1. Which agency related issues can you identify in the case?

 Adverse selection relates to the information imbalance between the agent – in our
case the bidders – and the principal – in our case Merck as the client and the
consultants – mainly during the pre-contractual procurement process; whereas moral
hazard relates to situations where the principal has difficulties directing the agents
actions because they are unobservable or cannot be contractually agreed and hence,
occurs in the post-contract phase.
 Our case is situated during the pre-contractual procurement process, so the focus is on
the adverse selection problem and more specifically on the following issues:
 Degree of goal conflict – It is highlighted in the text that “many spectacular project
adversarial and fragmented project environment based on suboptimal contractual
degree of goal conflict as an adversarial environment often develops when the
project/client or when the contractor representative follows his/her own agenda in
terms of e.
 building a promotion case; and b) when clients are not interested in a project with
minimal budget and effort disregarding the impact this might have on the contractors
or also follow their personal interests like securing a bonus for achieving certain not-
project related KPIs.
 Fragmented project environment as it relates to the maximization of economic self-
interest in particular when a situation occurs which can be exploited.
 This is often the case when one party is in a difficult situation and requires support
and the other party tries to get the most out of the situation for themselves, e.
 if the project is delayed, but the client requires a certain completion date, the
contractor might overprice acceleration measures and hence exploit the client.
 Degree of information asymmetry – Our case focuses strongly on the degree of
information asymmetry during the procurement process which is a crucial project It is
emphasized that there is big information asymmetry at the beginning of the
procurement process as the client, architect, engineers and consultants have worked
on the project for many months or even years and hence are very familiar with the
project.
 They have developed the project, went through multiple iterations, they know why
decision were made in a certain way and what the potential problems with the project
are at that point of time.
 They allow time in the procurement process to get to know the different bidders and
to give the bidders the opportunity to get to know procurement phase the project
outcomes of the contractor is limited.

2. How were the different issues addressed by Steven and Mark?

 Steven and Mark tried to close the pre-contractual information in-balance with their
contractor as quickly as possible through an intense process involving several
workshops with a number of bidders.
 Degree of goal conflict – They communicated openly and honestly with the bidders
on what the client’s and their personal goal with the project is, why this goal is in
place and what they plan to achieve with the project.
 This was clearly addressed in the workshops in order to avoid a high degree of goal
conflict emerging during the post contract phase.
  Degree of opportunistic behaviour – Again, Steven and Mark were open and honest
with their bidders during the workshops and explained their intentions for the project.
 Through this process they could investigate how the different bidders reacted to and
Degree of information asymmetry – The minimization of information asymmetry was
at the core of Steven’s and Mark’s actions.
 Procurement process with various briefings and workshops they were able to bring
information they had available to the bidder.
 The process of building up knowledge for the bidders and hence, minimizing
information asymmetry is shown in Figure 5.
 Relationship with any of the bidders, Steven and Mark invested time during the
precontractual phase to get to know the bidders and to give the bidders an opportunity
to get to know them.
 Again, this enabled them to observe the bidders and make a judgement if they can
potentially work trustfully with them in the future.
 Level of concealment of negative outcomes – Steven and Mark openly admitted in
the midst of the procurement process, that new requirements from the building This
could have potentially been exploited by one or more bidders, but as Steven and Mark
approached it in a collaborative way by – again – sharing all the information they had
and communicating openly about the challenge, they found support from the bidders.
 This showed the bidders that the client does not have the intention to exploit a
situation, but to work collaboratively on issues that occur during the project.
 For Steven and Mark, the additional effort and cost of having this multi-stage
procurement process with various workshops were seen as a necessary, but valuable
investment.
 It allowed them to build trust in the absence of a long-standing relationship and thus
mitigate the risks emanating from the moral hazard problem in the post-contractual
phase.

3. Do you think the way Steven and Mark addressed the agency related issues was
appropriate and effective? Why?

Steven’s and Mark’s way to address the agency issues was appropriate because in the end
they led to a successful project. This can be judged on the following facts:

 Foundation work started on time.

 Concrete and steel works were completed in a timely fashion and with high quality.

 Construct was motivated through incentives and actively engaged in resolving day-today
problems on site in order to meet the client´s intermediate milestones.

Steven and Mark had demonstrated in the pre-contractual phase that uncertainties and
problems were shared openly and solutions were not sought at the expense of Construct.
Reciprocal behaviour was evident in the post-contractual phase, which was supported by
Claire and her team, who remained constantly involved and engaged in day-to-day operations
of Construct, without interfering or micro-managing.
4. Can you relate mechanisms to resolve agency related issues in this case to some
of the mechanisms identified in the CURED framework (see Bryde et al, in
press)? What does this tell us about Steven’s and Mark’s approach?

 The mechanisms to resolve agency issues identified in the CURED framework are
Contract, Understanding, Resources, Education and Delegation.
 These mechanisms were used by Steven and Mark as follows:
  Contract – Steven and Mark very consciously ensured contractual completeness in
terms of fit for purpose and employed formal and informal mechanisms to do so.
 They decided that the voluntary bonus is not a formal element of the contract, but an
informal instrument for Claire to manage the progress of work.
  Understanding – Steven and Mark have the goal to develop a shared understanding
with the contractor right from the outset of the project.
 Process to create this shared understanding between the principal and the agent. With
bidders/contractors to ensure that the shared understanding is not only developed, but
also maintained throughout the project.
  Resources – Steven and Mark were aware of the importance of appropriate
resources for the project. Capacity required for certain aspects of the project and
ensured that they employ understand the project in-depth before submitting the final
quote to ensure they had the appropriate resources in place as well.
 This was important as they wanted to prevent the project from suffering due to
insufficient funding of one of its key  Education – Steven, Mark and their team did
not conduct or incorporate any formal Nevertheless, some form of informal training
or education took place during the initial workshops as they enabled the participants
to gain an understanding of ways of working, critical issues in the project and
relationships amongst the different  Delegation – Steven and Mark delegated the
execution of the concrete and steel works to Construct.
 They had to trust Construct to execute the work as specified as they were only able to
keep a control certain aspects of the work themselves. Even delegated some of the
control to internal and external experts like Claire, Lilian, Paul or John who again
could not control every single aspect of the work, but acted this shows that Steven and
Mark utilized most of the measures to resolve agency related issues which
subsequently enabled them to deliver a successful project.

