Concepts for Incentivizing Contractor Performance
RT-114 was charged with developing a breakthrough approach to compensate contractors based upon the overall business success of a venture. It is important to note that compensation was interpreted broadly to include reward, recognition, payment, future opportunities, expanded roles, and reduced risk. “Breakthrough approach” was defined as a dramatic improvement, a step change in performance, and/or the fundamental rethinking of concepts.
The team compiled an overview of current industry practices, analyzed survey results, and held a national workshop to explore topics that include:
- Business objectives of the project
- Mechanisms used to communicate objectives to project personnel
- Development of compensation plan
- Details of compensation plan, including contract terms
- Impact of compensation scheme on performance
- Views on compensation method effectiveness and improvements
Traditional engineering and construction contracts perpetuate competing interests between owners and contractors. As such, typical contracting strategies, such as alliances, team autonomy, and incentive contracting, do not always foster a successful project partnership.
The application of innovative contractor compensation strategies should not be considered an “end all” solution to project performance improvement. Such strategies instead should be considered one more important tool in a project team “tool kit” to be applied in conjunction with other CII best practices such as partnering, team building, team alignment, open communications, setting project objectives, and pre-project planning.
