Organisations often undertake large projects that outpace the
abilities of their entity. A construction firm might win a tender to
rebuild part of the highway between Nairobi and Mombasa. An NGO
might receive a USAID donor award to supply HIV antiretroviral medicine to a million Kenyans. A university may win a Government of Kenya bid to train thousands of youth on employment skills. An IT firm may seal a deal to build a new enterprise resource planning (ERP) system that also integrates a procurement front-end as well as payroll features and a geo-tagging app interface for employees’ mobile phones.
might receive a USAID donor award to supply HIV antiretroviral medicine to a million Kenyans. A university may win a Government of Kenya bid to train thousands of youth on employment skills. An IT firm may seal a deal to build a new enterprise resource planning (ERP) system that also integrates a procurement front-end as well as payroll features and a geo-tagging app interface for employees’ mobile phones.
In
such instances, each organisation might not hold the wherewithal to
complete the entire project satisfactorily within timeframes allotted.
Ramping up staffing and processes takes time if project size exceeds current firm resources.
In
response, most organisations choose to partner with likeminded entities
in order to reach economies of scale through critical mass.
In partnering, three different general types of contractual arrangements exist for partnerships.
First,
a lump sum or fixed-price contract where the partner gets paid a set
pre-agreed amount for the entire project as defined in the contract.
Second,
lead organisations can choose a reimbursable contract whereby partners
get refunded for all actual accosts reasonably sustained during the
project with a specific allowed markup, often a percentage or a fixed
fee, for the partner’s profits.
Third, an alliance
contract can be utilised, also called a partnering contract, whereby
both parties jointly determine the targets and the associated costs and
then both partners share in any upside or downside of meeting or
exceeding cost targets or time deliverables.
Researchers Mohammad Suprapto, Hans Bakker, Herman Mooi, and
Marcel Hertogh investigated which types of contracts had better linkages
with project performance.
Interestingly, the type of
contract whether lump sum, reimbursable contract, or an alliance
contract had no direct relationship with performance on the project.
There
was no affect at all. So, the scientists delved into the psychology
behind the contracts. They hypothesised that a psychological process
would happen in the minds of the contractors depending on the contract
type. The research investigated relational attitudes that the
contractors felt with the lead partner and also the teamworking quality
between the two partners.
Fascinatingly, the research
team found that the type of contract that had the most significant
impact on relational attitudes was the partnering/alliance type of
contracts.
Those enhanced relational attitudes that
include relational norms and senior management commitment caused a
better teamworking quality environment such as inter-team collaborative
processes.
It is this psychological chain of events that then caused an improvement in the project performance.
When
considering partnering, executives must consider the psychological
implications of different contract types when selecting and signing up
partners.
A more flexible partnering/alliance contract
allows for a stronger bond that also enables both firms to recognise
more financial incentives.
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