The difference between incentive clause and bonus provision?

Hi ARE community,

Could anyone explain the difference between ‘incentive clause’ and ‘bonus provision’ in the owner-contractor agreement?

Thank you,

Wenqi

Hi @whuang. Let’s first take a look at the definitions as described in the Architect’s Handbook of Professional Practice and the Dictionary of Architecture & Construction.

An ‘incentive clause’ is a term used to describe savings that are shared proportionally in an agreed-upon manner between an owner and a contractor, and that are derived from the difference between the guaranteed maximum price and the actual cost of a project when the work is performed on the basis of cost plus a fee with a guaranteed maximum price. The terms of an incentive clause are normally included in the agreement between the owner and the contractor. (AHPP)

A ‘bonus provision’ in a construction contract is a provision that permits a bonus payment, by the owner to the contractor, for early completion of construction work or for a saving in construction costs. Also called a bonus provision. (DoA&C)

As I’m reading it, the difference is: an incentive clause results from the Contractor completing the work at a lower cost (specifically in terms of a guaranteed maximum price), and a bonus provision results from the Contractor completing the work earlier than estimated or at a lower cost (not necessarily within a guaranteed maximum price).

Does this help answer your question?

2 Likes

Thanks @cat.heard9! It’s really clear and helpful!

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