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Public-Private Partnerships:
a review of theory and practice
of performance measurement
Junxiao Liu and Peter E.D. Love
School of Civil and Mechanical Engineering, Curtin University, Perth, Australia

Jim Smith and Michael Regan

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Received 8 September 2013
Accepted 8 February 2014

Institute of Sustainable Development and Architecture, Bond University,


Gold Coast, Australia, and

Monty Sutrisna
Department of Construction Management, Curtin University, Perth, Australia
Abstract
Purpose This paper reviews the normative literature of performance measurement within the context
of Public-Private Partnerships (PPPs). The purpose of this paper is to examine the effectiveness of current
ex post evaluations of PPPs and identify a feasible direction to comprehensively and effectively measure
the performance of PPP infrastructure projects.
Design/methodology/approach An in-depth literature review is conducted in this paper. The focus
of the review is associated with the general performance measurement and performance measurements
of PPPs.
Findings This paper identifies that conventional ex post evaluation is not robust enough to measure
the performance of PPP projects. Based on the characteristics of PPPs, the life-cycle (process-based)
evaluation under performance measurement system is a promising approach to comprehensive and
effective PPP performance measurement.
Practical implications The outcomes of this paper can be used as a theoretical base for the
development of PPP performance measurement framework.
Originality/value Performance measurement is essential to business success, whether it is at the
organisation or project level. Limitations on public funds have encouraged more and more governments
across the world to use PPPs to procure economic and social infrastructure projects. Similar to traditional
procurement, ex post evaluation is being widely used in PPP projects. However, PPPs are more
complicated than other traditional procurement approaches. Exploration of literature suggests that
limited research has been undertaken to examine if conventional ex post evaluation is sufficient to
measure the performance of PPPs. This paper will bridge this significant knowledge gap.
Keywords Performance measurement, Life-cycle evaluation, Public-Private Partnerships (PPPs)
Paper type Literature review

Introduction
Pressure from public debt reduction in many countries has encouraged their governments
to involve private sector entities in a variety of economic and social infrastructure
developments, such as toll roads, schools, hospitals, car parks, and prisons (Grimsey and
Lewis, 2002; Pongsiri, 2002; Yong, 2010). This kind of privately financed partnership in
the literature is referred to as the Public-Private Partnerships (PPPs). There have been
many PPP successes and some failures reported in the normative literature (Hodge, 2004;
Duffield, 2005; Bult-Spiering and Dewulf, 2006; Regan et al., 2011a, b), though debate
on PPPs has been changed from ideological arguments about their advantages and
disadvantages to focusing on how they can be structured to achieve public policy goals
(Yong, 2010). To realise the predetermined outcomes and benefits of PPPs it is necessary

International Journal of Productivity


and Performance Management
Vol. 63 No. 4, 2014
pp. 499-512
r Emerald Group Publishing Limited
1741-0401
DOI 10.1108/IJPPM-09-2013-0154

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for key stakeholders to concentrate on performance improvements during the early


