The Contract as a Project Planning Tool

contract-planning-toolAs a lawyer I’ve found that people tend to see contracts as a boring formality in the path of getting to the result (e.g. getting the settlement funds, starting the project, starting the case etc etc). The contract is often read with about the same enthusiasm and focus as a child reading a card at Christmas before pocketing the money.

In some situations such absence of alacrity for this stage of the transaction may be warranted, particularly in the case of a standard form contract for a small value transaction of a routine nature. However, in engineering work the contract is a core planning tool for the parties. As the saying goes, proper preparation prevents poor performance.

As observed in ‘Managing Risk in Construction Projects’ (Smith et al, 2nd ed, pp. 41-42, 142) The core functions of a construction contract are to:

  1. Identify and allocate responsibility for risks
  2. Identify and allocate responsibility for work
  3. Align motives of the contractor with the objectives of the client

In this way, the contract serves as a planning tool. Through drafting and negotiation the parties consciously identify the project outcomes (and corresponding risks). They can then assess what they involve, plan how to address them, and allocate responsibility.

Obviously then, time spent on this stage can make a strong contribution to project success.

  1. There will be fewer unknown unknowns. Meaning fewer claims for variations and time extensions, and therefore fewer disputes.
  2. The responsibility (and liability) for the known unknowns will be allocated to the parties best able to control impact or likelihood, or to absorb the impact of the risk materialising. Reduced cost of risk management (e.g. Contingencies and insurance policies) allows for leaner pricing of the work.
  3. Better selection of motive alignment mechanisms will incentivise the resolution of disputes through collaboration rather than litigation.

This coupled with some of the early engagement practices being experimented with in the area of collaborative contracting (e.g. The new suite of prototype Defence estate management contracts) goes along way to de-risking the project.

This corresponds with my experience on the other side of the fence as a project manager. My roles in the Department of Defence seemed to always morph in to that of ‘the fixer’. A project would have gone off track, progress had ground to a halt, motivation between the parties had gone stale, and then it would land on my desk.

Rarely was the heart of the problem a technical hurdle, almost always it was due to cutting corners at the planning phase or ineffective communication practices between the stakeholders. Of course, technical issues were often involved, but it was generally poor planning or ineffective communication between the parties that was preventing these issues being solved.

What was required was a process of revisiting and clarifying the project outcomes, and then addressing the tangible issues by establishing effective methods of collaboration between the parties. Typically this meant arranging a stakeholder meeting, identifying what each party needed and why they needed it, and work-shopping our way to a solution. Sometimes this could be resolved with minor concessions, other times entire elements of the agreement would have to be re-written (typically the scope, as this was often unhelpfully vague and yet at the same time unworkably inflexible).

Ultimately everyone really just wants to get the job done, get paid, and go home. However, foregoing the proper advice and time required to consider the contract could see you accepting more risk than you bargained for.

Contact AustraLaw today.

By Ashley Kelso

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