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Rewards Revisited

In my October, 2006 column I threw out the idea of creating a commissioning award fee fund, similar to a contingency, in the project budget. Theoretically, it would not increase the total project budget but would shift dollars from the commissioning budget into the award fee fund. For example, if a typical commissioning fee would be 1.0% of total construction cost, I proposed budgeting 0.8% for commissioning professional fees and 0.2% for the award fee fund. To me that seemed to be a better investment of the owner’s 0.2% than paying the commissioning professional to document, track, and re-demonstrate failed systems.

Subsequent to writing that column I discussed my idea with a couple people who brought me back down to earth by pointing out some of the challenges likely to be encountered trying to implement such an incentive program.

First, and very fundamentally, one devil’s advocate pointed out that many building owners are likely to balk at the idea of paying an “award” to a contractor for delivering what the owner thought he was paying for in the first place. This is true. That made me realize that the proposed incentive program is intended for building owners who have already resigned themselves to the value of investing in commissioning in the first place. These are the building owners experienced in commissioning and looking to improve on the commissioning results they’ve received in the past. The incentive program could be viewed as “advanced commissioning” for those owners looking to get the best value for their 1.0%.

More insidious, however, is the conflict of interest the proposed incentive creates for the commissioning professional. Inherent in my plan is the assumption that if an initial demonstration fails the first time, the commissioning professional’s costs for documenting, tracking, and witnessing a re-demonstration would come out of the same “contingency fund” as the contractor’s award fee. Thus, the commissioning professional would be motivated to find a demonstration unacceptable. The “third party” commissioning professional is no longer unbiased, and this would be a deviation from good, industry standard commissioning practice.

Perhaps this award contingency fund would work in a project where an on-staff representative(s) of the building owner’s Operations Department serves as the Commissioning Professional. Although this representative would be slightly motivated to conserve the Owner’s contingency, the primary motivation of the person responsible for future system operation should be successful system operation.

Of course, this leads to the basic question of what constitutes “success”? Regardless of whether there is an award fee or not, the commissioning process is contingent on clear, unambiguous, and objective systems acceptance criteria. This starts with the development of the Design Intent Document and culminates in the step-by-step functional performance test procedures. Test procedures, by definition, need to have clear pass/fail requirements for each step. In the simplest terms, a test will “fail” if one or more of the steps does not result in the system performance expectations documented in the test procedure.

Ideally test procedures do not allow any room for “discussion” in the field regarding success or failure of any step. Reviewing the test procedures – and the related acceptance criteria - with all responsible parties prior to the start of testing is a key step in the process of avoiding test-day disagreements about what passes and what doesn’t.

When there is an award fee involved, it may be desirable to identify various steps of a test procedure as being “critical” or “non-critical”. These might also be described as “performance” issues versus “administrative” issues. This would be a technique for further articulating the Owner’s priorities with respect to the commissioning process. If proper building system performance is the most important thing to the Owner, the decision to pay the award fee might be based only on the critical performance criteria in the functional tests. The obvious risk would be a diminished level of effort by the contractors towards the non-critical administrative items which, presumably, are also important to the owner.

Another question is, “How would an Owner dole out the award fee?” Would there be a portion of the award fee associated with each functional performance test or would all of the functional performance tests have to “pass” the first time in order for the contractor to realize the entire award fee? From an incentive perspective, it seems like there needs to be an opportunity for the contractor to earn award money throughout the testing and acceptance phase of a project. If the latter “all or nothing” approach is implemented and the contractor fails the first functional performance test, the incentive for all subsequent tests will be lost.

Although this particular incentive may or may not be realistic, my intention with this column was to demonstrate how complex incentives can be – both positive and negative programs.

 

COMMISSIONING: GETTING IT RIGHT

Engineered Systems, November, 2006

by
Rebecca Ellis, PE, LEED AP, CCP, CxA
President
Questions & Solutions Engineering
1079 Falls Curve
Chaska, MN  55318
rteesmag@QSEng.com