Incorporating Contractual Incentives to Facilitate Relational Contracting

Construction projects are undertaken by many parties, all with their own goals and motivations which may not always be aligned. Furthermore, they are governed by contracts, which do not necessarily produce win-win outcomes. The aims of this study are (1) to compare the views of contractors, clients, and consultants on factors facilitating and deterring relational contracting (RC); and (2) to investigate the use of contractual incentives to increase the effectiveness of RC. Structured questionnaires were sent by post to randomly selected construction industry players in Singapore to find out factors that enable RC and the barriers that impede the formation of RC. The results show that RC can be facilitated by having top management support, alignment of project objectives, relationship building, and most importantly, appropriate contractual incentives. In most instances, contractors gave a lower level of importance to many of the factors than clients and consultants. It is concluded that more contractual incentives should be provided in contracts in order to evoke the desired relational approaches.     

Contracting Relationship Trends and Transitions

Construction industry reports worldwide have called for radical cultural changes to reduce adversarial conflicts and increase productivity levels. These reports have recommended reintegration of fragmented function and teams through different teamworking approaches such as partnering and alliancing. The theoretical basis for such approaches can be tracked back to relational contracting (RC) principles. Recent teamworking initiatives have met with some success, based on structured cooperation between owners and contractors. However, the full benefits of these cooperative approaches may only materialize if (1) all potential team members/project partners are selected on the basis of relevant rationalized evaluation criteria; (2) all stakeholders work closely together as a coalesced team with common objectives, and (3) these arrangements are underpinned by government-sponsored, proper change initiatives. These approaches and arguments are analyzed in this paper, aiming at developing the required project culture through the application of RC principles for the joint management of risks during the entire project life cycle. Relevant observations from two recent Hong Kong-based industry surveys indicate a high motivation toward such approaches. Finally, examples of some potentially beneficial change initiatives are used to illustrate the potential synergies that are achievable.     

Investigation on Particular Contractual Issues in Construction

Construction companies have to challenge difficulties in undertaking private or public projects in domestic and international venues. This study focused on contractual issues encountered by Turkish companies as a case study. The main aim of the research was to investigate particular difficulties encountered by Turkish companies and remedies to overcome or prevent the adverse effects. This research focused on the problem areas, their causes, and executed contracts. In order to meet these aims, research methods included literature survey, analysis of courts of cessation decisions, interviews with 37 contractual staff in 30 companies which are members of Turkish Contractors’ Association, and analysis of 41 contracts to understand their types and conditions. Throughout this investigation, the findings revealed classification of contractual issues as finance, time, compliance, technical documentation, and clauses related difficulties. Practitioners can benefit from this paper by obtaining information through experiences of other companies. By reading this paper the readers can better prepare themselves to avoid and cope with claims and issues. Furthermore, companies intending to establish joint venture or consortium with Turkish construction companies will be able to foresee and prevent/overcome possible difficulties.     

How Relational are Construction Contracts?

For many years, the construction industry has relied on formal contracts to define and enforce the obligations and rights of contracting parties. Legal scholars have suggested that, based on their transaction characteristics, there are three different forms of contracts: classical, neoclassical, and relational. Of these, which form is more appropriate for use in construction projects? With increasing awareness of the importance of teamwork in construction, there is clear evidence of a rising trend in adopting a partnering approach to construction project delivery. For projects that seek to achieve a partnering relationship, relational contracts that value relationships, trust, and communication appear to be the appropriate form of contract. This paper discusses the application of relational contracts in construction by examining the fundamental question “How relational are construction contracts?” The degree of relationalism is assessed using a relational index comprising eight factors: cooperation, organizational culture, risk, trust, good faith, flexibility, the use of alternative dispute resolution, and contract duration. It was found that in the traditional design–bid–build form of delivery, the main contract and domestic subcontract forms are more relational than those of the nominated subcontract and the direct labor contract. The study was conducted in Hong Kong.     

Minimizing Liability for Construction Accidents through Good Contracting

A serious injury or death of an employee or member of the public on a construction site poses a considerable risk to the construction industry professional. Whether resulting from an unsafe condition on the site or from the injured party’s own negligence, a lawsuit seeking a large award is likely to follow. While an architect or engineer with general inspection responsibilities over a construction project does not normally owe a duty of care to the contractor’s employees or the public, he or she may assume such a duty through contractual language or by exercising control over safety issues. With the unpredictability of juries and the ready availability of experts willing to testify that a construction industry professional was at fault, careful contract drafting becomes essential for protecting an organization and shifting the responsibility for site safety to those best able to control the risk. The design professional will wish to ensure that the contractor is fully responsible for site safety. The contractor, on the other hand, must be on guard against the assumption of responsibilities beyond that normally expected in the industry.     

