Choosing contractor payment terms

The paper considers how far contractual payment terms can be effective in producing project performance for a client. The mitigation of typical problems of contractor selection, motivation and risk sharing between client and contractor are examined in the context of cost plus fixed fee contracts, firm fixed price contracts, and incentive contracts. The latter offer possible solutions to the widely acknowledged difficulties with cost plus fixed fee contracts and firm fixed price contracts. However, there are other difficulties with operating incentive contracts in practice, and these are considered in the paper.