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Many different types of time-related I/D (incentive/disincentive) provisions are in use or have been used by state transportation agencies (STAs).  At the most basic level, I/D provisions can be categorized into two groups:  A+B and I/D.  The primary distinction between these two types is that the contractor determines the contract duration for an A+B contract while the STA specifies the contract time for an I/D contract.  There are many variations and local modifications on these two basic provisions with state and local laws often impacting the details of time-related provisions.  These variations can be confusing because STAs use similar I/D provisions that have different names.  One common factor shared by every STA is the use of liquidated damages.  The U.S. Code of Federal Regulations (23 CFR 635.127) requires STAs to establish liquidated damages that, at a minimum, recover the STAs estimated daily construction engineering costs for overruns in contract time.  All I/D provisions are used in conjunction with liquidated damages, meaning that the disincentive portion of an I/D provision consists of more than just the minimum agreed to daily engineering construction costs that will be recovered in the case of late completion of a milestone or project.  Road User Cost (RUC) is the most common item included in both the incentive and disincentive rate for a highway project.  Technically, there is not a difference between a disincentive and liquidated damages.  They are both contractual provisions in which both parties agree to the payment of a monetary sum that is estimated fairly and would prove to be difficult or impossible to quantify after the fact.  However, in practice, there is a considerable difference between liquidated damages and disincentives because the addition of RUC significantly increases the agreed to monetary sum that is applied for late completion.

 

Because there is such a diversity of I/D provisions and names found in use at STAs, the following I/D types were defined by the Trinity team to establish a common reference.  In practice, these I/D types are frequently used in combination and often modified to conform to local practices and local statutes.

 

Contractors are motivated to complete a project and critical items of work (milestones) within the number of days determined by the contracting agency through an addition to the contract amount for early completion or a deduction for late completion.  Calculation of the final incentive or disincentive is the product of a daily rate established by the contracting agency multiplied by the number of days of early or late completion.

 

Calendar Day:  Every day listed on the calendar, regardless of whether work is accomplished or allowed by other specifications.

 

Working Day:  Any day on which work is planned and could be performed; weekends and holidays are frequently omitted from a working day contract.

 

The contracting agency establishes a fixed date for completion and a calculation of the incentive or disincentive.

 

Determination of the low (successful) bidder is based on the sum of cost (A) and time (B).

 

"A" Portion  =  Traditional contract cost; the sum of unit prices multiplied by contract quantities

 

"B" Portion  =  Time bid; the product of number of days determined by the contractor multiplied by the daily rate determined by the contracting agency

 

The bidder determines the contract duration (B).  Contract award is made to the bidder that has the lowest combined total of cost (A) and time (B).  However, no incentive is offered for early completion, nor is any disincentive assessed for late completion other than normally specified liquidated damages. Standard specifications are applicable for determining actual contract time used.

 

Contract duration is determined by the bidder.  Award is made to the bidder that has the lowest combined total of cost (A) and time (B).  Incentive is paid for early completion or disincentive is charged for late completion.  Actual contract time may be determined by standard specification or by other methods according to special provision(s) of the contract.

 

Multiple time values (B1, B2, Bn) represent critical milestones for which the bidder determines the contract duration and the agency determines the daily rate that is applicable to each milestone. Individual incentives or disincentives are applied to the actual completion of milestones.

 

Charges for closing a lane to traffic during construction are established by the contracting agency.  These charges are based on a rate of dollars per day, dollars per hour or dollars per fraction of an hour.  Bidders determine the amount of lane rental (lane closure duration x closure rate) needed for completion of the project.  In the case where the cost of lane rental is included in other items of work, the contractor is paid for the estimated lane rental and then actual lane rental is deducted from contract revenues, resulting in an incentive or disincentive for completing the project within the estimated lane rental.  When lane rental is included as a contract pay item, any underrun in the total lane rental incurred may or may not be paid to the contractor depending on the specification language.

 

Now that you know the lingo, next week we’ll see who is doing what with I/D contracts.

 

G Fick, E Cackler, S Trost and L Vanzler, Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts, NCHRP Report 562, Transportation Research Board, Washington, DC, 2010.