Effective Wording to Improve Risk Allocation in Lump Sum Contracts
Publication: Journal of Construction Engineering and Management
Volume 123, Issue 4
Abstract
This is the second paper addressing the results of an investigation into the subjective nature of contract interpretation. The first paper presented the findings of the investigation which showed how contracting parties interpret contract clauses differently. This paper reports the testing of a revised Canadian Standard Lump Sum Contract against its predecessor. The intent of this study was to measure the improvement of the wording-not in legal terms, but in terms of what the potential signatory to, or administrator of, the contract understood. The measure, as in the previous study, was the extent to which there was a “meeting of the minds” in interpretation of who was bearing particular risks. Unlike many contracts used today that are written by the owner or its representative, this standard form contract was drafted by a committee representing contractors and consultants, but not owners. An interesting observation was that owners were generally prepared to assume more risk than they perceived was being allocated to them while contractors wanted less risk.
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References
1.
Hartman, F. (1993). “Construction dispute reduction through an improved contracting process in the Canadian context,” PhD thesis, Loughborough University of Technology, Loughborough, U.K.
2.
Hartman, F., and Snelgrove, P.(1996). “Risk allocation in lump sum contract—concept of latent dispute.”J. Constr. Engrg. and Mgmt., 122(3), 291–296.
3.
“Stipulated price contract.” (1982). Standard Construction Document CCDC2, Canadian Construction Documents Committee, Ottawa, Canada.
4.
“Stipulated price contract.” (1994). Standard Construction Document CCDC2, Canadian Construction Documents Committee, Ottawa, Canada.
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Copyright © 1997 American Society of Civil Engineers.
History
Published online: Dec 1, 1997
Published in print: Dec 1997
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