What two types of contracts typically require incentive clauses?

Incentive clauses are often included in contracts to encourage performance and align the interests of both parties. In the context of cost-reimbursable contracts, such as Cost Plus Incentive Fee contracts, these clauses can provide financial incentives based on performance metrics, such as reducing costs or completing the project ahead of schedule. This structure motivates the contractor to find efficiencies and can lead to a more cost-effective project overall, benefiting both parties.

Redeterminable contracts, which allow for periodic reassessment of contract terms based on changing circumstances, can also benefit from incentive clauses. These clauses help ensure that contractors remain motivated to perform well, even as conditions change. By providing additional compensation for achieving designated performance targets, these contracts create a mutual interest in success and make it less likely for the contractor to cut corners or underperform.

In contrast, while the other choices may contain contracts that can have various compensation methods, contracts without a direct performance incentive, such as Fixed-Price or Time-and-Materials, generally do not necessitate incentive clauses to motivate behavior in the same manner. Fixed-price contracts provide a set price for deliverables, and Time-and-Materials contracts focus on the cost of labor and materials without tying payment incentives to specific performance outcomes.