Impact of Various Construction Contract Types and Clauses on Project Performance

The nine most problematic clauses fall into three main groupings: (RS5-1, p. 4)

• Work Scope Clauses – issues involve errors, omissions, ambiguities, and inconsistencies
• Change Clauses – issues involve definitions, dispute resolution, negotiation of costs, and approval timeline
• Project Controls Clauses – issues involve mechanisms to monitor and approve project performance

  These categories of clauses caused issues in both fixed-price and cost-reimbursable contracts.

Contractor and owner views, motivations, and incentives often conflict. Many do coincide, but there is at least potential for conflicting objectives. Contract clauses that do not fit the realities of a situation may promote a conflict of interest. (RS5-1, p. 5)

The type of contract (fixed-cost vs. cost-reimbursable) should be heavily influenced by five factors: (RS5-1, p. 10)

1. The extent to which the work is defined
2. The desired allocation of risk between owner and contractor
3. The availability of owner expertise and effort on the project
4. The need to accommodate fast-tracking of design and construction
5. The general marketplace conditions

Significant differences were expressed by owners and contractors about those clauses that were most troublesome, and about the risk allocation effect of those particular clauses. There is a prevalent owner practice of using contract language to shift risk to the contractor. There are problems with ambiguity in risk allocation clauses, as evidenced by owners and contractors having different perceptions of the effect of such clauses. Contract preparation that allocates risk with a balanced input from all parties is the most cost-effective. (RS5-1, p. 7)