Which type of contract typically includes performance incentives for the contractor?

The type of contract that typically includes performance incentives for the contractor is the incentive contract. This type of contract is specifically designed to motivate the contractor to achieve certain performance targets, such as cost savings, schedule adherence, or quality improvements. By linking reward structures to specific metrics or goals, incentive contracts align the contractor's interests with those of the buyer, encouraging better performance and efficiency.

Incentive contracts often feature a formula that outlines how additional payments, bonuses, or other rewards are determined based on the contractor's performance against the set objectives. This can lead to a more collaborative relationship as both parties work toward common goals.

In contrast, fixed-price contracts do not typically include performance incentives; instead, they set a price that is fixed regardless of the contractor's performance. Cost-reimbursable contracts generally cover the actual costs incurred plus a fee, and while they may include some elements of incentivization, they don't inherently provide the structured performance incentives seen in incentive contracts. Time and materials contracts focus on specifying labor and material costs, without embedded performance incentives. This makes incentive contracts the most suitable choice for incorporating performance incentives.