Incentives/Disincentives

Incentive/Disincentive (I/D) is an alternative contracting technique that uses incentive monies, which are paid to the contractor for early completion of a project as provided for in the contract. Disincentive monies are subtracted from the contractor for completing the project later than time allowed by the contract. The Incentive/Disincentive technique may be a stand-alone method, or may be applied to other alternative contracting techniques including No Excuse Bonus, A + B, Liquidated Savings, Lane Rental, Design Builds or any combination.

I/D are assessed on a daily basis and can be used to achieve specific milestones within a project or to encourage timely completion of the total contract. If intermediate milestones are used, it is recommended that a milestone also be placed at the end of the project to ensure overall reduction of contract time.

ID for a particular project is set by the Department based on daily road-user costs, the CEI and administration cost expended by the Department. The incentive payments to the contractor are programmed in the fiscal year in which the incentive payment is expected to be made. Expected payout will occur when the contractor has met the early completion dates noted in the contract.

There are two types of I/D contracts: (1) Linear – the contractor receives or is charged the same daily amount regardless of the number of days completed, early or late, and (2) Non-Linear (Escalating Incentive/Disincentive in which the failure-to-work provision applies to incentive) – the earlier or later a job is completed, the greater the daily amount paid to or assessed against the contractor.

This concept can be used on a wide variety of project types and is best applied when the Department is willing to pay the contractor to expedite the work to reduce the contract time. It is similar to the A + B concepts in that it works well with urban reconstruction and bridge related projects.

The Daily Report of Construction (Form No. 700-010-13) as well as the Engineer Weekly Summary (Form No. 700-010-14) will serve as the support documentation for payment. Each set of the above project form will show the following statements: 1) “Today is the first day or the beginning milestone day of the Incentive/Disincentive phase of this contract”; 2) “Today is the last day of the incentive/disincentive phase of this contract.”

(Same information required on a site-manager project)