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EXTENSIONS AND ALTERNATIVES TO INSPECTION 32 INCENTIVE CONTRACTING Incentive contracting, widely used in the private sector, is a system whereby the contractor receives a bonus for performance above some pre-agreed base or norm, and is penalized for performance below that base. Such factors as cost, schedule, quality, safety, responsiveness, and management effectiveness may be negotiated as a basis for incentive payments, and amounts in the range of 0.33 percent to 1.0 percent of the construction cost are typical. In the committee's view, experience and research have shown that positive incentives for good performance are more useful than penalties for failure to meet targets. For such incentives to work, the plan for their use must be simple. Reward should be commensurate with the risk the contractor is asked to accept, and all participants must be committed to the success of the incentive plan and continuously act in each other's best interest. Incentive awards therefore work best when they are passed along to subcontractors and craftsmen on the project. The plan must be such that if one party to the agreement wins, all win. The incentive payments should be viewed not as additional costs, but rather as part of the savings achieved by the owner when the contractor performs particularly well. Use of as much quantitative measurement as is possible, consistent with making the plan simple, facilitates administration of the incentive contract. A team is formed to oversee evaluation and award of incentives, with equal representation by the contractor and owner. A higher level management team, also with equal representation of both parties, is formed to resolve disputes that may arise. In practice, the evaluation team typically reconciles differences rather than reporting to their superiors that they cannot arrive at a decision. INTEGRATED INSPECTION PLANS When construction is supervised by an organization other than the user, disagreements and user dissatisfaction can arise
