Construction Contracts – A Recipe for Disaster

Tuesday, February 18th, 2014

There is an endless, repetitive catalogue of construction disasters. They are not restricted to any part of the world, nor are the culprits’ uninformed clients and constructions companies. Brian Farrington Limited continues our research into the causes of construction ‘difficulties.’ One of our drivers is seeking to identify why the problems persist.

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Outlined below are more excerpts from a review of construction projects.

  •   A lack of pre-project planning resulted in inadequately defined scopes of work and prolonged project designs
  •   Some project decisions were made after the projects were designed and construction contracts were awarded
  •  The cost and design required to complete the projects grew significantly from original estimates
  •   On two projects, design contractors spent more time designing the projects after the construction bids were awarded than they did before the bidding process
  •   Design omissions and errors contributed to 171 changes in the construction contract, and construction costs exceeded the original bid by 30 per cent
  •   Facilities services paid contractors for additional work at rates higher than allowed in the contract
  •   Many changes occur during construction because clients have difficulty knowing what they want or need before construction is underway
  •   Project managers told us they work under many constraints including time consuming contracting requirements
  •   Staff did not do an adequate job of documenting the reasons for formal contract changes
  •   A contract change included the phrase “modify space planning to fit existing footprint” and “generate base drawings”
  •   Increases in projects costs examples was  i) 91% ii) 180% iii) 329%
  •   Project managers told us liquidated damages are seldom claimed when contractors miss contractual deadlines.

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This listing is a litany of how construction projects ‘go wrong.’ Cynically, it could be propounded that contractors are expert in taking advantage of situation circumstances outlines above. Change orders are almost inevitable, presenting the opportunity for price hikes, extended delivery dates and manipulation of site ‘issues.’

The role of professional procurement is frequently undervalued. Note the comment on ‘time consuming contracting requirements.’ The reasons why the process is sometimes prolonged is precisely because the specification, etc, etc, is inadequate and to contract under those circumstances would leave the buying organisation open to incalculable risks. In a similar vein, note the comment that liquidated damages are seldom claimed. Why should this be so? Is it ineffective contract management? Is it that we caused the delay and don’t want to open up pandora’s box?

Construction procurement is not a task of convenience, simply carrying out what we are told regardless of the consequences. It requires a robust risk modelling tool at the very least.

We now recommend you read “Negotiation- Are you demonstrating toughness?”  –  and sign up to the ‘Think Procurement’ e-newsletter (scroll to the bottom of the page).


Why Brian Farrington?

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington Ltd — bringing a thorough understanding of their procurement and supply chain issues and a proven track record of enabling excellent returns on their investment.

Second, our clients are confident that they are working with specialists that bring experience, expertise and stay focused on client success; not on our next income target.

Finally, people –people just like you – tell us they actually like working with us. They find us easy to work with and collaborative in solving issues that inevitably arise in procurement.

About Brian Farrington 

Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in procurement, risk and negotiation.

Brian Farrington solutions and services are formed through consultancy, training & development and coaching – all underpinned by proprietary technology. Our four core areas of procurement capability are:

•Strategic review and commercial governance

•Performance delivery and transition

•Major project support including contract negotiations

•Learning & development in support of organisational aims.

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2 Responses

  1. Tuesday, February 18th, 2014 at 2:21 pm

    […] Read our “Procurement Fraud: A Shocking Wake-Up Call” article on the Procurement leaders website or a recommended read of “Construction Contracts – A Recipe for Disaster“. […]

  2. Tuesday, February 18th, 2014 at 1:00 am

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