development processes of the projects (Yong, 2010).
Performance improvement using performance measurement is critical to business
success (Gunasekaran and Kobu, 2007), particularly at the project level (Love and Holt,
2000; Bassioni et al., 2004; Qureshi et al., 2009). In PPPs, monitoring and evaluating
performance are the core activities of contract and project management, which is vital
parts of PPP policy in most countries (Chinyio and Gameson, 2009; European
Investment Bank (EIB), 2012). Nevertheless, many of the procured PPPs have not
undergone a comprehensive form of performance evaluation in terms of what has been
delivered (Hodge, 2005; Hodge and Greve, 2009; Regan et al., 2011b). The PPP markets
of Australia and UK, for example, are considered to be sophisticated and mature
(Hodge, 2004; Duffield, 2005; Bult-Spiering and Dewulf, 2006). Yet, despite their
maturity with implementing PPPs, ineffective evaluation has been identified as
a factor contributing to the problems associated with the delivery of the Latrobe
Regional Hospital and Deer Park Womens Prison in Victoria, Australia and Ashfield
Prison in the UK (Victorian Audit-Generals Office, 2002; House of Commons, 2003;
Roth, 2004). Unsatisfactory performance of a PPP project is not costless. It can lead
to not only a loss of competitive position far beyond the opportunity cost used for
initiating the PPPs, but also the underachievement of synergistic gains and
predetermined positive spillover effects ( Jacobson and Choi, 2008).
Similar to traditional procurement, ex post evaluation is being widely used for PPPs
(Chinyio and Gameson, 2009; Shaoul, 2009; Yong, 2010). However, PPP projects are
more complex than traditional lump-sum projects. With this perspective, a research
question about whether conventional ex post evaluation is sufficient to effectively
measure the performance of PPP projects has been raised. An absence of effective
performance measurement in PPPs can act as a trigger for producing below optimum
service quality of infrastructure (Yuan et al., 2009; 2012; Liu et al., 2013). Considering
this importance, this paper reviews the literature of general performance measurement
and PPP performance evaluation, and aims to identify a promising direction for PPP
evaluation. The outcomes of this paper can serve as a theoretical base for the
development of comprehensive and effective performance measurement of PPPs.
Research design
An in-depth review of normative literature is conducted in this paper. The focus of the
review is relating to general performance measurement and the evaluations for PPP
infrastructure projects. The review outcomes are analysed on the basis of performance
measurement theoretical framework and then used to answer the research question
presented above. Following that, a direction regarding future PPP performance
measurement is proposed and discussed.
Performance measurement
Performance measurement can be defined as the process of quantifying the efficiency
and effectiveness of action (Neely et al., 2005, p. 1229). Kaplan (1990) argues that
performance measurement is the prerequisite of performance improvement. With this
objective, an array of studies has contributed to the theoretical development of
performance measurement in the last two decades (Gunasekaran and Kobu, 2007).
Performance measurement, fundamentally, is applied to assess the success of
organisations (Kennerley and Neely, 2003, p. 214). Throughout history, and it can be
traced back to the medieval period, when the assessment for time performance had

been predominately used in organisations under early modern accounting framework


and double entry accounting system ( Johnson, 1983; Bruns, 1998). Since the 1900s,
due to organisations development with regard to the separation of ownership and
management, financial measures, specified investment returns, cash flow, and profit
margin, have gradually replaced the dominant position of time assessment
(Kennerley and Neely, 2003).
By the 1980s, there was a growing perception that sole financial measures were no
longer sufficient to measure organisations performance in the modern corporate
environment and this emerged from both academics and industry (Kaplan and Norton,
1996). Owing to the increasingly competitive markets, organisations have to respond
more to external activities and long-term success so as to satisfy customers increasing
demands and maintain market share (Parker, 2000). However, conventional financial
measures are lagging indicators (Dixon et al., 1990), which oversee short termism
rather than long-term success and provide no insight into how an organisations
performance is achieved and how that performance can be improved (Hayes and
Abernathy, 1980; Kaplan, 1986). More importantly, financial measures fail to indicate
a set of intangible critical factors, such as customer satisfaction and strategy
(Skinner, 1974; Kaplan and Norton, 1992; Neely et al., 1995; Parker, 2000).
Such aforementioned deficiencies of traditional financial measures weaken an
organisations competitiveness and forced researchers and industrial practitioners to
pursue a more balanced performance measurement framework that can comprehensively
measure organisational performance under todays changing economic environment
(Parker, 2000). The subsequent revolution is that a plethora of general performance
measurement systems (PMSs) had been devised over the last 20 years, such as
the Performance Measurement Matrix, Performance Causality Model, SMART
(Strategic Measurement and Reporting Technique) Pyramid, and Macro Process Model
(Keegan et al., 1989; Fitzgerald et al., 1991; Lynch and Cross, 1991; Brown, 1996). A PMS
is a structure in which strategic, tactical and operational actions are linked to process to
provide the information required to improve the program or service on a systematic
basis (del-Rey-Chamorro et al., 2003, p. 47).
Amongst the developed general PMSs, the balanced scorecard (BSC) is the most
popular one. Kaplan and Norton (1992, 1996) first introduced the BSC in their seminar
paper of year 1992, in which there are four measurement perspectives involving
financial perspective, customer perspective, internal business process perspective, and
learning and growth perspective. Since its proposition, the BSC has been widely
implemented across various industries and was described as a sound performing
strategic control tool (Mooraj et al., 1999; Kennerley and Neely, 2003). Another well-known
PMS is the Performance Prism developed by Neely et al. (2001). It consists of five
interrelated facets: stakeholder satisfaction, strategies, processes, capabilities, and
stakeholder contribution (Neely et al., 2001, 2002). PMSs gradually overwhelmed single
financial measures after their emergence as they provide organisations with information
necessary for decision making and actions towards future improvement relating to the
achievement of strategy (Gunasekaran and Kobu, 2007).
With the contributions of many researchers as noted, performance measurement has
now evolved to a theoretical system, aiming to help organisations: identify success,
satisfaction level of customer needs, where problems exist, and where improvements are
essential; understand their processes and what they know or what they do not know;
ensure the appropriateness of every decision making; and indicate whether the expected
and planned outcomes have been met (Parker, 2000; Gunasekaran and Kobu, 2007).

