Five best practices to keep construction projects on track

Everywhere we look these days, there's some form of construction going on. It's an excellent enabler of economic growth, and of course, who doesn't love a good photo op with a hard hat? 

It's not all laughter and thumbs up's, however. Construction projects are notoriously uncertain. The industry is perhaps one of the biggest examples of how conditions half-way across the world can impact our lives and economy. From the availability of raw materials and labour to cost fluctuations and workplace incidents, a variety of factors keep every project in constant flux. In this post, we'll explore some best practices that both builders and project owners can implement to manage construction projects more effectively.

Contract management: Best practices for construction projects

Working with a professional contract manager

Construction projects can range from building a spare bathroom to erecting a 30-storey apartment block. Regardless of the size of the project, the duration, and the level of oversight required, it's always a good idea to engage an experienced contract manager to help iron out the details.

Contract managers are intermediaries between the project owner and the builder. They draft contracts that benefit all parties, including any subcontractors involved. For complex and long-term projects, a contract management team, comprised of representatives for both the project owner and the builder, handles the drafting and implementation of contracts.

Contract managers can also advise on ever-evolving regulations in the construction industry as well as workplace health and safety laws and fair work requirements. They can be hired by either party, but will ensure both the builder and the project owner get a mutually beneficial outcome. 

Defining the full scope of work, including change management

Every contract begins by defining the scope of work. This section outlines details of the project, including expected start and end dates, material requirements, jobs to be done, responsibilities and expectations of both parties involved, and risk mitigation measures. The scope of work is the guiding framework for the entire project. Although it should be exhaustive in its explanation of expenses and the work involved throughout the project, it also needs to address how changes and unforeseen circumstances should be handled.

Gemma Nugent, a Perth-based contract manager specialising in construction, said it's important to work change management into the scope of work because it gives both parties direction when needed. For example, during the build, the project owner might decide to modify details of the project, such as the type of door or the size of the windows to be installed. Though seemingly minor, these changes will impact the overall cost and timeline of the project. In such a situation, the contract should outline protocols that both parties should follow. Contract managers will consult on-site personnel on the type of changes that can be practically accommodated, and work with the builder and project owner to identify common ground, before outlining the next steps to be followed. This helps avoid friction and misunderstandings during the build.

"While drafting the scope of work, the contract author must have a good understanding of the project timelines, interests of the parties involved, possibilities for fluctuations in raw material and labour costs, and availability. A well-written first draft of scope of work can make change management less difficult..." 

Gemma Nugent
Construction Lawyer and Contract Manager, Sound Legal

Considering cost escalation and delay clauses

Before the pandemic, most delays and cost escalations were covered by the force majeure clause, which included so-called "acts of God" (unforeseen incidents, including natural disasters, wars and terror incidents, and of course, government-enforced lockdowns and pandemics).

Speaking to Zoho about the impact of COVID-19 on contract management, Gemma explained that a lot of builders in Australia, and WA in particular, opted to have a dedicated clause for COVID-related delays in their contracts. These clauses covered both personnel losses and supply chain delays caused by border restrictions. 

Although COVID-19 is no longer front of mind for most people, lessons learnt from the height of the pandemic seem to be sticking around. Some builders still prefer for contracts to include separate clauses addressing unpredictable economic conditions. For example, if the cost of raw materials rises during the build, it will subsequently increase the overall cost of the project. There are many ways to deal with this. One option is for either party to bear the additional cost; another is for both parties to share a portion of the cost. The project could also be delayed for a defined period. How the parties should deal with this situation should be defined in the contract. This granular level of clarity allows all stakeholders to weigh the full spectrum of risks and challenges before starting the project.

Using standard form contracts and management technology

Contracts are complex documents. This is why few contracts signed these days are drafted from scratch. Instead, contract managers use standard form contracts—templates—as a starting point for their projects. 
 
Several industry bodies have developed standard form contracts for use in Australia. The most popular one is the Australian Standards Contracts, developed by Standards Australia, an independent nonprofit agency recognised by the government. Others include Masters Building Association Contracts, Australian Building Industry Contracts (ABIC), Housing Industry of Australia (HIA), and Government Contracts. For international projects, FIDIC Contracts is most popular.

According to a survey conducted by the University of Melbourne, 68% of contracts are based on one of those recognised standard form contracts. However, it's also worth noting that standard forms require extensive customisation based on the project's requirements and the stakeholders' expectations. The University of Melbourne survey also found that 84% of contracts that were based on standard forms were modified to accommodate things like time extensions, delay damages, site conditions, payment procedures, and variations. An experienced contract manager or construction lawyer can advise on standard forms and apply relevant customisations. 

Additionally, contract management software systems can help everyone involved in a construction project to manage their contracts. For example, the contract manager can use it to organise clauses, record changes, collect signatures, and monitor the entire lifecycle of a contract from a single, accessible interface. The builder and the project owner can review their contracts, monitor changes, and maintain a digitised record of all changes.

Knowing the stakeholders

Contracts can only go so far. There are a lot of moving parts and beating hearts involved in a construction project and the only way to ensure it all goes smoothly is for builders and project owners to have good relationships with each other as well as other stakeholders throughout the supply chain. One way to achieve transparency is for both parties to establish their organisational values within the contract, and establish the right expectations early on. If they have the resources, they should also consider appointing trustworthy representatives to oversee various stages of the supply chain.

These measures can help a construction project run ethically, while also protecting all stakeholders against regulatory penalties. Australia's anti-bribery and modern slavery laws are some of the most stringent in the world, and noncompliance can result in severe consequences.

Parting thoughts

Agreeing to start a construction project is the easiest part of the process. Regardless of the size of the project and the expected duration, there are many revolving doors that construction professionals need to go through before, during, and after a build. That's why it's essential to have a well-drafted contract that clearly outlines each party's responsibilities and liabilities for the project. As in any large-scale effort, teamwork is the foundation of construction projects—even when it doesn't seem like it. Having an experienced contract management team or representative can help prevent a lot of the stress and burnout that come with building.