Contractual Approach

Choosing the Right Contractual Approach

One of the crucial mistakes that the management of the out-of-control Scottish Parliament Buildings made was to choose an inappropriate construction management form of contract. From an initial estimate of £43 million, costs soared to £431 million, over budget by 900%, and completion was 2 years late.

The Project Manager and Client (Employer) should understand the risks that each form of contract exposes the parties to, from fixed-price contracts on the one side of the spectrum, to construction management on the other.

Design and Build: The Contractor undertakes most of the design and all construction in accordance with the Employer’s brief and a detailed tender submission, usually for a lump sum price.
Develop and Construct: Similar to design and build, except that the Employer issues a concept design on which tenders are based.
Design by Employer: The Contractor undertakes only construction on the basis of full designs issued by the Employer.
Management Contract: A management contractor is appointed to engage and manage a number of trade contractors to carry out construction on the basis of designs issued by the Employer, as and when they are completed. The trade contracts are between the management contractor and the various trade contractors.
Construction Management: Similar to a management contract, the main difference being that the trade contracts are between the Employer and the various trade contractors.

The sharing of risk between the Employer and Contractor is shown in the accompanying diagram.