Twinning Time and Cost in Incentive-Based Contracts

Abstract

The work presented in this paper focuses on contractual management of projects using a unique risk-management–driven strategy in which the twin variables of time and cost play a fundamental role. To illustrate the conceptual basis of this technique, an example project is presented first. Through the application of the writer's methodology to this project it has been shown how an incentive scheme could be set as the main contractual strategy with significant potential savings in both time and cost. The mean and 90% characteristic value for construction duration and cost, respectively, are estimated by the owner first using the writer's probabilistic forecasting method. These are used to specify an incentive scheme within which the two primary risk variables of time and cost are managed jointly by the owner and the contractor. Contractual issues such as owner's tender strategy, contractor's risk assessment, scope variation, and rise and fall adjustment have also been considered briefly.