Evaluation of the Effect of Contract Type on Construction Project Delivery
Keywords:
Contract types, construction project delivery, risk allocation, project performance, stakeholder satisfactionAbstract
The type of contract embraced in a construction project is a conclusive element which determines the dynamics of delivery of the project. Such contracts do not only serve as legal documents but they are used as risk allocation, responsibility sharing and performance management among clients, contractors and consultants. They affect project cost, time, quality, and satisfaction of the stakeholders. Contracts are not just pieces of paperwork, but they are also seen as the tools of organizing the sharing of risk, the demarcation of duties and the regulation of expectations of performance of all parties involved. In such a way, they instil a structure in which the results of projects are discussed and achieved not only to affect the financial bottom line but also to influence the quality and timeliness of the final product. This paper will consider how various types of contracts, i.e. lump-sum, cost-plus, unit-price and design-build affect the delivery of construction projects. All these types of contracts have different benefits and restrictions that affect the results of delivery in various ways. The study uses a review methodology whereby the insights of academic literature and industry practice have been used to determine the relationship between the type of contract and the performance of a project. The results show that lump-sum contracts offer predictability of budget but they also normally result in conflicts in case of variations. Cost-plus contracts are more flexible but may lead to inefficiency and increased costs whereas unit-price contracts are effective where the quantity of the project is uncertain but the clients face financial risks related to the unit costs that vary with the project quantities. The design-build contracts contribute to innovation, integration, and speed of delivery, but at the same time degrading the client control over the design process. In general, the discussion shows that there is no one type of contract that can be considered the best; their efficiency is based on the nature of the project, clarity of design documents, complexity of relations among stakeholders, and readiness to share risks equally. The paper concludes that the informed choice of contracts will help to reduce the number of disputes, improve cooperation, and efficiency in the delivery of construction projects. It also suggests that the stakeholders should be keen in alignment of types of contract with project specific objectives, complexity, and risk management strategies.
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