The impact of incentive mechanisms on project performance

Contractual incentives have been increasingly practised in construction projects. In this study, a questionnaire survey is carried out in the United Kingdom (UK) and the Republic of Ireland (ROI) to analyse the relationship between the use of incentives and the performance of a project. The analysis is made in a comparative way. First of all, four payment methods are compared in terms of their impact on cost performance. Secondly, incentive projects are compared with non-incentive projects in terms of time and quality performance. Thirdly, both time and quality performances are compared between the projects with a single incentive and those with multiple incentives. The analysis results provide empirical evidence for the significant impact of incentive mechanisms on project performance. Subsequent to the questionnaire survey, a case study is conducted to examine how to appropriately apply incentives in practice, revealing that the use of incentives aligns the contractor's objectives with the client's expectations in a project and in order to ensure the success of incentive mechanisms the contractor needs to make extra efforts for the enhancement of project management processes, the creation of collaborative working environments, and the motivation of his staff and workforce.

► The use of incentives plays an important role in achieving excellent performance.
► A single incentive may be more effective in a particular performance area.
► Multiple incentives may help to achieve an overall improvement of performance.
► Incentives combined with disincentives have more effects on project performance.
► The success of incentives requires various efforts, both internally and externally.