Contracts

Projects that entail the creation of one or more physical facilities — factories, offices, workshops, warehouses, oil and gas fields or other energy generation or energy supply projects, etc. — bring project management in contact with the realities of the modern construc­tion industry. Construction contracts are frequently, at least on the surface, an apparently three-way affair as illustrated in Figure 7.1. There are two main contracts between the owner and the engineer­ing services provider on the one hand and between the owner and the main contractor on the other.

Of course, the engineering firm and-or the contractors also have contracts to supply materials or provide services or subcontractors. All these contracts will affect the project as a whole. For example, the services for an engineering firm might come from a company that maintains their computers but with whom there is no binding contract to achieve a fast response or speed performance or ensure quality-of-service in the maintenance of the engineering firm’s computer systems and thus extend the overall design time beyond what would be estimated if such a third-party service provider were not part of the picture. So, in other words: a contract between owner and contractor may be fine on its face and all its ramifica­tions perfectly clear to owner and contractors. Other arrangements, however, could turn out to be highly problematic between owner or contractors and others not directly party to the their contrac­tual relationship, or for others whose relationship with them is not strictly regulated by contract. The experienced and alert project management professional makes sure to check for and find ways around such hidden potential minefields.

All contracts are important to the project, and the goal of each should be clear to all.

QooWacts inside the projec/

Owner

Engineering

firm

Figure 7.1 Contracts inside the project.

The most risky contracts are often, however, are often the most important, usually entailing the greatest financial commitments of the project, particularly the construction contract between the owner and the construction main contractor. The owner must deter­mine the type of contract, how each contract is different depending on the nature of the project, and its objective. Formal owner – con­tractor arrangements come in a wide range of contract shapes and sizes. The most widely observed are the following: [6]