Construction contracts form the basis of the relationship between the parties. Contracts can be standard, all-purpose forms of agreement, or customized documents carefully drafted by professionals. In all cases, it is imperative for construction managers to diligently scrutinize the terms and conditions of the contract once it is executed and preferably before it is executed. Seemingly innocuous contract provisions that are agreed to without careful consideration of potential impacts that may occur during construction execution can lead to major contract disputes years later.
The time constraints around bidding periods and contract awards can put pressure on contract negotiations to conclude so that the work can begin. Key risks to the execution of a project are often overlooked when contract terms and conditions are being negotiated. After it is too late to renegotiate, the parties may realize that they have committed to an undesirable contract provision. For this reason, structured risk analysis should be performed prior to contract execution. This analysis should identify as many risks as possible, assess the potential impacts, and develop a control plan to preempt such impacts. Contractual mechanisms should be negotiated to eliminate risk in the event a control plan cannot be implemented.
It is imperative to have a methodical review and analysis of proposed contract terms by those experienced and familiar with the intended project execution plan. In many companies, owner and contractor alike, entirely different organizations are responsible for the bidding, award, negotiation, and execution phases of construction projects. The almost inherent silo effect associated with this organizational tendency can set up projects for failure from the start when agreed-upon contract terms and conditions are incompatible with key aspects of the construction execution plan.