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NS771: Best practices for using incentives vs. disincentives in contracting
Problem and objectives
Most agencies use a low-bid system to select contractors, awarding projects to the lowest qualified bidder to ensure efficient use of public funds. While this approach helps control costs and promote fairness, it can sometimes result in lower quality work or project delays.
To address these issues, local agencies can incorporate incentives (to reward early completion, novel, or high-quality work) and disincentives (to discourage delays or poor performance) into contracts. However, there is limited guidance available on how to implement these tools effectively.
This project will develop best practice materials to help local agencies use incentives and disincentives more effectively in contracting. To achieve this, the research team will:
- Review Minnesota specifications related to contracting and the use of incentives and disincentives
- Conduct a literature review of other states’ use of incentives/disincentives
- Survey local agencies to identify successful and unsuccessful uses of these tools, including lessons learned and real-world examples
- Create a Frequently Asked Questions (FAQ) resource to provide clear, practical guidance on how and when to apply incentives and disincentives in public contracts
- Quantify user benefits from schedule incentives
- Explore implementation success with contractors/contracting association focus groups
Suggested deliverables
- Best Practices Guide for incentives and disincentives in contracting including language and documents to support using incentives and disincentives for specific bid items.
- A FAQ regarding incentives and disincentives in contracting
- Research report detailing study findings
Relation to Previous Research
Expected benefits
The numbers 1 and 2 indicate whether the source of the benefit measurement is from:
- A specific research task in your project that supports measuring this particular benefit, or
- Implementation of the research findings (anticipating positive results)
- User Benefits: (2)
- Support agencies in ensuring that they receive quality products where they want it the most.
- Risk Management: (2)
- Support agencies and contractors in directing resources to desired outcomes for specific projects.
Possible members for technical advisory panel
- Tim Becker, Sibley County
- Jason Fisher, Bolton-Menk
- BK Kormah, MnDOT State Aid
- Mike Flaagan, Pennington
- Mark DuChene, Faribault
- Justin Bergerson, Isanti County
- Ryan Fielding, Beltrami County
- Maria Masten, MnDOT OMRR
- John Garrity, MnDOT OMRR
- Gerritt Bangma, Kimley Horn