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Innovative Contracting - Pay for Performance
Description, benefits, drawbacks of pay for performance projects

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Innovative contracting staff

I-494 from Hwy 5 to Hwy 169 in the southwest Twin Cities metro area 

Payment for pavement markings will be made to contractor annually for five years, contingent on product meeting minimum requirements. 

Note:  Project is primarily a design-build project which uses pay-for-performance contracting tool.

Innovative Contracting


Report 2000-2005


Pay for Performance

The contractor is paid for work on a graduated scale based on the quality and longevity of the work over time.

Difference from Traditional Method

Traditional specifications precribe the methods and/or means of producing or constructing an item.  If the contractor complies with specifications but the final outcome is not acceptable, the contractor is not responsible for corrective action. 

Pay for performance specifications rely on final outcomes that can be measured against performance criteria set forth in the contract.  If the  contractor fails to meet minimum performance criteria, payment is withheld and corrective action is required. 


  • Eliminates blame when there is a problem with the quality of a specific work item
  • Shifts risk of providing a quality product to the contractor
  • Provides higher quality products for a longer duration


  • Time needed after project completion to ensure product performance
  • Product monitoring and inspection is time-consuming
  • Contractor may be required to finance a portion of the work during the performance period