Audit Contract Provisions and Real-Time Cost Reporting in Construction Contracting

With the advent of contracting methods in the construction industry that result in the owner compensating a contractor for “actual costs” as opposed to a lump-sum payment, the owner must protect its interest by taking on the responsibility of confirming amounts actually incurred by the contractor and determining if these amounts are allowable under the terms of the contract. To succeed at such an endeavor, an owner must have a general understanding of contract interpretation, the risk of not incorporating an express audit provision in its contract, and the implications of not implementing a real-time reporting structure. This paper sets forth the benefits of requiring a real-time reporting structure in the owner-contractor agreement.     

Downside Risks in Construction Projects Developed by the Civil Service: The Case of Spain

The purpose of the work summarized here was to improve the efficiency of the construction project management processes performed by the Spanish civil service, identifying and analyzing the main risks in these kinds of projects, and also establishing potential risk responses. The scope of this effort included a list of 96 risk events, categorized and prioritized first by impact, then by frequency. The most relevant ones are related to issues such as an inadequate prequalification system, insufficient training of public servants, or political considerations prevailing over real needs, among others. A total of 117 potential risk responses were identified, categorized, and prioritized by potential efficiency and difficulty of implementation. Each risk event was associated to a set of potential responses. The paper includes the top 15 risk events with its main potential responses, including qualitative assessments. A survey was carried out among Spanish public servants working in construction projects, to validate risk identification and to obtain a qualitative assessment. Moreover, a Delphi analysis was developed to validate the risk response identification and obtain a qualitative assessment. One of the conclusions is that small and medium-sized Spanish civil service agencies should work toward increasing their maturity in managing projects and, mainly, project risks.     

Exploring Coordination Goals of Construction Projects

Effective coordination has been regarded in both theory and practice as a critical factor of success in construction projects. Previous coordination studies have focused on the time spent on coordination, its frequency, and its relationship with performance. However, coordination goals have received less attention, and their relationships with coordination methods and performance are not known. This paper studies coordination methods and goals for construction projects to identify what coordination goals are adopted and to what extent goals are achieved. In the research process, eight coordination methods and six goals were derived. A questionnaire was designed accordingly and sent to seven contractors for survey. Follow-up interviews were conducted with three or four managers and engineers from each contractor. The analysis results indicate that most coordination methods have multiple goals; written coordination methods such as plans, schedules, reports, and contract documents tend to have appropriate goals; and projects performed well by using coordination methods effectively to achieve the coordination goals.     

Single versus Multiple Prime Contracting

Policies regarding public building construction affect the interests of taxpayers, construction authorities, general contractors, specialty contractors, and other stakeholders. At the state level, the debate as to the optimal form such policies should take has become an ongoing struggle among competing interests. This study presents a systematic analysis of the main issues regarding single versus multiple prime contracting with the purpose of providing objective data to illuminate the debate. A statistical analysis of project bids and final costs from a national sample of state construction projects reveals that public construction projects organized with multiple prime contracts tend to have 5% less direct costs than projects using a single prime contractor. Moreover, approximately 80% of these savings are attributable to lower bid costs for multiple prime projects. The results of this study are in agreement with theoretical bidding models and efficient risk allocation models. Theoretical bidding models suggest that, in the absence of disruptions, multiple prime projects should have lower direct costs than single prime jobs. Efficient cost allocation models suggest that when specialty contractors do not bear the risks associated with the single prime contracting method (e.g., bid shopping and payment delays) they are willing to lower their bids, and forego the premium they would normally charge in response to such risks, as seems to be the case in multiple prime jobs.     

Product Specification Practices and Problems

The technical product specifications of construction contracts and the associated submittal review processes are shown to be involved in a major portion of all serious project disputes. A large number of actual publicly‐funded water and wastewater treatment facility building projects were examined with subsequent analysis of those reviews indicating that these disputes are detrimental in terms of additional project cost, schedule delays, and overall project disruption and loss of goodwill. In particular, the proprietary “brand name or equal” product specification method is seen to be commonly at the heart of these product disputes. Several different solution strategies were expressed as statistical hypotheses and tested for effectiveness. Among other propositions, the managerial strategies of required bid listing of proposed products, timely dispute resolution, and clarifying the submittal review process proved to be realistic and effective tools for reducing both the incidence and severity of product‐related contract disputes. Exact details are put forward along with sensitivity ranges.     

