Projects with Incentive Provisions

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Construction staff are to minimize changes to incentive provisions within construction contracts. The procedures outlined below should be followed when proposing changes to incentive contract provisions and when making final incentive determinations.

Incentive payment determination must follow provisions set forth in the contract. Provisions in the progress clause, special provisions, and specifications outline the process of how to determine the amount of incentive or liquidated damages. These contract provisions must be used to determine the amounts due or assessed. If a highly unusual condition or situation is encountered on a project, there may be a basis to modify the contract to change the method of determining the amount of the incentive or liquidated damage. Changes in the provisions may be approved only when circumstances arise of a highly unusual nature, which forces the department to revise the methods shown in the contract.

When the need arises to modify the method in which incentive or liquidated damages are determined, the process outlined below is to be followed:

  1. Circumstances surrounding the proposed change are to be discussed with the Region Engineer, Engineer of Construction Field Services, Region Construction Engineer, and the TSC Manager. A consensus must be reached as to the appropriateness of the proposed change. Final MDOT approval will be the responsibility of the TSC Manager.
  2. The proposed modification to the contract must be discussed with and approved by the FHWA area engineer prior to final MDOT approval.
  3. A thorough analysis must be done and documented in the project files to show the basis for the modification including why the existing contract requirements were modified and what the benefits are to the department and the public.
  4. Process a contract modification to obtain approval. The contract modification must include the complete justification and explanation of the change in the method of determining the incentive or liquidated damage value.

The TSC manager must review and approve all incentive determinations to ensure that the incentive payment has been determined in accordance with the contract language. This review and approval is documented on form 1105, Final Estimate Submittal Form.

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