plant's overall maintenance and asset management goals. Generally, clauses will have a minimum performance figure above which a bonus award will be paid. There will also be a maximum goal figure above which the incentive bonus will cease to increase with performance. Some of the clauses we have worked with include the following:
Safety work orders completed within scheduled time.
PM work orders completed within scheduled time.
Overtime worked by maintenance core group.
Asset maintenance downtime.
Skills inventory-work time devoted to developing multiskilled crafts.
Reliability-monthly machine failure rate.
Productivity-man-hours per completed base work order.
Training-percent of training man-hours to goal.
Contractor's man-hour performance-over or under budget.
Contractor's overall maintenance performance-over or under budget.
Safety-recordable incident rate.
The accompanying performance charts illustrate incentive clause measurements from three different contract maintenance agreements.
Incentives can be useful for motivating performance when the owner-contractor relationship is long term, focused on business goals, and with shared control.
Strive for these features in your maintenance projects. The accompanying section "Making Incentive Clauses Work" offers observations for consideration as you develop your incentive plan. MT