Guidelines for Warranty Contracting for Highway Construction

This paper presents guidelines for implementing the construction warranty contracting method in the highway construction industry. A logical, step-by-step method for effectively applying the warranty contracting program for use in the highway construction industry is developed. Relevant issues that may present obstacles to the implementation are addressed, while the best practices, compiled from an evaluation of the current industry’s state-of-the-art practices, will assist an interested state highway agency in creating a warranty specification. In performing this research, the current use of warranty specifications among state highway agencies was examined, and an in-depth case study of the Wisconsin Department of Transportation’s warranty program was conducted.     

Longitudinal Study of Innovative Contracting Practices in State Departments of Transportation

Gathering content expertise both from published sources and from recognized highway construction professionals, a questionnaire was created to determine the use of 16 innovative contracting practices in the highway construction industry. The major practices include: build-own-operate-transfer, contractor prequalification, design/build, dispute resolution, guarantee/warranty, partnering, value engineering, among others. Using the questionnaire, a 10-year longitudinal study gathered information from U.S. Departments of Transportation in 1996, and then again in 2007. Statistical analysis of the 43 state responses found that 10 of these practices have seen significant increase, but the perceived benefits have increased very little, and one practice has seen a significant decrease in perceived benefit.     

Emergency Contracting Strategies for Federal Projects

During the past decade, government agencies have struggled to adequately respond to emergency events that require labor, materials, equipment, and services provided by construction contractors. In fact, the criticism directed at government agencies during their response to, and recovery after, recent events is a testament to the insufficient contracting strategies that were implemented. Countless media headlines highlighted the fragmented approach used to hire contractors expeditiously, and several agencies were criticized for their inconsistent contracting methods. As a result, a study was initiated to investigate the differences between normal federal contracting procedures, as outlined in the Federal Acquisition Regulation (FAR), and emergency acquisition procedures that are permitted by the FAR. The study found six examples of waivers to the usual regulations or expedited contracting techniques permitted by the FAR. Furthermore, the study highlighted five emergency contract strategies that are available to the Navy (as one example of a government agency with contracting authority) and may be available to other governmental contracting authorities as well. Consequently, the purpose of this paper is to identify emergency contract strategies that can be used by government agencies and to outline the criteria that must be met to use each strategy.     

Collaborative Negotiation Behaviors in Thai Construction Projects

When construction contractors encounter difficulties and changes from what was originally stated in contract documents, fair and equitable adjustments are required. Owners use construction management (CM) consultants to act as primary negotiators on their behalf. Throughout project execution, seamless negotiations take place that are intended to improve the relationships that are critical to successful project delivery. This study investigates the collaborative behaviors between CM consultants and contractors acting as negotiators in adverse situations. Characteristics of collaborative negotiations are identified as being rational, goal-oriented, reactive, cooperative, and adaptive. Four negotiable situations were investigated: change orders, errors in drawings and specifications, differing site conditions, and delayed progress payments. The research for this study used a questionnaire survey of 83 project managers from 51 CM consultants and 32 contractor companies focused on building construction in Thailand. The results show significant differences in collaborative behavior between CM consultants and contractors. Contractors were much more aware of the outcome of negotiations, which could lead them to be less collaborative. Both parties strongly regarded rationality as normal practice. Adaptability to new approaches proved difficult in negotiations. This study also proposes strategies and tactics for better collaboration to achieve win-win results in negotiations.     

Efficacy of Trust-Building Tactics in Construction Mediation

Distrust hinders disputing parties and mediators from achieving mediation success. Mediators therefore often use different trust-building tactics to generate some degree of trust in themselves and in the mediation process. This paper reports a study that identified the trust-building tactics used by construction mediators and examined the efficacy of these tactics with respect to their outcomes. Three study stages were designed. With reference to the mediation model of Sloan (1998), trust-building tactics and outcomes were first identified in Stage I. Next, the data were collected from accredited mediators with a questionnaire survey in Stage II. The collected data were then validated via reliability assessments in Stage III. With the use of multiple regression analyses, the efficacy of the trust-building tactics was examined by relating these tactics to their outcomes. The findings of this study suggest that the trust-building tactics used in Step 4 (i.e., explore interests) of Sloan’s (1998) mediation model are influential in developing trust among disputing parties and that they can also act as a time-saving tool in the mediation process. Furthermore, it was found that mediators can earn trust by adopting the trust-building tactics used in Step 3 (i.e., issues and trust) of Sloan’s (1998) model. These tactics can also serve to improve the relationships between the disputing parties. The results show that the trust-building tactics used in the final step (i.e., solutions) of Sloan’s (1998) model seem to have low efficacy in developing trust among disputing parties.     

