Evaluation of Incentive/Disincentive Contracting Methods for Highway Construction Projects

Incentive/Disincentive (I/D) provisions are used by state highway agencies as a contract method when early completion is needed for a highway construction project. I/D can provide encouragement for contractors to complete highway construction projects by giving them incentives to finish ahead of the required schedule. The incentive amount should be enough to encourage contractors to accelerate their schedules while, at the same time, making up for any cost incur when doing so. Additionally, in order not to waste tax payers’ money, the incentives should be limited to a reasonable amount. Setting a cap for incentive is one of the most important procedures that Departments of Transportation (DOTs) undertake when drafting I/D contracts. This study evaluates different methods that have been used to set incentive and disincentive amounts for I/D contracts. The advantages and disadvantages of these methods are then examined and analyzed.