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In management research (e.g. process management), performance measurement is a key


area as it is a critical process that has substantial impact on the success of an organisation
(Kagioglou et al., 2001; Bourne et al., 2003; Neely, 2004; Neely et al., 2005).
Performance measurements in PPP projects
Performance measurement, as discussed above, has received a considerable amount
attention and is now being applied in different areas, such as manufacturing, business
service, logistics, and supply chains (Skinner, 1974; Fitzgerald et al., 1991; Bagchi, 1996;
Beamon, 1999; Gunasekaran et al., 2001, 2004; De Toni and Tonchia, 2001;
Gunasekaran and Kobu, 2007). At project level, performance measurement is always
vital and relates to the realisation of project success, particularly in PPP projects
(Kagioglou et al., 2001; Yong, 2010).
Strategic objectives form the baseline of performance measurement (Solomon and
Young, 2007). PPP infrastructure projects have a common strategic objective:
the achievement of best value, which emphasises efficiency, value for money (VfM) and
performance standards (Akintoye et al., 2003; Zhang, 2006). This strategic objective
covers the issues in relation to the public clients overall strategic plan and mission
objectives, private sectors long-term development and payoff strategy, the general
publics requirements of quality public facilities and services (Yuan et al., 2009, p. 257).
VfM is a key component of best value. It has been viewed as the principal benchmark
of the strategic objective of PPPs (Akintoye et al., 2003; Henjewele et al., 2011).
The Treasury Taskforce (1998) of the UK states that PPPs should be used only if they
provide better VfM than traditional procurement. In essence, VfM can be defined as
the optimum combination of whole life cost and quality to meet the users
requirement (Office of Government Commerce, 2002, p. 6).
The VfM of PPP projects, in Australia and the UK, is typically determined and
revealed by the public sector comparator (PSC; Treasury Taskforce, 1999). The PSC is
a comparison between the cost of proposed PPP projects and the benchmark cost, which
is a cost-estimation of the specific service using traditional procurement (Grimsey and
Lewis, 2005). Due to the PSCs focus on cost, the performance evaluation for PPP
projects has been oversimplified by some of the research (e.g. NAO, 2000; Department of
Transport (DoT), 2002; Haskins et al., 2002; Fitzgerald, 2004; Blanc-Brude et al., 2006;
Allen Consulting Group (ACG), 2007). However, some values of PPPs in infrastructure
development may not be entirely reflected by cost, but by other issues such as project
completion time and quality (Yong, 2010; Henjewele et al., 2011). Public sector projects
regularly experience cost and schedule growth, especially those that have been procured
using traditional procurement methods (Grimsey and Lewis, 2004, 2005; Kwak et al.,
2009). As a result, several studies have attempted to incorporate time into the evaluation
of PPPs (Mott MacDonald, 2002; NAO, 2003; Raisbeck et al., 2010). Table I provides
a summary of the key studies that discuss PPP evaluations with the comparisons between
PPPs and traditional lump-sum projects. It can be seen that PPPs have generally
performed better than traditional projects. While Raisbeck et al.s. (2010) research is akin
to previous studies they reveal that PPPs generate slightly more (but almost negligible)
project delays than traditional procurement (2.5 v. 2.3 per cent).
The evaluation associated with VfM in a PPP project is a complicated process, and
the uses of absolute time and cost measures do not reflect the complexity of PPP
delivery (Office of Government Commerce, 2002; European Commission, 2003).
Henjewele et al. (2011) proffer that meeting clients requirements should be considered
as a core dimension in performance measurement of PPPs. Given the aforementioned