Reconstructing Cultures for Relational Contracting

Although previous research has pointed to potential performance gains through relational contracting (RC), reservations remain as to its value and viability. Even those who wish to use RC need guidelines for introducing it, especially where it clashes with prevalent project cultures. A study was launched from Hong Kong to identify the critical factors which promote RC and team building in the context of specific cultures. This paper consolidates the perceptions of 60 respondents to a questionnaire survey in Singapore, in relation to the hypothesized 24 factors facilitating RC, and 28 factors impeding/deterring RC. It indicates the evident readiness of the Singaporean contracting industry to embrace collaborative working practices. On the whole: (1) all the 24 factors facilitating RC, and 23 of the 28 factors deterring RC, are significant; (2) these two sets of factors could be represented by six and seven “broad factors,” respectively; and (3) except in a few cases, respondents from large and medium companies, as well as with and without experience in RC, have similar perceptions of the importance of different factors. It was perceived that trust should be at the core of RC approaches to construction procurement, but also seen that the current level of trust is low. Identifying the principal “facilitators” and “impediments”/ deterrents to RC, provides pointers to building relationally integrated teams to boost performance to much higher levels, as are now expected from the industry. The literature indicates that the outcome of the survey in Singapore reflects the trends in many countries that are moving toward RC. This research model and approach may be conveniently replicated in other contractual regimes, in order to reinforce these observations.     

CB-Contract: Case-Based Reasoning Approach to Construction Contract Strategy Formulation

The formulation of an appropriate contract strategy is a fundamental yet critical aspect of contractual arrangement for a project. This paper presents a decision support system (DSS) prototype for contract strategy formulation using the case-based reasoning (CBR) approach. The prototype is called CB-Contract. An overview on the scope and formulation process of contract strategy is provided. Contract strategy is regarded as comprising four main substrategies: (1) work packaging; (2) functional grouping; (3) contract type; and (4) award method. The significance of CBR in contract strategy formulation is examined. The overall architecture of CB-Contract is discussed, with particular emphasis on its knowledge component. A case structure for case representation has been suggested taking into account the important factors that need to be considered while formulating a contract strategy, in particular project characteristics, client’s objectives, and client’s comparative advantages. Issues pertaining to case indexing and similarity calculation for efficient retrieval of similar cases are explored. An illustrative example to obtain similar cases for a given set of project information is presented. Case adaptation that considers the robustness of each substrategy, the compatibility of the substrategies, and the expected effectiveness of the contract strategy is also included in the illustrative example.     

Delay Analysis within Construction Contracting Organizations

Delayed completion of a construction project is often caused by a complex interaction of a combination of events, some of which are the contractor’s risks and others are the project owner’s. The apportionment of the liability to give effect to the risk allocation has therefore been a matter of great controversy. Many delay analysis methodologies have been developed over the years for performing this task. This paper reports on an empirical study into the current practice in the use of these methodologies in the United Kingdom, as part of a wider study aimed at developing a framework for improving delay claims analysis. The part of the study reported here was based on a questionnaire survey of key informants. The issues investigated include the categories of staff within contracting organizations who contribute to delay claims analyses, the awareness, use and reliability of existing delay analysis methods and the obstacles to their use in practice. The main findings of the study are that: (1) the preparation of delay claims often requires input from commercial managers (quantity surveyors), schedulers, site managers, external claim consultants and estimators; (2) commercial managers have the greatest involvement; (3) claims analyzed using the as-built versus as-planned and the impacted as-planned techniques are often successful although there is considerable literature on the shortcomings of these techniques; and (4) the main obstacles to the use of the methods relates to deficiencies in project records and scheduling practice.     

Project Management in the Chinese Construction Industry: Six-Case Study

Originating from the West, project management was introduced into China after the country’s economic reforms in the 1980’s and has since spread quickly throughout the whole country, particularly in the construction industry. However, despite the wide adoption of project management practices by construction organizations and the growing recognition of the importance of project management as an enabler of organizational success, empirical studies on project management in the context of the Chinese construction industry have been inadequate. This paper presents the results of an empirical study of six Chinese construction organizations in order to come to a more comprehensive and sophisticated understanding of project management practices in the Chinese construction industry. The findings revealed: (1) a good appreciation of the role of projects and project management and satisfaction with current project management practices; (2) 11 key aspects of project management implementation; (3) 12 resultant value and benefits; and (4) five aspects of the main challenges facing the organizations. Meanwhile, variations in project management practices and the resultant organizational value were identified, first between the three owner- and the three contractor-case study organizations, then between the two construction contractor organizations and the one design contractor organization.