The Project is executed through a contractual framework. No matter how good the other practices are, the process can go off-track if the wrong contract strategy is applied and the contract document itself is not adequate to manage the Project. Poor Project definition can be considered as the major cause of poor contract documentation, which in turn leads to unexpected cost and time overruns, poor productivity, disputes and frustration.
Advisors rarely discuss the full range of contract strategies with Clients because of the narrow focus inherent in the discipline of that particular advisor. Similarly, when alternative strategies are applied, such as design and construct within the building industry, the Client must be fully aware of the ‘pros and cons, and the necessary planning and control measures that need to be in place before they are applied.
The Client must recognise and understand how risks are allocated by the various commercial options available. Depending on the clarity / definition of the scope of work and risks that the Client is prepared to take, contracts may be issued to the market in the form of different pricing strategies such as: lump sum, bill of quantities, target cost, cost reimbursable and management for and on behalf of the Client. Other commercial considerations that have to be taken into account are contract price adjustments, bonding, insurances, parent company guarantees, penalties, bonuses, foreign currency fluctuations, etc.
The Client may decide to contract on an outcomes performance basis or on a prescriptive detailed specification basis. Further consideration for the contract strategy may include the benefits of contracting on a functional system / area as distinct from a discipline basis.
Once the Client has agreed to the terms of a contract philosophy, it has to operate in accordance with them.
The largest single cause of disputes in the construction industry is poor quality of contract documentation, mainly as a result of poor definition of the scope of works, errors, ambiguity, inconsistency and late supply of documents.