CONTINGENCY PERCEPTIONS OF TRADITIONAL VERSUS COLLABORATIVE-BASED CONSTRUCTION CONTRACT CLAUSES

Abstract

Although contracts are viewed mostly as legal documents whose main objective is to manage risk, its clauses reflect the collaboration level expected between parties. The objective of this paper is to empirically investigate the contracting parties’ perception of collaboration in contract clauses and their correlation to the risk allocation (depicted by the contingency percentage allocated by contracting parties). Through surveys administered to both owners and contractors, survey participants were presented with different project scenarios, including varying degrees of 1) risk allocation in contract clauses (contract collaboration level), 2) project site conditions (project risk level), as well as, 3) prior working relationship with the other contracting party (trust level). Based on these scenarios, participants were asked to allocate a contingency percentage (perception of risk). Results show that clauses identified as low-level collaborative clauses are highly correlated with high contingency percentages. In general, participants representing owners tend to place a lower contingency percentage compared to contractors in all the presented scenarios. This finding reinforces the need to communicate risk perceptions between parties to align their expectations, and thus their estimates of an adequate contingency percentage, ultimately reducing unnecessary project costs. The study also highlights the importance of developing balanced contracts that reflect the trust level exhibited between the parties.