Mitigating the legal challenges of imposing disincentives on nonperforming transportation projects

The publication presents an analysis of the cost and schedule performance of incentive/disincentive projects and case studies toward developing a systematic disincentive valuation process, with Construction Analysis for Pavement Rehabilitation Strategies (CA4PRS) software integration that aids agencies in minimizing the likelihood of court challenges of disincentives.

From a California transportation database, the authors performed cost and schedule analyses of 43 incentive/disincentive (I/D) projects and case studies on four of those I/D projects. Interviewees included subject matter experts from transportation organizations to ensure applicability and maximum value-adding, and the process was implemented on ten California transportation projects and monitored for performance.

The presented process mitigates the contractor's ability to claim disincentives as penalties in a court of law through the following: (1) all calculations are performed using project-specific bases, backed by estimations of actual incurred costs; (2) the CA4PRS software allows for estimation transparency and (3) the clarity of cost inclusions reduces any chances of “double-dipping” between disincentives and liquidated damages.

Transportation agencies have historically faced legal challenges to their enforcements of disincentives. As agencies continue to apply disincentives on more megaprojects, contractors will likely attempt to pursue legal challenges more frequently. The presented process mitigates the likelihood of these challenges going to court and increases the accuracy and efficiency of disincentives.

While there have been publications that discuss the legal challenges of imposing disincentives, they mainly provide guidelines and lack applicable processes. Existing literature that does present incentive/disincentive valuation process focuses on incentive valuations and neglects the disincentives' legal challenges. The following publication fills this gap by presenting an applicable disincentive valuation process for transportation projects which incorporates the guidelines for legal mitigation.