The use of performance-based contracting in managing the outsourcing of a reliability-centered maintenance program

Abstract

Purpose The purpose of this paper is to present a case study on the use of performance-based contracting in the outsourcing of a reliability-centered maintenance program of a Gulf oil refinery. Design/methodology/approach A case study method is used whereby data are collected through semi-structured interviews, informal discussions with executives from the participant companies, in addition to official documents and secondary materials. Findings The case analysis reveals the use of a risk–reward payment scheme and key performance indicators (KPIs) deployed to support the management of the outsourced maintenance function. The financial incentive scheme was clearly designed to motivate the outsourcing contractor to achieve more financial benefits when meeting a defined set of KPIs while also delivering operating cost savings and other qualitative benefits to the outsourcing company. Managing the outsourced function also involved the use of routine budgetary control systems, in addition to other informal control mechanisms such as trust, knowledge sharing, mutual understanding and co-operation between the two collaborative partners. Practical implications The evidence presented in the case description and analysis may assist in increasing the understanding of how outsourcing relationships in maintenance business are managed and evaluated. The case findings may also provide the opportunity for further research investigating the use of performance measurement systems and incentive-based schemes in a variety of maintenance contracts. Originality/value The case study presents new empirical evidence on the use of performance risk–reward payment schemes in the management of an outsourcing relationship. Findings reported in the study will add to the existing literature on maintenance performance measurement and management practices in outsourcing relationships.