A key part of any procurement activity, particularly in the construction and infrastructure sector, is to get the contract right.
Choice of contract
There is an array of standard contracts out there that are used for construction projects. These are generally construction contracts, design and construction contracts, construction management agreements, EPC (engineering, procurement, construction) contracts, DBM (design, build, manage), DBO (design, build, operate) or BOOT (build, own, operate, transfer).
We can choose Australian Standards for some of these, or bespoke where there is no standard, or a FIDIC or other international standard (such as the new NEC 4 Form of Contract).
Informing the decision
Key to the decision on what contract to choose is ensuring we understand what we need to do and what our objectives are.
At the simplest level, if we are designing, then we need to ensure that we use a contract that covers both design and construct, and effectively ‘wraps’ the risk.
This could be an Australian Standard design and construct contract (such as AS4300 or AS4902) or a bespoke EPC contract. Both of these require the contractor to design to the requirements of the owner or principal and then build to that design.
If we use a construct only contract where we are requiring the contractor to take some design risk, unless the general conditions are amended, the owner will miss out on some essential provisions covering design development, fitness for purpose warranties, intellectual property and professional indemnity.
Following that, any owner should consider whether they want to place the long term warranty, operation and maintenance or facilities management obligation on the builder.
The main benefit of this is that the pricing from the contractor will include not only the acquisition cost but also the total cost of ownership (TCO) or whole of life cost.
In the era of sustainable procurement, value for money and TCO accountability this is a very important consideration. Therefore, if we want to fully account for TCO then we should use DBM, DBO or BOOT contracts.
Successful project delivery and meeting objectives starts very early with the vital decisions such as choice of contract and contract model.
If this is wrong then:
- You may miss out on essential clauses to ensure you receive what you think you are buying
- You may miss the opportunity to have a builder consider sustainability and cost of management and ownership
- You may need to negotiate contract variations to add, for example, maintenance or management obligations at a later stage where your bargaining power is gone.