Design-Build Institute Of America (DBIA) Exam 2 Practice

The main idea is that every contract creates incentives that aren’t written as bonuses or penalties—implicit incentives. The way a contract is structured, including how risk is allocated, how payments are made, how changes are managed, and what each party stands to gain or lose, naturally nudges people to act in certain ways. Even without explicit bonus or penalty clauses, teams are motivated to cooperate, avoid disputes, meet milestones, keep cash flow smooth, and protect reputations for future work. Explicit incentives are specific monetary or procedural rewards or penalties spelled out in the contract, and they aren’t present in every contract. Performance incentives are a type of explicit incentive tied to achieving targets. Punitive incentives are penalties for non-performance, which also aren’t universal. So the universal type—present in all contracts—is the implicit incentive created by the contract’s structure and the parties’ interests.