Authors

PPP projects

Arthur Anderson Enterprise LSE (2000)


NAO (2000)
DoT (2002)
Haskins et al. (2002)
Mott MacDonald (2002)

Cost:
Cost:
Cost:
Cost:
Cost:

NAO (2003)

Time: 76% on time


Cost: 78% on budget
Cost: 91% on budget
Cost: 7-23% savings
Cost: 24% overruns
Cost: 11% savings
Time: 2.5% overruns
Cost: 1.2-11.6%
overruns

Fitzgerald (2004)
Auditor-General of New South Wales (2006)
Blanc-Brude et al. (2006)
ACG (2007)
Raisbeck et al. (2010)

17% savings
10-20% savings
20% overruns
30-40% savings
50% savings

Traditional
lump-sum projects
n/a
n/a
n/a
n/a
Time: 4-39% overruns
Cost: 24-66% overruns
Time: 30% on time
Cost: 27% on budget
n/a
n/a
n/a
n/a
Time: 2.3% overruns
Cost: 13.8-91.5%
overruns

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Table I.
Key studies on
the performance
evaluations of PPPs

problems, Yuan et al. (2009) proposed a key performance indicators system (KPIS),
which involves a set of key performance indicators (KPIs) under five categories:
(1)

projects physical characteristics;

(2)

financial and marketing indicators;

(3)

innovation and learning indicators;

(4)

stakeholders indicators; and

(5)

process indicators.

Problems in current PPP performance measurements


Performance measurement is used to examine the effectiveness and efficiency of the
actions. However, it also involves the study and assessment of business processes,
strategies and outcomes. Rossi et al. (2004) suggest that an effective and comprehensive
performance measurement of a project should concern not only project input and
output, but also process and outcome (see Figure 1). Baccarini (1999) also defines
that the measurement for project success in construction needs to focus on the issues
associated with both product success (outcomes: project goal and purpose) and project
management success (e.g. input, process, and output). In practice, the deficiencies of the
existing systems used for measuring programme or project performance are caused by

Input

Process

Output

Outcome

Figure 1.
Comprehensive project
performance
measurement
Comprehensive Project Performance Measurement

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overlooking more or less components of the programme/project; and some focus too
much on inputs and little on outcome or some are completely concerned with outputs
(Funnell, 2000).
The exploration for the normative literature above (Table I) uncovers that most prior
studies conducted for PPP evaluations emphasise time and cost performances.
In other words, such evaluations for PPP projects primarily concentrate on either input
level or output quality and ignore the assessments for process and outcomes.
Yuan et al. (2009) found these problems and their proposed KPIS did encompass process
indicators and outcome issues (e.g. project objective). However, PPP projects possess
a more complicated process (e.g. project selection and definition, PPP option assessment,
getting organised, pre-tendering work; bidding, contract and financial close, contract
management, and ex post evaluation) than that of traditional lump-sum projects
(see Figure 2; EIB, 2012), and the developed KPIs related to processes in Yuan et al.s
KPIS are articulated to partnership phase (particularly project construction) and no
attempt was made to measure other phases (e.g. initiation and planning and
procurement) (see Figure 2). In fact, project initiation and planning and procurement are
important for the project success in PPPs (Raisbeck, 2008; Raisbeck and Tang, 2013).
As mentioned above, the existing performance measurements of PPPs are ex post
evaluations, which can be referred to as the product-oriented measurement in the
literature. According to Haponava and Al-Jibouri (2012), product-oriented
measurement is implemented after the project completion and is simply used for
review purpose; therefore, it cannot: capture the dynamic nature of project process;
and provide an insight into continuous performance control and improvement while

Planning and Design

Traditional
Lump-Sum
Projects

Per-Project
Stage

Construction and Evaluation

Design
Stage

Figure 2.
Existing performance
measurements of
PPP projects

Project
PPP Option
Selection
and Definition Assessment

Construction
Stage

Procurement

Initiation & Planning

PPP
Projects

Project duration, cost and quality


Health and safety
Stakeholder satisfaction
Productivity
Functionality
Dispute/conflict level
Technology transfer and management
Change and innovation
Resource/material managemant

