CHALLENGES OF USING PERFORMANCE-BASED CONTRACT FOR FACILITY MANAGEMENT OF INSTITUTIONAL BUILDINGS

Abstract

The common form of contract used in “facility management of institutional buildings” is lump-sum contract. However, with the increasing need to increase productivity and performance level, there is a growing interest from industry practitioners to adopt performance-based contract instead. However, adopting performance-based contract presents its challenges in defining what is performance, how to measure performance and how can the interest of both parties be adequately represented in the contract. Thus, this dissertation aim to consider body of literature to find important contractual considerations for a performance-based contract, and use it to assess an actual contract to provide a greater understanding of what are the current gap in current contract specifications and clauses. By examining the actual contract data, we find that clauses and specification that works for a lump-sum contract is in fact ineffective in a performance-based contract due to the need for performance-based contract to have a clear and unambiguous payment mechanism that rewards and penalise fairly. Specific clauses and performance indicators are highlighted to exemplify this finding. However, the limitation of this study is that it cannot be generalised to all kinds of facilities management services across different institutions due to lack of data to gather conclusive findings. Nevertheless, findings from literature review provides a framework of assessment and evaluation of contract data using these findings can provide industry practitioners with a better understanding of what are important considerations for a performance-based contract.