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Project Teams and Contracts by the Numbers

Commercial incentives, target-cost and alliance contracts, team size and decision rights, worked through one distribution centre built by many organisations

Build one team from many organisations: lump sum, cost-plus and target-cost share calculations, alliances, team size, staffing, decision rights and how contracts shape behaviour.

10 chapters · About 111 minutes · Free to read · Intermediate project delivery, procurement and team leadership practice

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KEVOS® LibraryPROJECTSProject Teamsand Contracts bythe NumbersKEVOS® ORIGINAL BOOK10 CHAPTERS

About this book

A capital project of any size is delivered by several organisations at once: an owner, designers, a builder, specialist contractors and suppliers. Each has its own managers, its own cash flow and its own idea of a good result. The contracts between them decide who keeps a dollar saved and who pays a dollar lost, and people respond to that whether or not anyone intends them to. The project’s result depends on whether those organisations behave as one team with one goal or as a set of separate businesses defending separate positions.

This book works through that problem with numbers. It starts by mapping the organisations, people and interfaces on one project, then shows how a contract shapes behaviour by moving savings and overruns between the parties. It works lump sum, cost-plus and target-cost contracts in turn, with pain and gain share calculations, bands, caps and target adjustments, then treats alliances and other collaborative contracts. The second half turns from contracts to people: team size and communication paths, staffing ramp-up and the cost of turnover and late additions, and shared goals, co-location and decision rights. The last chapter compares the delivery models by simulation and chooses one. Each chapter follows one running case, includes a plausible mistake and how it was found, and ends with an exercise and its worked answer.

It is for owners and sponsors, project and procurement managers, and the project leads of contractors and suppliers. It assumes spreadsheet arithmetic. Where an idea is already covered in the Library collections, such as how an alliance selects partners or how a delivery model is chosen, the book links to it and adds the numbers.

The running case

Every chapter follows one fictional project. This is an illustration. A family-owned Australian food manufacturer that makes sauces, soups and pantry goods has outgrown its warehouse and two leased third-party stores. It plans a new distribution centre on land it owns in Melbourne’s west: an 11,500 m² warehouse with an 800 m² office, 14,000 pallet positions of selective racking 11 metres high, case-picking conveyors and controls, and a new warehouse management system. The approved budget is A$18.0 million excluding GST, of which A$15.6 million is the works allowance, and the target is a working distribution centre 18 months after approval. Every week of delay costs the business about A$80,000 in extra leases, shuttle freight and lost efficiency.

Six organisations deliver it: the owner, a designer, a builder, a racking supplier-installer, a conveyor and controls integrator, and a software vendor, with a core team of about twenty people among them. The book follows the choice of contract for the works, the commercial arithmetic of each option, and the team that has to make the chosen option work.

The business, its people, its contractors and every number in the case are invented. None describes KEVOS® work, a real business or a real project.

How to use the book

Read Chapters 1 and 2 first: the map of organisations and the way a contract moves money underlie everything else. Chapters 3 to 6 take the contract models in order of increasing sharing, from lump sum to alliance, and are best read in sequence. Chapters 7 to 9 cover the team itself and can be read in any order after Chapter 2. Chapter 10 brings the commercial and team results together into one choice. Every calculation was checked by running it, and the behaviour assumptions behind the comparison are stated where they are used, so readers can replace them with their own.

The book is one of a series of nine KEVOS® Library books on project delivery, each worked through its own case. The most closely related are Reference Class Forecasting by the Numbers, which sets the budgets and contingencies that this book’s contracts have to live within; Modular Projects by the Numbers, which covers learning curves and keeping an experienced team together across repeated work; Front-End Planning by the Numbers, which covers the definition work that makes a lump sum or a target realistic; and Stage Gates and Stopping Rules by the Numbers, which covers the approval decisions that the sponsor and leadership group in this book have to make.

Source limits and professional responsibility

The contract models, team research and Australian guidance used here are published, and the sources are listed with what each was used for. Standard forms of contract are named by number and scope only; their clauses are not quoted, and a real contract needs to be read in full, with its special conditions. The case’s prices, shares, rates and behaviour assumptions are teaching values, not market data or research findings, and a real comparison needs its own estimates and advice. Contract choice and drafting have legal, tax and insurance consequences, and work health and safety duties are shared between businesses on the same site under the laws of each state and territory. This book is general information about project delivery. It is not legal, financial or safety advice, and decisions on real contracts are for the people accountable for them, with professional advice.

Who this book is for

Owners, sponsors, project and procurement managers, and the contractors' and suppliers' project leads who must turn several organisations into one working team on a capital project in a small or medium Australian business.

