Incentive contracting dates back to 1909, when the United States government contracted with the Wright brothers to build an airplane that met or exceeded a speed requirement of 40 miles per hour. The target price was $25,000; the Wright brothers’ Aeroplane Company would receive an additional $2,500 for every mile per hour over the target speed and lose $2,500 for every mile per hour under the target speed. The Wright brothers’ plane flew a ten-mile flight, traveling at 42.5 miles per hour on average, increasing the amount the Wright brothers received to $30,000.
This positive outcome—exceeding the government’s expectations—during the early years of aviation demonstrates how well incentive contracting can work. However, it was not until the ...
