Contract and Supplier Management Guidance

Incentives and Sanctions

There are certain contract terms and conditions that can be used to help drive contract compliance/performance. Some examples are listed below:

Care should be taken when selecting incentives or sanctions that they are appropriate and legally enforceable. It is recommended to seek legal advice if in doubt as to the wording, appropriateness or legality of a proposed condition.

Incentives could include;
  • Contract Extension options
    • Longer contract opportunity could provide performance motivation
  • Payment by result, e.g. by use of milestone payments (linked to defined deliverables)

Sanctions could include;
  • Retention, e.g. legitimately not make payment if deliverable not completed
  • Litigation
  • Termination
  • Withhold Payments (with genuine and notified reason, compliant with terms and conditions)
  • Liquidated Damages

NB: In particular, for a sanction to be effectively enforced sufficient evidence would be required to justify the claim or action. It is therefore important to have clear records for example of agreed service level, notice periods, reminders, communications, agreements etc.

Any incentive or sanction must be enforced in compliance with the agreed terms and conditions of the contract or agreement.