CHAPTER 12Toward Fair, Balanced, and Smart
Contracting is very likely the single most difficult element of project management. It requires a broad range of skills—strategy, understanding of legal concepts, good relationship skills, negotiation skills, understanding of the projects market, and the ability to put oneself in the other person's shoes. In my experience, it causes owner project managers more stress than any other part of their job. Because contracting is stressful, there is an understandable temptation to look for a magic fix for the problem—an approach that will solve all problems. Alas, the magic fix will not be forthcoming here (or anywhere else).
The relationship between owners and contractors is often characterized as fraught with conflict. Some conflict does exist at the organizational level; it is real and unavoidable because of the principal‐agent problem, moral hazards, and the reality of human fallibility—what my clergyman brother would call “original sin in action.” The only misalignment of goals that is necessarily present is the owner's desire for lower cost versus the contractor's interest in being more profitable. There is no point in pretending that misalignment does not exist. If that were the only misalignment problem, however, contracting wouldn't be so difficult.
The serious problems arise when the risk profile of the project does not turn out as expected. Sometimes this is due to bad luck (e.g., the market heated up and escalation became an issue, ...