Florida Building Contractor Business/Finance Practice Exam

In a cost-incentive contract, what is the most common percentage of savings awarded to a contractor?

1. 25%

2. 50%

3. 75%

4. 100%

The correct answer is: 50%

In a cost-incentive contract, the contractor is typically rewarded for controlling costs by keeping them below a predetermined estimate. The most common percentage of savings awarded to a contractor in this framework is often 50%. This means that if the contractor manages to reduce costs below the estimated budget, they would receive 50% of the savings as an incentive. This structure aligns the contractor’s interests with the project’s financial efficiency, motivating them to explore innovative ways to reduce costs without compromising quality or safety. By sharing half of the savings, the arrangement ensures that both the contractor and the project owner benefit from cost efficiency, fostering a collaborative approach to project delivery. Higher percentages, such as 75% or 100%, could undermine the financial feasibility for the owner, as they would absorb more of the risk and potentially discourage the contractor from striving for efficiency. Thus, the 50% incentive reflects a balance between encouraging cost savings while also mitigating risk for both parties involved.