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Historically, construction contracts have been a set of rules dealing principally with time and money. Contracts are pretty good at documenting a deal. They are not so good at fostering the culture of continuous improvement that the industry is now committed to achieving. One way of doing this is for the contract to incentivise the contractor to perform well.

Not many contracts do this. The Engineering and Construction Contract is an exception in that it has two possible incentive arrangements. One is an optional bonus clause under which the contractor is paid an additional sum for each week that it completes early. The other is a target cost mechanism where the contractor gets a share of any cost saving if the project comes out below a preset budget.

Both of these mechanisms are to be applauded, but they are by no means leading edge. With a bit of lateral thinking, it is possible to introduce a system that has a real effect on performance.

Perhaps the best mechanism around at the moment is where incentive payments are made to the contractor on the basis of its score measured against key performance indicators. Points are earned for success. Payment of the incentive sum is made pro rata to the total points score.

The KPIs must really be the factors by which the project’s success will be measured. The client and, when partnering arrangements exist, the contractor and consultants, need to decide on what the KPIs are to be. In doing this, it is important for the full effect of measuring KPIs to be considered. For example, if the only KPIs are cost and time, could this accidentally provide an incentive for the contractor to cut corners on quality? A recent workshop set up to develop an incentive system for a project within a partnering arrangement concluded that the following KPIs should be used: cost, time, environment, safety, quality, and lack of defects. Others, such as client satisfaction, could also be used. Interestingly, in this case, the client rejected its own satisfaction as a KPI as it felt it to be too subjective.

Having set the KPIs, a method of measurement must be established for each. Measurement needs to be rigorous and transparent as it has to show not only whether success has been achieved but also the degree to which it is achieved. For KPIs that we are not, perhaps, used to measuring, some degree of ingenuity is needed.

• Performance indicators motivate firms because they offer them money

• But this money must trickle down through the subcontractors to the people on site

Cost, for example, is easy. It is measured against budget. Being over budget means no incentive payment. Being under budget means points are earned for (in this case) each £10 000 saving.

Time performance is measured against the contract completion date. Points are gained for early completion on a daily basis.

Environmental performance offers a range of possibilities. Recycling and the reduction of waste, power and water are fairly straightforward. More complicated to deal with, but probably more effective, are measures such as whole-life energy or carbon dioxide emissions.

You begin to see the picture? So this is the framework – does it work in practice? Well, it’s good as far as it goes. The mechanism incentivises companies because it delivers them money. The piece missing from the jigsaw is the performance of the individuals who actually do the job.

Commonly, when incentive payments are made on projects, the money goes to the contractor. Sometimes it trickles down to the subcontractors. Seldom will it get down to the workers on site. If it does, it is more likely to be in overtime money than in incentive payments.