Chapter 9Procurement and Contract Strategy: Risks Allocation and Construction Cost

John Adriaanse and Herbert Robinson

9.1 Introduction

Significant investment is required for the development of construction projects. An appropriate procurement and contract strategy is therefore necessary to protect such investment and to achieve value for money for clients and other stakeholders including investors who have a stake over the long-term use of such facilities. However, clients are often faced with the dilemma of how to procure construction projects and what type of contract to use to ensure that projects are delivered in the most cost effective and efficient manner, and most significantly to ensure that the facilities are fit for the purpose intended. In deciding what procurement strategy to adopt, it is important to understand the key drivers of change or factors that will or are likely to affect the particular sector or industry the project is operating in.

The central dilemma for clients is often how to select consultants and contractors (with an information advantage) that can act in their best interests in the project. This information asymmetry gives rise to two fundamental problems. The first is what is usually referred to as ‘incomplete contracts’, lacking sufficient precision to define the project, cover the entire scope of work including all possible risks. The greater the completeness of contract documentation, the lower the potential for dispute, abuse and opportunism ...

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