Contract Strategies for Major Projects

CHAPTER 1Ten Key Principles of Contracting

Writing a book about contracting strategy is a good deal harder than it might seem. Contracting is a subject that is full of exceptions. There are relatively few conclusions that appear to hold universally. Contracting is sensitive to the locale, the state of the market, the capabilities of the owner, the pool of available contractors, and, of course, the nature of the project under consideration. But over many years of studying contracting strategies and practices for industrial projects, I have arrived at a set of conclusions to which there seem to be few, if any, exceptions. These conclusions are what I call the 10 principles of contracting. As I explore the ins and outs of contracting strategies for industrial projects over the next 11 chapters, I will return to these principles again and again. If one pursues a contracting strategy that flouts one or more of these principles, it is very likely that trouble is ahead. If circumstance forces one to adopt a strategy that runs afoul of a principle, it is vitally important to understand that and mitigate the damage. The 10 principles of contracting are

1. There is no free lunch; the principal‐agent problem is ever‐present.
2. Contractors do good projects well and bad projects poorly.
3. Complex projects require simple contractual approaches.
4. Owners are from Mars; contractors are from Venus.
5. Risk transfer from owners to contractors is often an illusion; the big risks stay at home.
6. Contractors ...