Incentives in project contracts and their effects on Product Uncertainty

Abstract: Industries across world use different methods to secure the quality of the contract deliverables. These deliverables are carefully defined in an agreement between project owner and agent (buyer and seller) however, there are several reasons that the quality of the outcome does not fulfill the desired pre-agreed quality. In aerospace as well as power & energy industries, the delivered products (outcome of the contracts) should endure a long lifespan. Although guarantee and warrantees are being used in contracts to secure the quality of the outcome for a short period of time after delivery, in several cases, the quality of the delivered product fails right after guarantee expiration date. Therefore, guarantee and warrantee are not considered to be a preventive means while the requirement for such preventive tool is undeniable. This case study gathers data from aerospace as well as power and energy industries on how these two industries shape up their agreements and what sort of incentives they use and if these applied incentives have assisted them to reach the target. These data will be analyzed in comparison to similar conducted research in this field.