Getting Pre-tendering
Organised
Work

Bidding

Ex Post
Evaluation

Partnership (Construction,
Operation and Maintenance)
Contract and
Contract
Financial
Management
Close

Ex Post
Evaluation

Project physical characteristics


Financial and marketing issues
Learning and growth indicators
Stakeholder satisfaction
Risk management
Time, cost and quality
Health, safety and environment
Resource utilisation
Governance
Interface management
Facility management
Conflict management

the project is being undertaken. However, business processes are dynamic and they
start with an objective and end with the objective achievement (Ould, 2005).
The inherent difficulties in PPP evaluation mostly originate from the dynamic
nature of the project process. Grimsey and Lewis (2002) argue that evaluating PPPs is
more difficult than that of traditional procurement as there are many components
(e.g. documentation, financing, taxation, technical details, and sub-agreements) and
risks (e.g. market risks and project risks) arising from the complexity of the long-term
contractual arrangement and they change dynamically over the project life-cycle.
With this in mind, ex post evaluation is unable to effectively and efficiently measure the
performance of PPP projects.
Future direction for PPP performance evaluations life-cycle evaluation
under PMS
It has been discovered that incomplete process measurement and product-oriented
evaluation are two main problems in existing performance measurements of PPPs.
On the basis of this finding, PPP evaluation should apply dynamic process-based
(life-cycle) measurement, where the evaluation for each project phase is a focus, rather
than the static product-based measure. The life-cycle process-based evaluation is
capable to not only capture the dynamic feature of the project processes, but also offer
a real-time monitoring for the process and whole project performance (Haponava and
Al-Jibouri, 2012; Liu et al., 2013).
Process-based evaluation is first proposed by Haponava and Al-Jibouri (2010, 2012) for
general construction project. It is a framework comprised of a series of process-based
KPIs. KPIs are measures that are indicative of performance of associated process
(Beatham et al., 2004, p. 106). Although KPIs have been widely applied in construction
(Songer and Molenaar, 1997; Lim and Mohamed, 1999; Love and Holt, 2000; Cox et al.,
2003; Sohail and Baldwin, 2004; Chan and Chan, 2004; Luu et al., 2008b; Haponava and
Al-Jibouri, 2010; Hwang et al., 2010; Lai and Lam, 2010; Idrus et al., 2011), their use
still received a great deal of criticism. For instance, KPIs are concerned with project rather
than company performance, and long-term corporate-related issues (i.e. strategies) cannot
be addressed properly in the KPI framework (Kagioglou et al., 2001; Bassioni et al., 2004).
One important principle in performance measurement is that performance
measures must reflect the context to which they are applied (Neely, 1999). A PPP is
normally undertaken by a Special Purpose Vehicle (SPV), which is a consortium
responsible for developing, building, operating, and maintaining a public asset that
is procured over a long-term concession period (Moszoro and Gasiorowski, 2008;
Zheng et al., 2008). Essentially, SPVs exhibit a dual character, implying that they are
operating in the context where goals at company and project levels must be met
(Kwak et al., 2009; Yong, 2010). In other words, the evaluations for PPPs should focus
on the outputs at both company and project levels within a long-term context.
Compared with KPIs, PMSs express a stronger ability in the balanced measurement as
they are the systems involving the measures related to long-term strategic and tactical
issues (del-Rey-Chamorro et al., 2003). In construction, PMSs have been used in the
measurements at industry, corporate and project levels (Alarcon and Ashley, 1996;
Kagioglou et al., 2001; Bassioni et al., 2005; Luu et al., 2008a; Chan, 2009). Against this
contextual backdrop, the process-based evaluation integrated with PMSs is deemed to
be more feasible for PPPs than the use of KPIs.
Over the last two decades, the BSC is undeniably the most reputable PMS applied
widely across industries (Gunasekaran and Kobu, 2007). The majority of the developed

