Select a contract approach

The plan/replan the contracts specific task involves considering how the contracting strategy is to be implemented, in terms of formal and informal contracts, first addressing the select a contract approach or whichway question to expand on the closely related what or contract design question.

The contract approach adopted is highly dependent on the parties involved in working on the project and the way in which project tasks have been divided and distributed between these parties. For example, the novelty and technical nature of a construction project may warrant the employment by the client of an architect, engineer, quantity surveyor, prime contractor, and a variety of subcontractors. The presence of these parties may imply clear allocation of particular issues to particular parties. A very different and perhaps simpler allocation strategy is implied for a client who opts for a 'turnkey' contract to procure a building, where the client has only to deal with a single prime contractor.

As noted in Chapter 7, in a client-contractor situation the client exerts influence over the contractor primarily via conditions laid down in a contract between the two parties. The contract sets out what is to be produced, what the client will pay, how the client can assess and monitor what the contractor has done, and how things should proceed in the case of various contingent events. The contract may identify and allocate sources and responses explicitly, but very often particular issues are not identified explicitly and allocation of issues is implicit in the nature and size of contract payment terms. In these cases, the consequences of such allocation may not be fully appreciated. In particular, the manner in which issues are to be managed may be unclear.

From a risk management perspective, it is very important to identify sources of uncertainty that are:

1. controllable by the contractor;

2. controllable by the client;

3. not controllable by either party.

Different payment arrangements should be adopted for each of these categories, implying different levels of issue sharing for each category, so that appropriate allocation and positive management of uncertainty in each category is encouraged where possible.

The acquisition of information about sources plays a key role in the ability of contractual parties to allocate and manage associated uncertainty. Given the potential conflict of contractual party objectives, a central question is the extent to which contractual parties can obtain mutual benefit by sharing issue-related information. A related question is how this information can be used to allocate issues on a rational basis and in a mutually beneficial way. Chapter 16 discusses this issue in more detail.

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