5. Steven and Mark decided to develop their own collaborative way of procuring
concrete and steel works. Do you think their model should be recommended for
replication for other projects? Why?

 This model can be transferred to the procurement of other work packages And indeed,
should be replicated for other projects.
 A reason for this is that issues related to agency theory are not project or industry
specific – they are present in any type of project and in any industry as suggested by
bryde et al (in press).
 The model employed by steven and mark can and should therefore be adopted by
other projects in order to set the foundations for a collaborative and trustful way of
working on the project and – most importantly – completing it successfully.
 Depending on the industry and volume of the tender package, the process might
require adaption and/or modification in terms of number of workshops, bidders
involved and timeframe, but we are convinced that the process developed by steven
 and mark offers a good and valuable guidance for other work packages or projects and
we expect that the same benefits can be realized in other work packages and projects.
 Indeed, all major tender packages in the oghq program followed the lead of concrete
and steel works and it proofed successful for the other work packages as well.
 However, the additional effort and cost need to be considered.
 We suggest that they are warranted in those cases, where agency theory clearly
indicates risks that need to be controlled by the principal.
 In certain other institutional settings, were trust among actors plays no role, projects
may also be conducted at arm’s-length.

6. Due to the introduction of additional requirements by the building authorities a

major disruption of the procurement process occurred. Do you think Steven’s
and Mark’s strategy to postpone this issue post-contract award is suitable?
Why?

Steven’s and Mark’s approach to postpone the issue post-contract was suitable,
especially against the background that they wanted to build a collaborative and
trustful relationship with the contractor. They demonstrated through their behaviour
precontract, that they were willing to discuss and resolve all open issues in a
collaborative and fair manner. Through their intensive pre-contract discussions with
all bidders, the team could form an educated opinion about the bidders’ behaviour and
likely response to issues and eventually selected Construct as the best fit.
Furthermore, the laying of foundations was imminent according to the original
schedule and further delays would endanger the completion date in an unacceptable
way.

7. Post-contract award the client offered bonus payments to construct. Why did
they choose to spend extra money if they are not contractually obliged to do so?
Do you think it paid off?

 Steven and Mark offered the bonus to Construct post-contract in order to clearly
separate this voluntary award from all contractual obligations.
 Their thoughts behind this were, that Construct would view it as a real bonus award
that was fairly paid out in case of success and not paid if the milestones were not
achieved.
 They hoped that in the case of non-payment due to missing the milestone, Construct
would not view it as reduced income.
 Therefore there was only “gain” and no “pain” in this arrangement.
 Manager could allocate the bonus payments at her discretion for intermediate
milestones without getting into contractual negotiations or conflict with Construct or
German contract law.

8. Bryde et al (in press) point to another area, where agency problems arise,
namely in the allocation of benefits and risks in uncertain situations. Which
instance in the case study addresses this particular concern of Steven and Mark?
Did they adopt a value or risk sharing perspective? Why?

 OGHQ faced a major instance during the procurement of concrete and steel works
which was the issuing of new requirements by the building authority: The remaining
 two bidders were invited to risk mitigation talks, where the causes and consequences
of the disturbance were shared and both asked for ideas and proposals to reduce risk.
 Both were given the opportunity to adjust their quotes accordingly and it can be taken
from Figure 4 that there were some price adjustments.
 Hence, Steve and Mark adopted a risk sharing perspective in order to motivate the
agent – in our case the two remaining bidders Build and Construct – to cooperate.

9. Would you have done anything differently to Steven and Mark? Why?

 There are various instances where Steven and Mark had options on how to design the
procurement process for the concrete and steel works.
 As outlined initially, they could have chosen the traditional way of competitive
tendering with a sole focus on price, they could have explored using open book
contracts or they could have employed a general contractor instead of procuring by
work packages.
 We don’t know what the outcome of the project would have been if a different
procurement method was chosen.
 However, we know that the chosen method was highly successful and hence, we
assume that it was the best and most appropriate solution for this project.
 Steven and Mark could also have handled the instance of the changed requirements
from the building authority differently.
 They could have provided the bidders with the information they had and requested to
include it in their quote; they could have hidden the information and only provided it
after contract award trying to pretend it was already included; they could have paused
the procurement process in order to update the design – again, there are many
different options and we don’t know what would have been the outcome if a different
way of dealing with this instance was chosen, but Steven’s and Mark’s approach
proved once more successful and hence, we conclude that they acted appropriately.

10. In your opinion, is it likely that Steven’s and Mark’s approach contributes to the
success/failure of the project? Why?

 We conclude that Steven’s and Mark’s approach had an impact on the

overwhelmingly successful completion of the project.
 They put in place the appropriate measures to overcome agency related issues and
tried to build trust between the client organization and its representatives, the
principal, and Construct, the agent.
 This allowed them the manage a complex project with a reasonably high degree of
uncertainty collaboratively without losing Construct’s commitment.
 They decided to reward positive contributions to the project which facilitated the
achievement of critical milestones without establishing blame culture if these
milestones were not met.
 They achieved that Construct acknowledged and recognized the importance of the
project and that Construct adopted their goal of delivering a successful project.