A Bonus-Penalty Contract is a provision in the contract for payment of a bonus to the contractor for completing the work (e.g., early completion in a fixed lump sum contract; incentive or sharing savings cost in a reimbursable contract), or a penalty charge (e.g., liquidated damages). Effort Differences between Bonus and Penalty Contract: Contractor/ Employee/ Worker prefers a Bonus Contract, but a Penalty Contract lead to higher productivity than performance-based bonus contract.

Related Definitions in the Project: The Project Contract; Project Management