W4_Doyin_Contracting Incentives

1.       Problem Recognition, Definition and Evaluation:

Incentive contracts are designed to achieve specific acquisition objectives such as:

Establishing reasonable and attainable targets that are clearly communicated to the contractor

      Discourage contractor inefficiency and waste.

In view of the various types of incentive contracts available,  Multi-attribute decision making process is employed to make decision .

2.       Development of Feasible Alternatives.

In Project Management, Incentive Contracting methods include:

·         Cost-plus-incentive-fee contracts (C+I)

·         Cost-plus-award-fee contracts (C+A)

·         Cost/Time plus Incentive/Disincentive(A+B)

·         Fixed-price incentive (firm target) contracts (FPI)

·         Fixed-price incentive (successive targets) contracts.( FPI(ST))

·         Fixed-price contracts with award fee(FPI(AF)

3.       Development of the outcomes and cash flows for each alternative

These alternatives will be considered based on the following attributes

·         Scope Definition:  

·         Risk

·         Cost

·         Time

·         Technical Performance

·         Contract Improvement

·         Gains

·         Loss

4.       Selection of Criteria

Table 1. Alternatives

Attribute	C+I	C+A	A+B	FPI(FT)	FPI(ST)	FPI(AF)
Scope Definition	Very Good	Poor	Excellent	Good	Poor	Good
Risk Exposure	Significant	Minimal	Minimal	High Risk	Average	Average
Cost	Satisfactory Reduction	Increment	Stable	Satisfactory Reduction	Satisfactory Reduction	Satisfactory Reduction
Time	20% reduction	10% reduction	32% reduction	5% reduction	5% increment	2% increment
Technical Performance	High	Low	Very  High	Meaningful Impact	Low	Cannot be measured objectively
Contract Improvement	Significant	Insignificant	Significant	Significant	Low	Insignificant
Gains	5%	5%	50%	10%	0%	0%
Losses	2%	3%	0%	2%	5%	5%

The most important attribute is time and cost reduction which is the bane of Project Management.

5.       Analysis and comparison of the alternatives.

This is done by using the non-compensatory model called Disjunctive Resolution method evaluates each alternative on the best value achieved for any attribute.

Table 2- Feasible Range.

Attribute	Minimum	Maximum
Scope Definition	50%	100%
Risk Exposure	1%	5%
Cost	10%Reduction	20% Reduction
Time	10% Reduction	40% Reduction
Gains	10%	Unlimited
Losses	0	10% 0f Profit
Technical Performance	5%	10%
Contract Improvement	2%	7%

Comparing table 1 with the acceptable Standard, Cost-plus-incentive-fee contracts and Cost/Time plus Incentive/Disincentive (A+B) are the two most feasible alternatives.

The Additive Weighty Technique of Compensatory model is also being used for this analysis in

Table 3 - Additive Weighty Technique

Attributes	Step 1 Relative Ranking	Step2: Normalized Weight (A)	(B)	C+I	C+A	A+B	FPI(FT)	FPI(ST)	FPI(A)
Scope Definition	6	6/36=0.17	0.17	0.034	0.003	0.156	0.001	0.035	0.002
Risk Exposure	1	1/36=0.03	0.03	0.024	0.033	0.030	0.014	0.016	0.012
Cost	7	7/36=0.19	0.19	0.095	0.100	-3.80	0.032	0.011	0.023
Time	8	8/36=0.22	0.22	1.070	1.022	6.100	1.000	1.200	1.078
Technical Performance	5	5/36=0.14	0.14	0.084	0.056	0.112	0.020	0.036	0.024
Contract Improvement	4	4/36=0.11	0.11	0.066	0.043	0.066	0.011	0.022	0.011
Gains	3	3/36=0.08	0.08	0.004	0.001	0.016	0.022	0.015	0.016
Losses	2	2/36=0.06	0.06	0.012	0.011	-0.01	0.009	0.005	0.028
Sum	36	1.00		1.390	1.734	2.600 Best Choice	1.109	1.340	1.194

                                                                                                                               

6.       Selection of the preferred alternative

The best Choice is Cost /Time Method (A+B)

7.       Performance Monitoring.

·          Time of Completion against the Scheduled time

·         Actual Project cost against the Budgeted Project Cost.

8.       References

1. Sullivan,W.G, Wicks,E.M, & Koelling, C.P (2012). Engineering Economy (15^th edition.)(Chapter 14) New Jersey, NJ. Pearson Higher Education, Inc.

2. Giammalvo, P.D (2012, October 22). Integrated portfolio (asset), program (operations) and project management methodology course (Power Point slides) (An AACE methodology course). Day 5 (pp 73-91) Lagos.  Nigeria.

3. Randall, C.B & Lynn, W. (Sept 2007) Contract Management □ 21. I N C E N T I V E C O N T R A C T S(Pp 18-22)  Retrieved from: www.ncmahq.org/files/Articles/F5720_CM0907.pdf.

4. Ashley .M (Dec 2010), Incentive Contracts for Sub part 16.4. Retrieved from: code210.gsfc.nasa.gov/education/Incentive Contracts.ppt

5. Fadaunsi.F. (Nov 2012) Folakemi_ Filling_Vacant Roles . AACE Preparatory Class of Oct 2012. Retrieved from:bistro12.blogspot.com/2012/11/w4