What are the two categories of contract incentives?

• A. Cost Incentives and Schedule Incentives
• B. Award Fees and Quality Incentives
• C. Schedule Incentives and Quality Incentives
• D. Cost Incentives and Award Fees

Answer: (D)

Contract incentives are typically grouped into two broad families. One is cost incentives, which create financial motivation for the contractor to control and reduce costs, often with mechanisms to share savings or cover overruns relative to a target cost. The other is an award-fee approach, where the contractor can earn additional fee based on performance against a defined award-fee plan, judged against criteria such as schedule, quality, safety, and overall performance.

This framing explains why the option combining cost incentives with award fees best fits the standard categorization. Schedule or quality incentives are common performance elements, but they are not treated as the primary categories themselves; they are features that may appear within an award-fee plan or alongside cost incentives, rather than forming the two main categories.