Minnesota Department of Transportation Research Services Section
This report explores the possibility of implementing a performance-based contract (PBC) in highway construction
and maintenance. PBC allows a state transportation agency (STA) to use an incentive structure to induce the
contractor to take a long-term interest in the functionality of the highway without excessive cost to the STA. First,
an overview of contract mechanisms and existing PBCs in industry is provided. Then, a summary of performancebased
specifications illustrates that contractors can adopt construction and maintenance policies to significantly
improve pavement performance. Finally, a framework for choosing PBCs to achieve STAs’ goals is provided, with
a discussion of some of the difficulties associated with implementation. It can be seen that, in a competitive bidding
process, the additional cost of incentives is not larger than the additional value gained by higher-quality work.
Minnesota Department of Transportation
Research Services Section
Gupta, Diwakar; Vedantam, Aditya; Azadivar, Justin.
Optimal Contract Mechanism Design for Performance-Based Contracts.
Minnesota Department of Transportation Research Services Section.
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