Nepal’s Public Procurement Monitoring Office recently blacklisted four construction contractors for failure to deliver projects on time. These contractors will be precluded from bidding public projects for a period of 12 to 18 months.  Can you imagine the outrage, if any Western government reacted with a similar approach?  While this reaction may seem extreme, this story highlights a common and recurring problem that affects construction all over the world.  Many projects suffer from delays.  What’s worse, they also suffer in other more important metrics.

I’ve long believed the construction industry places too much emphasis on schedule. Finishing early or on time might look good on paper, but if it comes at the expense of safety or quality, is it really a win?

In a recent engagement with a healthcare client, I was tasked with creating contract language to promote schedule compliance. My proposal included a balanced approach that offered both the pressure of a potential penalty along with the incentive of a reward. Penalties for delayed completion are just part of the equation and bonuses for early completion sweeten the deal, but bonuses should not be paid unless key performance indicators (KPIs) are met.

Why Schedule Isn’t Everything

In a previous article, “Penalties and Bonuses – How To Avoid Project Delays and Incentivize Timely Completion”, I wrote, “bonuses without guardrails encourage contractors to cut corners.” unfortunately that statement remains true (which may be why many owners refrain from offering bonuses).  To avoid that, I tie incentives to safety performance, change order impact, and even bonus sharing with subcontractors. The goal is to drive behavior—not just to get done fast, but to get done right.

A Smarter Approach to Change Orders

Change orders are a fact of life in construction. But the chaos they cause is often self-inflicted. In “Change Orders – How to Plan, Mitigate, and Minimize the Impact”, I wrote: “Nothing causes a plan to fail more than failing to plan. Don’t allow any work to start without pre-negotiated change order rates.” That upfront planning shifts leverage back to the owner and helps keep costs in check.

Even better, use KPIs tied to change orders themselves. Bonus pay out is determined on the basis of how closely the contractor held to the original contract value. That motivates the team to avoid unnecessary change orders, instead of using them as a profit engine.

Beyond the Schedule: A Holistic Approach to Contractor Performance

In summary I recommend a balanced approach that includes:​

• Penalties for Late Completion: To discourage delays.
• Bonuses for Early Completion: To incentivize efficiency.
• Key Performance Indicators (KPIs): To ensure quality and safety standards are met.
• Safety Metrics: Ensuring zero recordable incidents.
• Change Order Management: Limiting the number and value of change orders.
• Subcontractor Inclusion: Mandating that bonuses are shared with subcontractors to promote collective responsibility.​

A recognized approach

I am happy to share that I am not the only one using this approach. The Public Works Authority in Qatar ties contractor payments to performance metrics, including safety and quality standards .​  https://www.diales.com/nl/news/performance-indicators-from-a-contractors-perspective

Conclusion

Nepal’s blacklisting might feel extreme to a Western audience, but there are comprehensive conventional methods of achieving timely performance without compromising safety and performance.

If we truly want to drive good behaviors in construction, we need to reward the right things: safety, trust, quality, and smart collaboration. It’s not just about when you finish—it’s about how you got there and who you brought along with you.

What do you think? Should we rethink how we reward contractors? Have you seen bonuses backfire or truly drive better results? Tell me your stories.

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