A novel formula for payment to subcontractors, which shifts some of the risk for reduced productivity due to plan instability from the subcontractor to the general contractor, is proposed. The formula requires that a price for capacity be set as well as a price for product, with a single weighting parameter to balance between them. Using a three player game theory based simulation, use of the formula has been shown to lead to resource allocation behaviours that benefit all parties in unstable or average conditions, but has no effect under stable conditions.
economic game theory, production system design, remuneration for capacity, resource allocation, subcontracting
Sacks, R. & Harel, M. 2008, 'Partial Remuneration for Capacity to Stabilize Subcontractor Resource Allocations' In:, Tzortzopoulos, P. & Kagioglou, M., 16th Annual Conference of the International Group for Lean Construction. Manchester, UK, 16-18 Jul 2008. pp 109-120