Guidebooks for Post-Award Contract Administration for Highway Projects Delivered Using Alternative Contracting Methods, Volume 1: Design–Build Delivery (2020)

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24 Incentive/Disincentive Program for Superior Quality  A‐99  24 Incentive/Disincentive Program for Superior Quality This tool is an incentive/disincentive program to encourage superior performance by the contractor in quality. It can also be used for safety performance, cost, environmental compliance, disruption to the travelling public, or other areas that align with the agency’s priorities. What is it? With this tool, the agency can incentivize superior performance by the contractor in areas that are deemed critical by the agency. In practice, agencies using this tool provide incentives, but not typically disincentives. Why use it? Obtaining superior performance on high priority construction tasks adds value to the project but does not require the agency to revise the agency’s performance criteria. Contractors can determine cost-effective means to achieve quality. Disincentives can motivate contractors to address concerns of the agency and non-compliance issues in a timely manner without implementing a dispute process. An incentive/disincentive program should set clear goals for the contractor to achieve. When these goals are achieved, an incentive payment is issued to the contractor. This is a bonus for superior performance. Some incentive programs direct the incentive payment to the workers involved in the activities. Disincentives are not commonly applied, as they are not seen as strong a motivator. The potential benefits include encouraging innovations that result in schedule acceleration and improved cost and schedule performance when rework is avoided. Incentive-disincentive program for superior quality addresses both the construction quality strategy and the construction efficiency strategy. Performance goals are clearly stated by the agency so the contractor can determine efficient means and methods to achieve the performance goals. When to use it? An incentive program for superior quality should be used in the construction phase. Incentives and disincentives should be used by the agency when the agency has clear goals about what aspects of a project would benefit from high performance. Disincentives may be deployed to penalize poor performance, delays in schedule, or delays in correcting substandard work. When a contractor performs work that meets or exceeds quality standards the first time, the agency saves money by not having staff dedicated to inspecting rework. This tool is recommended for all size projects and for moderately complex to complex projects. It may be used with non-complex projects if there is a particular aspect of the project that the agency wants to assure high performance or avoid rework.

24 Incentive/Disincentive Program for Superior Quality  A‐100  Table A24 Recommended uses for incentive/disincentive program for superior quality Contract administration phase Project complexity Project size A lig nm en t D es ig n C on st ru ct io n Cl os eo ut N on -c om pl ex M od er at el y co m pl ex C om pl ex ≤ $1 0 M $1 0 M - $5 0 M > $5 0M 24 Incentive/disincentive program for superior quality         = Recommended;  = Consider Case-by-Case;  = Not Recommended How to use it? The criteria for incentives should be objective, definable, and quantifiable, so they serve as accurate indicators of achievement by the contractor. Incentive criteria can be established in the contract, or by agreement after the contract is signed. For example, Washington State designated environmental compliance and pavement smoothness as key criteria on a project, with the contract clearly specifying the incentive/disincentive requirements and process. Alternatively, Arizona Department of Transportation inspection staff collaborated with the contractor’s construction and quality management staff on a specific project to develop detailed checklists on tasks that are candidates for non-conforming work. Checklist tasks are then weighted. Each checklist item is observed in the field and rated conforming, non-conforming, or not applicable (or cannot be inspected). The percentage of conforming items to the sum of conforming and non-conforming is calculated. Minimum standards are developed for safety, operability, durability, and appearance. Work that is removed scores no points, however, the rework may score points. Agency inspectors and the contractor work together to score the checklists. Incentive payments are reviewed and paid regularly, such as monthly or quarterly. Synthesis of examples The incentives provided by ADOT under this program are to incentivize the achievement of quality standards while avoiding rework. By reducing rework, ADOT anticipates a reduction in its own inspection and overhead charges for the project. However, it is difficult to set a dollar amount on any given incentive, and for an incentive to be meaningful, it may need to be larger than the potential agency savings from inspecting rework. It is important that any incentives that are set be objective, definable, and quantifiable, and measure the actual achievements of the contractor. It can also help to assess and pay incentives in