What you will learn

  • Map the organisations, people and interfaces on a project, and count the communication paths that a team structure creates.
  • Explain how lump sum, cost-plus, target-cost and alliance contracts move each dollar of saving or overrun, and predict the behaviour each one rewards.
  • Work pain and gain share calculations with share bands and caps, adjust a target for change, and test key result areas against the target's own basis.
  • Size a core team and its meetings, plan staffing ramp-up, and estimate the cost of turnover and of adding people late.
  • Set shared goals, decision rights and co-location so decisions are made at the speed the programme needs.
  • Compare delivery and contract models on expected cost, P80 cost and owner effort, and choose one to suit the project's risks.

Inside this book

Chapters

  1. 01Many organisations, one project: mapping the team and its interfacesSix organisations and 20 people on an A$18.0m distribution centre: 190 communication paths, 38 interfaces, shared safety duties and a racking change that cost A$660k.
  2. 02How contracts shape behaviour: who keeps a dollar savedWho keeps a A$100k saving under five contract models, incentive against flexibility, a four-risk register priced at 1.6 times expected value, and overtime paid at cost plus 8%.
  3. 03Lump sum contracts: price certainty and what it costsBuild a fair lump sum of A$15.120m, price variations at 15%, see the contractor's margin at five cost outcomes, and normalise three tenders whose order changes once exclusions are priced.
  4. 04Cost-plus and open book: paying for cost and checking itPercentage fee against fixed fee on A$13.50m of direct cost, defining reimbursable cost, an open-book audit that recovered A$207k, and a guaranteed maximum price of A$15.4m.
  5. 05Target cost with pain and gain share: worked share calculationsA A$13.50m target with a 50% share inside ±10% bands, payments from 85% to 120% of target, break-even at 113.8%, a fat target, and a A$0.62m change left out of the target.
  6. 06Alliances and collaborative contracts: one agreement, shared resultsThe DC as an alliance: three limbs on a A$13.50m target, painshare capped at A$1.080m so the owner carries overruns past A$15.66m, four KRAs and a schedule KRA that paid A$60.3k.
  7. 07Team size and communication paths: how big the core team should beTwenty people make 190 paths; a hub of seven leads makes 34. Meeting redesign saves A$127,400 a year, and a 34-name notice list costs A$114,240 yet still misses the racking supplier.
  8. 08Staffing ramp-up, late additions and the cost of turnoverThe DC core team's 194.6 FTE-months peaking at 16.2 in month 15, a leaver costed at 3 FTE-months (A$66k), turnover at 18% against 10%, and Brooks's law in a commissioning crunch.
  9. 09Shared goals, co-location and decision rightsOne scorecard for six organisations, decision limits for 262 decisions, decision latency priced at A$320k against A$96k, and a joint site office that netted A$264k once limits were delegated.
  10. 10Choosing the delivery model: comparing contracts by simulationA seeded 20,000-run comparison of six contract models for the DC: target cost averages A$15.485m with P80 A$15.938m, an alliance needs a 2.15% cost edge, and admin costs change the answer.

Apply This in Practice

Use these KEVOS® tools to try the method from this reading with your own numbers.

References and source notes

The manuscript and worked examples are original KEVOS® writing. References inform particular concepts; their authors do not endorse this book. Web references were consulted on 28 October 2026.

