Optimal Contract Mechanism Design For Performance Based Contracts

Download or read book Optimal Contract Mechanism Design for Performance-based Contracts written by Diwakar Gupta and published by . This book was released on 2011 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report explores the possibility of implementing a performance-based contract (PBC) in highway construction and maintenance. PBC allows a state transportation agency (STA) to use an incentive structure to induce the contractor to take a long-term interest in the functionality of the highway without excessive cost to the STA. First, an overview of contract mechanisms and existing PBCs in industry is provided. Then, a summary of performance-based specifications illustrates that contractors can adopt construction and maintenance policies to significantly improve pavement performance. Finally, a framework for choosing PBCs to achieve STAs' goals is provided, with a discussion of some of the difficulties associated with implementation. It can be seen that, in a competitive bidding process, the additional cost of incentives is not larger than the additional value gained by higher-quality work.