reflection and integration

Incentives in Contractual Relationships



Incentives are standard contractual instruments used in relationships to control the actions and conduct of the contracting parties. There are several forms of bonuses, such as fixed-price contracts, share-in-saving incentives, and cost-plus incentives. The goal of the current paper is to address the kinds of rewards that can be defined in the contractual relationship and how the incentives can be implemented.



Types of rewards and their integration



Generally speaking, construction partnerships have benefits that have cash compensation, but there are also other financial incentives that are designed to encourage people or organizations to enter into the agreement. Contractual Incentives



In construction partnerships, an interesting conundrum emerges as far as alignment of objectives is concerned. Contractual incentives in construction partnerships have two aspects: aligning objectives of the parties involved, and apportioning payments to such objectives. The contracts of construction parties, therefore, have incentives schemes such as payment of bonuses in case of early completion of a project, charges in case of late completion of projects and use of cost allocation methods to determine the prices of materials used in a project (Bresnen & Marshall, 2000).



Extra-contractual Incentives



Other than the traditional contract incentives, there are other incentive schemes in the construction sector aimed at building long-termed relations within the parties. These incentives are included in the partnership contracts, for instance, tax holidays for a construction firm that operates within the law and does not endanger the employees.



Conclusion



In conclusion, incentive schemes used in the construction sector are either monetary or non-monetary. Monetary incentives are those that result in a direct financial benefit to the recipient while the non-monetary results into an indirect financial benefit to the recipient. These incentives are broadly classified as either contractual incentives or extra-contractual incentives.



Reference



Bresnen, M., & Marshall, N. (2000). Motivation, commitment and the use of incentives in partnerships and alliances. Construction Management & Economics, 18(5), 587-598.

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