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April 12, 2016
Performance-based contracts: Offering incentives for exceptional service
By: Jodi Ader

You are the project manager for an electronics company, and you are leading a project to build a warehouse. You have selected a construction company to complete the project. You have a target completion date but would like to have the factory completed sooner to help save on financing costs. To help achieve this goal, you offer incentives to the construction company for early completion. You have been advised by your general counsel that in this situation, entering into a performance-based contract (PBC) with the construction company is the best course of action.

Unlike traditional contracts, PBCs are ideal for situations where the parties wish to encourage one another to do more than just meet the baseline deliverable. PBCs include clear goals and expectations to help reduce costs and maximize profits. They incorporate incentives at inception, and these incentives are addressed by implementing specific terms and deliverables that are linked to performance. This ensures that all parties work to minimize costs and maximize productivity.

Some variables are best suited for PBCs; it is important to know how to incorporate them into the contracts. Equally important is recognizing the benefits and pitfalls of the contracts and knowing how to align the best interests of all parties with the interests of the overall project.

By discovering how PBCs help the parties to exceed expectations by linking compensation to performance, you will become equipped to develop such contracts that have a high likelihood of success for your organization. You will be able to quantify the benefits of your contracts, helping your company and your partner to reduce costs, foster innovation, and enhance productivity.

Are you looking to undertake a new capital project and wish to motivate your business partners to achieve higher levels of overall performance? The Accenture Academy courses Definitions and Variables Associated with Developing Performance-Based Contracts (PBCs), Beneficial Options to Include When Developing Performance-Based Contracts (PBCs)Basic Parameters and Variables Encountered When Developing Performance-Based Contracts (PBCs) and Components to Include to Ensure Success When Developing Performance-Based Contracts (PBCs) will provide you with the knowledge to effectively enter into and manage PBCs.

About Accenture Academy

Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.

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