Incentive/Disincentive Guidelines for Highway Construction Contracts

An optimal time incentive/disincentive -based compensation in contracts with multiple agents

“…Abu-Hijlen and Ibbs (1989) argued that if early completion produces a sizable and early return on investment, the principal could afford to share a proportion of the expected benefits and create an incentive for the agent, one example being the use of time incentive contracts in highway projects which has helped to significantly reduce construction time (Arditi and Yasamis, 1998). Jaraiedi et al (1995) pointed out that a project should be considered as a target time arrangement when, due to the safety of the community, road users, and/or the agent's employees, the project needs to be finished in the shortest possible time. Investigating the experience of U.S. highway agencies in incentives, Jaraiedi et al (1995) concluded that incentive contracts work more effectively in reducing delivery time than in cutting costs.…”

“…Jaraiedi et al (1995) pointed out that a project should be considered as a target time arrangement when, due to the safety of the community, road users, and/or the agent's employees, the project needs to be finished in the shortest possible time. Investigating the experience of U.S. highway agencies in incentives, Jaraiedi et al (1995) concluded that incentive contracts work more effectively in reducing delivery time than in cutting costs.…”

Analyzing Decision Making in Alternative Contracting for Highway Pavement Rehabilitation Projects

“…This contracting method is based on including a special provision in the construction contract that awards the contractors for each day the work is completed ahead of schedule while it imposes penalties on them for each day the work is completed beyond the schedule (Jaraiedi et al 1995, CDOT 2006, ODOT 2006.…”

“…However, since the incentive amount act as a bonus for the contractor and the task of determining the original project duration is still with the SHA, the risk bared by the contractor remain the same as with the traditional contracting (NYSDOT 1999) which makes the calculation of the additional costs that the contractor will incur focus on how to estimate the contractors' additional productivity and resources utilized. Nonetheless, existing research concerned with determining the impact of the I/D contracting method only focus on: 1) helping the contractor with their bid preparation process for the I/D contracting method by adding the ID value, predetermined by the SHAs, to the construction cost ; 2) setting the maximum incentive to be assigned for a given project based on the value of the DRUC (Shr andChen 2004, Jiang et al 2010); 3) developing models for calculating the contractors' cost of time reduction based on the SHAs engineers judgment (Sillars and Riedl 2007); 4) developing models for calculating the cost of time reduction, from the contractors' perspective, without incorporating any trade-off with the desired reduction in duration (Choi 2008);and 5) providing generic guidelines for selecting the appropriate value for the ID without providing a method for the calculation of the actual value (MnDOT 2005, Jaraiedi et al 1995. Despite the important contributions of all of these research studies, there is a research gap in this area as no studies are aimed at quantifying these parameters from the SHAs' perspective (Choi et al 2013), and none of them addressed the impact of the I/D contracting method on the trade-off between the desired duration reduction, the value assigned to each day of the project, and the project's cost.…”

“…On the other hand, in order for the contractor to be able to reduce the project's duration, additional resources have to be committed which is reflected in an increased cost. Hence, to motivate the contractors to accelerate the project's duration, the incentive offered must be more than the additional cost that they will incur (CC) (Jaraiedi et al 1995). These constraints can be expressed in the form of the following inequality:…”