Incentive contracts are agreements designed to motivate parties to achieve specific performance goals. These contracts often include bonuses or additional payments for exceeding targets, encouraging efficiency and productivity. They are commonly used in industries like construction and government procurement, where timely and cost-effective project completion is crucial. The structure of an incentive contract typically outlines clear objectives, performance metrics, and the rewards for meeting or surpassing these goals. By aligning the interests of both parties, such contracts aim to foster collaboration and ensure that resources are used effectively, benefiting both the contractor and the client.