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Use of Incentive/Disincentive Contracting to Mitigate Work-Zone Traffic Impacts

Status: Complete

Description: Incentive/disincentive clauses (I/D) are designed to award payments to contractors if they complete work ahead of schedule and to deduct payments if they exceed the completion time. A previously unanswered question is, "Did the costs of the actual work zone impacts that were avoided justify the incentives paid?" This report answers that question affirmatively based on an evaluation of 20 I/D projects in Missouri from 2008 to 2011. Road user costs (RUC) were used to quantify work zone impacts and included travel delays, vehicle operating costs, and crash costs. These were computed using work zone traffic conditions for partial-closure projects and detour volumes and routes for full-closure projects. Conditions during construction were compared to after construction. Crash costs were computed using Highway Safety Manual methodology. Safety Performance Functions produced annual crash frequencies that were translated into crash cost savings. In considering an average project, the percentage of RUC savings was around 13% of the total contract amount, or $444,389 of $3,464,620. The net RUC savings produced was around $7.2 million after subtracting the approximately $1.7 million paid in incentives. In other words, for every dollar paid in incentives, approximately 5.3 dollars of RUC savings resulted. I/D provisions were very successful in saving RUC for projects with full-closure, projects in urban areas, and emergency projects. Rural, non-emergency projects successfully saved RUC but not at the same level as other projects. The I/D contracts were also compared to all Missouri Department of Transportation contracts for the same time period. The results show that I/D projects had a higher on-time completion percentage and a higher number of bids per call than average projects. But I/D projects resulted in 4.52% higher deviation from programmed costs and possibly more changes made after the award. A survey of state transportation departments and contractors showed that both agreed to the same issues that affect the success of I/D contracts. Legal analysis suggests that liquidated damages is preferred to disincentives, since enforceability of disincentives may be an issue. Overall, in terms of work zone impact mitigation, I/D contracts are very effective at a relatively low cost.

Report: 2012-incentive_disincentive_contracting.pdf 1.41mb (published 2012)

State conducting research: Missouri

Authors:

  • Sun, Carlos (University of Missouri, Columbia)
  • Edara, Praveen (University of Missouri)
  • Mackley, Andrew (University of Missouri, Columbia)
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