Civil Engineering

Class notes

Construction Contracts

Construction Contracts

Construction projects are done under a variety of contract arrangements for each of the parties involved. They range from a single contract for a single element of the project to a single contract for the whole project, including the financing, design, construction, and operation of the facility. Typical contract types include lump sum, unit price, cost plus, and construction management.

These contract systems can be used with either the competitive bidding process or with negotiated processes. A contract system becoming more popular with owners is design-build, in which all of the responsibilities can be placed with one party for the owner to deal with. Each type of contract impacts the roles and responsibilities of each of the parties on a project. It also impacts the management functions to be carried out by the contractor on the project, especially the cost engineering function.

A major development in business relationships in the construction industry is partnering. Partnering is an approach to conducting business that confronts the economic and technological challenges in industry in the 21st century. This new approach focuses on making long-term commitments with mutual goals for all parties involved to achieve mutual success. It requires changing traditional relationships to a shared culture without regard to normal organizational boundaries. Participants seek to avoid the adversarial problems typical for many business ventures. Most of all, a relationship must be based upon trust. Although partnering in its pure form relates to a long-term business relationship for multiple projects, many single- project partnering relationships have been developed, primarily for public owner projects. Partnering is an excellent vehicle to attain improved quality on construction projects and to avoid serious conflicts. Partnering is not to be construed as a legal partnership with the associated joint liability. Great care should be taken to make this point clear to all parties involved in a partnering relationship.

Partnering is not a quick fix or panacea to be applied to all relationships. It requires total commitment, proper conditions, and the right chemistry between organizations for it to thrive and prosper. The relationship is based upon trust, dedication to common goals, and an understanding of each other’s individual expectations and values. The partnering concept is intended to accentuate the strength of each partner and will be unable to overcome fundamental company weaknesses; in fact, weaknesses may be magnified. Expected benefits include improved efficiency and cost effectiveness, increased opportunity for innovation, and the continuous improvement of quality products and services. It can be used by either large or small businesses, and it can be used for either large or small projects. Relationships can develop among all participants in construction: owner-contractor, owner-supplier, contractor-supplier, contractor-contractor. (Contractor refers to either a design firm or a construction company.)