Acceptance of the Incentive/Disincentive Contracting Strategy in Developing Construction Markets: Empirical Study from India

Abstract

Modern construction projects often include incentive/disincentive (I/D) provisions in order to serve a variety of different client objectives. Studies have shown both the advantages and disadvantages of using I/D clauses to improve performance. In India, out of 82 construction projects of varied size and nature investigated, only 14 projects of a critical nature were found to have I/D clauses in their contract document. The present study was carried out to identify various attributes affecting the successful use of I/D clauses in achieving their intended purpose. A total of 25 attributes were identified based on a literature review and structured personal interviews that present practical difficulties while using the I/D contracting method and thus, prevent I/D clauses from unlocking their true potential. These attributes have been evaluated based on the results of a survey conducted among experienced professionals working in the Indian construction industry. Factor analysis conducted on responses associated with important attributes identified five key factors: difficulty in contract management, additional effort by project participants, adverse effect on the working relationship of the client and contractor, increased responsibility of the client, and client’s reluctant top management. These factors also explain the reason behind the low acceptance of the I/D contracting method in developing construction markets. Case studies performed in four construction projects show that three out of four projects discussed were delayed due to inadequate understanding and wrong implementation of I/D provisions. This paper will be of interest to academicians and practitioners interested in the use of the I/D contracting method in construction projects.