  • Bent Flyvbjerg and Dan Gardner. How Big Things Get Done (2023). Supplied source, © Connaught Street Inc. and Bent Flyvbjerg, in copyright. Used as a subject map only, for the theme of building one determined team from many organisations. No passages, chapter structure, stories, heuristics or figures are reproduced.
  • Australian Government, Department of Infrastructure and Regional Development. National Alliance Contracting Guidelines: Guide to Alliance Contracting (September 2015). Australian national guidance on alliance contracting, published with policy principles, guidance notes and templates. Used in Chapter 6 for the general structure of an alliance: owner and non-owner participants, a target outturn cost, and the three-limb payment of direct costs, corporate overhead and profit, and a share of gain or pain. The share ratios, cap and key result areas in the case are the case's own, not values taken from the guidelines.
  • P. Wood and C. Duffield, for the Department of Treasury and Finance, Victoria. In Pursuit of Additional Value: A benchmarking study into alliancing in the Australian public sector (2009). Five-year study of 14 Australian public alliance projects. Cited in Chapter 6 for its general findings: alliances performed well on non-cost outcomes and early starts, while outturn costs ran well above the estimates in the business cases, which led to closer scrutiny of alliance targets.
  • NEC (Institution of Civil Engineers). NEC4 Engineering and Construction Contract (2017). Named by its main options and their scope only: Options A and B priced contracts, Options C and D target contracts with an activity schedule or a bill of quantities, Option E cost reimbursable and Option F management contract. Used in Chapters 3 to 5 to show that published forms separate pricing methods. No clauses are quoted; the share bands in Chapter 5 are the case's own.
  • NEC (Institution of Civil Engineers). NEC4 Alliance Contract (2018). Named in Chapter 6 as an example of a published multi-party alliance form signed by the client and its key partners together. No clauses are quoted.
  • Standards Australia. AS 4000-1997 General conditions of contract and AS 4300-1995 General conditions of contract for design and construct (1997 and 1995, with amendments). Named by number and scope only, as widely used Australian general conditions for construct-only and design-and-construct contracts, in Chapter 3. No clauses are quoted or paraphrased; readers should check the current status of each standard with Standards Australia.
  • Frederick P. Brooks, Jr., Addison-Wesley. The Mythical Man-Month: Essays on Software Engineering (1975; anniversary edition 1995). Source of Brooks's law, that adding people to a late software project makes it later, and of the count of n(n−1)/2 communication paths in a group where everyone must talk to everyone. Used in Chapters 7 and 8, with the limits Brooks himself noted.
  • J. Richard Hackman, Harvard Business School Press. Leading Teams: Setting the Stage for Great Performances (2002). Source of the conditions that make teams effective: a real team with stable membership, compelling direction, an enabling structure, a supportive context and expert coaching. Used in Chapters 7 and 9.
  • Diane Coutu, interview with J. Richard Hackman, Harvard Business Review. Why Teams Don't Work (2009). Background on keeping teams small, below about ten members, because the links between members multiply as a team grows. Used in Chapter 7.
  • Ian R. Macneil, Yale University Press. The New Social Contract: An Inquiry into Modern Contractual Relations (1980). Origin of relational contract theory and the contrast between discrete and relational exchange. Used in Chapters 2 and 6 to explain why long, uncertain projects depend on the relationship as much as the written terms.
  • Patrick Bajari and Steven Tadelis, RAND Journal of Economics 32(3), 387–407. Incentives versus transaction costs: a theory of procurement contracts (2001). Source for the trade-off between the cost-reducing incentive of a fixed price and the renegotiation costs it brings when the design is incomplete, and for the finding that cost-plus contracts suit more complex projects. Used in Chapters 2 to 4.
  • John G. Perry and Martin Barnes, Engineering, Construction and Architectural Management 7(2), 202–208. Target cost contracts: an analysis of the interplay between fee, target, share and price (2000). Source for the interaction of fee, target and share in target-cost tenders, the scope for manipulating them, and the case for a contractor share of overrun or underrun of not less than 50 per cent. Used in Chapter 5.
  • Pertti Lahdenperä, Construction Management and Economics 30(1), 57–79. Making sense of the multi-party contractual arrangements of project partnering, project alliancing and integrated project delivery (2012). Comparison of partnering, alliancing and integrated project delivery by their shared features: early involvement, open books, shared risk and reward, joint decisions and a multi-party agreement. Used in Chapter 6.
  • Mike Bresnen and Nick Marshall, Construction Management and Economics 18(2), 229–237. Partnering in construction: a critical review of issues, problems and dilemmas (2000). Critical review of the assumption that collaborative arrangements change behaviour by themselves. Used in Chapters 6 and 9 as a caution that a collaborative contract without changed practice achieves little.
  • Derek H. T. Walker and Beverley M. Lloyd-Walker, Project Management Institute. Collaborative Project Procurement Arrangements (2015). Research monograph, drawing on interviews with 36 experts, on a taxonomy of relationship-based procurement including alliancing. Background for Chapters 6 and 10.
  • Thomas J. Allen, MIT Press. Managing the Flow of Technology (1977). Source for the finding that technical communication between engineers falls steeply as the distance between their workplaces grows. Used qualitatively in Chapter 9; no figures from the book are quoted.
  • Safe Work Australia. Model Code of Practice: Work health and safety consultation, cooperation and coordination (current edition). Named in Chapters 1 and 9 for the duty of businesses that share responsibility for the same health and safety matter to consult, cooperate and coordinate with each other. A model code has legal effect only where a jurisdiction has approved it; check with the local regulator. Victoria, where the running case is set, has not adopted the model WHS laws; it regulates under its own Occupational Health and Safety Act 2004, administered by WorkSafe Victoria.

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