Which of these is the most effective way of incorporating performance incentivisation into sub-contract agreements?

Question

KPI's
Milestone Bonus payments
Pain/Gain incentivisation
Outcome profit share

What are your experiences and what other solutions might I consider ?

Andrew Crawford · Answer

Steve

I would discount KPI's as in my experience there is no reward, its a management tool with no incentive. The other three have a monetary incentive and therefore are likely, although not certain, to bring some improvement.

I've had some experience with milestone/bonus payments and pain/gain and would say that my preference is the pain/gain. The main reason for this is that the incentive is judged at the end and it is only at this stage can you really sit back and make an informed judgement on the outcome of the project

Milestone/bonus payments are in stages, so whilst you may achieve stage 1, for example and obtain that bonus payment, if you fail on stage 2 or 3, then the project itself overall has not benefited 100%. People tend to remember the bad times, rather than the good time.

Whilst I have not used outcome profit share, I can see that this would be a useful tool as again it is judged at the end of project.

Other options to consider, on the basis that there is more than one project in the pipeline, is the potential to be awarded another similar contract and/or be included under a framework agreement where a minimum annual spend is agreed, if the performance criteria is met on the current proposed contract. Obviously issues such as price, time etc would need to be fixed as part of that agreement.

Which of these is the most effective way of incorporating performance incentivisation into sub-contract agreements?

Procurement

Sub-contract

Steve Hardy

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