OPTID: optimal incentives and disincentives

Kunhee Choi*, Junseo Bae, Young Hoon Kwak

*Corresponding author for this work

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Abstract

Contracting agencies must be able to offer incentive/disincentive (ID) rates greater than the builder’s added cost (BAC) of acceleration. Doing so encourages qualified contractors to bid on projects. Most agencies determine ID amounts either by road user cost (RUC) or as a percentage of the total project cost. Estimating ID rates that will motivate the expedited delivery of projects, exceed BAC, and remain below the overall monetary savings realized by the contracting agency is an exceedingly daunting task. To overcome this pressing practical challenge, this study developed and validated a novel decision support system that estimates optimized ID (OPTID) rates. The OPTID model integrates the project duration estimate, contractor’s additional cost commitment, and RUC. An optimal ID rate is then estimated via a systematic seven step method. The practicality of OPTID was tested using a real-world highway rehabilitation project. The proposed OPTID model will provide local agencies with the first integrated tool that can be used to establish optimal ID amounts. This research will help decisionmakers and planners make the most well-informed decisions when utilizing ID contracting provisions.
Original languageEnglish
JournalJournal of Management in Engineering
Volume37
Issue number5
Early online date14 Jul 2021
DOIs
Publication statusPublished - 1 Sep 2021

Keywords

  • incentives
  • contracting
  • project acceleration
  • road user cost
  • level-of-service
  • net present value

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