Incentive Mechanisms for Project Success

TLDR

Incentive contracting principles are well established, yet recent emphasis on using incentives has heightened the need for a deeper understanding of their principles and techniques. The study describes the key features of motivation and incentive contracting. The authors outline and compare three real contracts, focusing on the incentive mechanisms employed. They found that incentive arrangements must align client and contractor needs, correctly allocate risk, and permit an appropriate level of client involvement.

Abstract

The principles of incentive contracting are long standing. In recent years, however, there has been a greater emphasis on the need to use incentives whenever possible. Consequently, there is a growing requirement for a more thorough understanding of the principles and techniques involved. In this paper, the key features of motivation and incentive contracting are described, and three real contracts are outlined and compared with particular attention to the incentive mechanisms used. The writers found that incentive arrangements must align the needs of the client and contractor, correctly allocate risk, and allow an appropriate level of client involvement.