OPTID: Optimal Incentives and Disincentives

Abstract

Contracting agencies must be able to offer incentive/disincentive (I/D) rates greater than the builder’s added cost (BAC) of acceleration. Doing so encourages qualified contractors to bid on projects. Most agencies determine I/D amounts either by road user cost (RUC) or as a percentage of the total project cost. Estimating I/D rates that will motivate the expedited delivery of projects, exceed BAC, and remain below the overall monetary savings realized by the contracting agency is an exceedingly daunting task. To overcome this pressing practical challenge, this study developed and validated a novel decision support system that estimates optimized I/D (OPTID) rates. The OPTID model integrates the project duration estimate, contractor’s additional cost commitment, and RUC. An optimal I/D rate is then estimated via a systematic seven-step method. The practicality of OPTID was tested using a real-world highway rehabilitation project. The proposed OPTID model will provide local agencies with the first integrated tool that can be used to establish optimal I/D amounts. This research will help decision makers and planners make the most well-informed decisions when utilizing I/D contracting provisions.