Analysis of Contractor Pay Adjustment Schedule Using Simulation

Abstract

A common provision in quality control/quality assurance construction contracts is the adjustment of the contractor's pay on the basis of the quality of the construction. The expected impact of the provision on the pay should be examined to ensure that the adjustments are neither unduly severe nor excessively lenient. Most pay adjustment plans have been developed around a quality index by using a percent defective approach. Analyses of these plans are complex but reasonably well defined. Other plans, however, are more complex and do not lend themselves to direct analysis. These plans can be examined by computer simulation. The use of computer simulation to examine a complex pay adjustment provision is demonstrated. The analyses show that simulation can reveal that a pay adjustment schedule behaves differently than it appears on the surface. For example, the schedule examined bases pay solely on averages and appears to ignore construction variability. The analyses, however, demonstrate that the pay adjustments are at least as sensitive to construction variability as they are to construction averages. It is also shown that the simulation process can provide a better, more detailed examination of the pay schedule than is possible by simply determining the expected pay. In particular, the simulation process can provide an indication of the variability of pay at various quality levels and can identify the factors most responsible for pay adjustments.