24 Incentive/Disincentive Program for Superior Quality  A‐101  increments in order to encourage high performance throughout an activity. Additionally, in both the ADOT and WSDOT examples, the responsibilities of project team members involved in the incentive program are clearly defined, and the steps for evaluating and awarding incentives are clearly described. This clarity is essential for the project team to achieve quality goals and avoid disputes. Some agencies determine that meeting performance standards such as quality is part of the contract and no additional incentives should be offered. An agency should have a strong rationale for offering any incentives, and undertaking the administration of a quality incentive program. 24 Example 1 US 60 (Grand Ave.) and Bell Road Interchange Project, Arizona Department of Transportation (ADOT) The agency included the incentive program for superior quality in the Request for Proposals (RFP) of this D-B project. Checklists were developed collaboratively, regular inspections of checklist items were conducted, and progress payments were made monthly. When incentive payments were made, the additional money went to the contractor’s staff that worked directly on these items. Operating a Superior Quality Workmanship Plan: The Department is offering an incentive to encourage the Design-Builder to operate a Quality Management Program that promotes superior workmanship. The desired goal is to accomplish work that is in conformance with project requirements on the initial effort. To accomplish this goal, checklists will be used for all Work elements. The incentive progress payment will be based on the Design-Builder’s ability to meet project construction requirements as measured by the checklists and iterations as required, while minimizing re-work and re-inspection activities. This provision is to provide incentive for the Design-Builder to develop, staff and operate an internal workmanship quality inspection process. The total monthly payment for incentive is a direct measure of the quality of Work and effectiveness of the Design-Builder’s inspection program. The format of the program is as follows:

24 Incentive/Disincentive Program for Superior Quality  A‐102  1. Items of Work selected for checklists will be based on the Department’s inspection personnel identification of potentially Nonconforming Work for more detailed inspection (judgment sampling). 2. The Design-Builder’s construction and quality management personnel shall form a team with the Department’s inspection personnel to create or revise checklists that detail requirements for the various items of Work that will be inspected. Work for which a checklist is required shall not begin until the checklist has been agreed upon. Items of Work may have more than a single checklist, dependent upon the characteristics of the work. The checklists shall be weighted for the various categories of work as determined by the Department in consultation with the Design-Builder team. 3. Checklists are included on the CD containing project information provided with this RFP Package. Checklists are intended to be “living documents” subject to changes, additions, and enhancements based on mutual agreement between the Design-Builder and the Department. Each line, or observation of a characteristic, on the checklist is as either yes (conforming), no (not conforming), or NA (not applicable or can’t be inspected). The percent conforming for each checklist is calculated by adding the number of yes answers, dividing by the number of yes answers plus the number of no answers, and multiplying by 100. Percent Conforming = {(# of yes) / (# of yes + # of no)} x 100 4. Each checklist will be categorized as shown in the following table relating to a) safety, b) operability, or c) durability and appearance. 5. To receive maximum credit, the work inspected must meet the following minimum standards on the first inspection: a) Safety – 97.5 percent, b) Operability - 95 percent, and c) Durability and Appearance – 90 percent. The Design-Builder will be given one point for each work item on the checklist for which it has met these goals*. A Work Item that is removed and replaced will receive a rating of zero points on the initial checklist that will be included in the pay incentive calculation. The replaced Work Item will be treated as new work with a new checklist and will have the potential to earn a full point on its initial inspection. 6. A member of the Department’s inspection personnel and member of the Design Builder’s conformance inspection staff will be responsible for filling out checklists. The completed checklist will be reviewed and signed by the appropriate construction representative (foreman, lead tradesperson, superintendent, etc.). The Department will keep all completed checklists and calculate the monthly incentive payment. All checklist conformance

24 Incentive/Disincentive Program for Superior Quality  A‐103  calculations will be performed immediately upon checklist completion. If rework for any checklist is not performed, the reason should be stated in the space provided on the checklist for comments. Checklist Performance Goals versus Checklist Categories Workmanship Inspection Checklist Categories Checklist Performance Goals Measurement by Examination Dimensional Measurement a) Safety: Goal = 97.5 percent conformance Traffic Control Job Site Safety Concrete Barrier Guardrail Crash Attenuators Signs Traffic Signals (Others as Required) (Developed as Required) b) Operability: Goal = 95.0 percent conformance Curbs, gutters, sidewalks, driveways Drilled shafts and other deep foundations, Portland cement concrete pavement Electrical underground materials Electrical hardware and wiring Reinforced concrete pipe (Others as Required) Reinforcing steel tolerances Reinforcing steel cover Concrete member dimensions (Others as Required) c) Durability & Acceptance: Goal = 90.0 percent conformance Aggregate base Concrete Materials Concrete Curing Bituminous Tack Coat Asphaltic Concrete Concrete structures Landscaping National Pollutant Discharge Elimination System (NPDES) Protection Grading Rubberized Asphalt (Others as Required) (Developed as Required) *Note - Reaching these checklist goals does not constitute acceptance of the work and does not terminate rework on non-conforming items. If field changes are subsequently approved by the Engineer, the Design-Builder will not be eligible for the incentive. To reiterate, the goal of the Superior Quality Management Plan is to accomplish work in conformance with project requirements on the initial effort. 7. Each time that a checklist Work Item is reworked and re-inspected, a checklist will again be used for measurement. Categories that have been improved to meet the above goals on