Incentive/Disincentive Contracts: Perceptions of Owners and Contractors

Abstract

Incentive/disincentive (I/D) contracting has developed from basic cost- and profit-sharing arrangements between an owner and a contractor. To motivate the contractor to put in an extra effort to realize one or more project objectives of an accelerated, costly, and complex undertaking, the owner may offer an award to the contractor. The owner may also threaten the contractor with a penalty if the objectives are not met. This paper reviews the fundamental incentive/disincentive arrangements in contracting literature. Then, results are reported of a survey conducted on a sample of Illinois DOT highway contracts that included I/D provisions. The survey investigates whether there exists an agreement or disagreement between IDOT's and the contractors' perceptions of I/D contract provisions. The findings reveal how I/D contract milestones are established, how they are executed, what kind of work practices the contractor uses to fulfill I/D targets, and how the contracting parties perceive I/D contracts' effectiveness as opposed to non-I/D contracts. Certain issues pointed out by the respondents as problematic and in need of further refinement in I/D applications are also highlighted.