For 4 years, the annual ARCADIS Global Construction Disputes Survey has concluded that the number 1 cause of disputes on construction projects is due to contract administration. When will we manage to avoid these pitfalls?
Many of the causes of avoidable disputes are issues we have highlighted such as:
- Poor contract understanding – you should never shove your contract into the drawer
- Bad contract drafting – everyone should be able to picture their role and how they support the goals of the project
- A unprofessional approach to contract formation – which is why you need a proper strategy
- Lack of clarity leading to a poor understanding of aims, risks, and procedures
What about the superhero of contracts: the contract administrator? Currently the survey paints him/her as the fall-guy. Is that really the whole picture? If we delve deeper, the survey states that in 93% of cases the conduct of the contract administrator negatively affected how the dispute crystallized… but partly because they cannot understand the contract procedures.
Instead of a hero we now have a villain – those who write contract procedures. Contracts should not be used to dictate impractical processes. For example, a local authority client admitted that recent staffing cuts made it nearly impossible for their project managers under NEC4 to respond within the mandatory 8-week period. I’ve known plenty of companies who happily agree to speedy payment terms, but find their accounts team cannot comply due to internal audit processes.
Process should drive contracts, not the other way round.
If processes cause errors – which in turn cause disputes – then we need to develop processes that are as close to error-free as possible. One partial solution includes using blockchain technology to replace the need for humans in contract administration, particularly for a key element in disputes: payment. Blockchain or smart technology can use software which adopts a process similar to a project bank account and automatically pays all members of the supply chain.
Before we disrupt construction with technology, we need to get the basic principles of contract administration right. We need to create simple trust-enhancing processes that meet the needs of the supply chain as a whole. Our contracts should not be villains, and their processes should help rather than becoming sticks to beat our ‘superhero’ contract administrator.
Originally published in Construction Manager, 17 August 2017