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PMSs in construction research originate from the BSC (e.g. Kagioglou et al., 2001;
Bassioni et al., 2005; Luu et al., 2008a; Chan, 2009; Yuan et al., 2009). Despite its
widespread application, many criticisms were raised from researchers. Neely et al. (2001)
criticise that some measures of the BSC are too narrow to capture the factors essential to
business success. In the case of the stakeholder perspective, the BSC is not broad enough,
and it incorporates only customers and shareholders and neglects suppliers, alliance
partners, employees, regulators, and local community or pressure group, all of which are
critical to the performance and success of an organisation/project. Additionally, the BSC
fails to highlight the relationship between the measures proposed for certain goals
(Kagioglou et al., 2001, p. 87), and no mention is made to the contribution of stakeholders
to organisation (Mooraj et al., 1999). In summary, the components of the BSC cannot keep
pace with the increasingly changing nature of todays business, especially under the
conditions of multiple-stakeholder integration (Neely et al., 2001; Liu et al., 2013).
The BSC, as discussed above, has deficiencies in measuring organisational
performance against a multiple-stakeholder environment. However, an SPV
encompasses various parties, such as client, concession contractor and constituent
members; thus, an effective integration of multiple stakeholders is imperative for
delivering successful PPPs (Asian Development Bank, 2008; Chinyio and Gameson, 2009).
Accordingly, the BSC on its own cannot effectively capture the nature and context in
which PPPs operate and it might not be the most appropriate choice for PPP evaluation.
Based on the characteristics of PPPs, a performance measurement framework that
deals with multiple-stakeholder complexity is an ideal tool to underpin the performance
measurement of PPP projects. Bearing this perspective in mind, the Performance Prism is
more suitable as it is a more holistic framework structured to shed light on the complexity
derived from multiple stakeholders and assist with directing and guiding the design of
performance measurement for long-term success under a particular business environment
(Neely et al., 2001). Moreover, the Performance Prism addresses the reciprocal relationship
between the organisation and stakeholders, which can indicate not only how key
stakeholders contribute to the business success, but also what such contributions should
be strengthened to improve the performance of the organisation (Neely et al., 2002).
The sections above critically demonstrated what problems current PPP evaluations
encounter and why the life-cycle process-based evaluation can operationalise with
PPPs. It has been acknowledged that a comprehensive performance measurement
plays a decisive role in the success of PPP projects. Though it is important, the
research on this filed is limited (Yuan et al., 2009; 2012; Liu et al., 2013). So, this paper
is only a beginning and in the future research the development and validation of
a dynamic life-cycle PMS of PPPs will be the focus.
Conclusion
PPPs have been widely used to deliver social and economic infrastructure projects.
Critical to their successful delivery is effective performance measurement. This paper
has attempts to examine if current evaluation is robust enough to measure PPP project
performance. Against this question, an exploration has been conducted to review
the literature in regard to general performance measurement and PPP evaluation. From the
review, first, it can be identified that the existing PPP evaluation emphasising cost and
time performance is insufficient to evaluate PPPs. Second, the product-oriented nature
of conventional ex post evaluation is unable to capture the inherent complexities derived
from the development processes of PPP projects. To comprehensively and effectively
measure PPPs, the life-cycle (process-based) evaluation underpinned by a PMS

(i.e. Performance Prism) that deals with the multiple-stakeholder complexity needs to be
applied to replace conventional evaluation. The dynamic process-based performance
measurement framework can provide the impetus for real-time performance control,
and the improved service quality, while the projects are still being undertaken.
This paper has established a theoretical basis to the development of future
performance frameworks of PPP projects. Although the concept introduced and
discussed in the paper is theoretically significant, no validation has been provided
to support the argument. This is a research limitation, but on-going studies are in
process to fulfil this gap.
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About the authors
Junxiao Liu is a PhD Candidate at the Curtin University, Australia. Junxiao Liu is the corresponding
author and can be contacted at: junxiao.liu@postgrad.curtin.edu.au
Professor Peter E.D. Love is a John Curtin Distinguished Professor at the Curtin University,
Australia.
Jim Smith is a Professor at the Bond University, Australia.
Michael Regan is a Professor at the Bond University, Australia.
Dr Monty Sutrisna is an Associate Professor and Head of Department of Construction
Management at the Curtin University, Australia.

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