Incentive/Disincentive Guidelines for Highway Construction Contracts

Abstract

Contract incentives have traditionally been used as a means of aligning the goals of the contracting agency with those of the contractor. One area in which contract incentives are used is highway construction and refurbishing. The use of incentives and disincentives (I/Ds) for project completion time has helped highway agencies in various states to reduce construction time significantly. However, I/D provisions increase costs to the contracting agency, and should therefore be used sparingly. For these types of contracts to succeed, it is necessary for the contracting agency to be extremely careful in the development, documentation, and execution of I/D clauses. In this research, the current use of I/D contracts in many states and the experience of several contractors were examined. Then, a general set of guidelines was developed for the use of I/D provisions in highway construction or refurbishing contracts. The guidelines aid in determining which projects should contain the I/D provisions and how to structure the I/D provisions to achieve maximum success.