Cost effective contracting

(The Groundsman, August, 2005)

There is more to contracting than price, resources and reputation

Appointing the right contractor does not guarantee a clear passage to a cost effective project. Apart from the variables that exist on site, the fine details of the agreement and the level of communication between the contractor and client will have a major influence on the final outcome.

The contractors’ proposal

Experienced contractors have made the effort to build up a good reputation. The quality of their work determines their acceptance in the market place and most of the time, left to their own control, they perform well.

  • With experience the contractor normally has a better knowledge of the project requirements than the client and in presenting his proposal he will have his own ideas and methods in achieving the best results.
  • In sole control of his contract, he is able to react quickly to changing situations and complete the works with minimum delay and control of his costs.
  • He is only human and must make a profit to survive. Left in control of the contract and responsible only to the client there can be a conflict of interest when a decision has to be made that involves extra cost but with his experience he is in a good position to convince the client of the extra need.
  • The contractor with experience will have chosen his words carefully in submitting his proposal in which he will have outlined his method and included conditions that limit his liability and reduce his on-site costs to a minimum.
  • Contract works will be controlled by an appointed site manager/foreman and he will make most of the on-site decisions. The client will have to be wide awake to monitor progress and will have to rely on the integrity and honesty of the contractor.

Extra costs

Extra costs on a contract site are inevitable. Neither the contractor’s proposal nor detailed contract documents drawn up by a consultant can incorporate the unforeseen costs that are bound to arise in any sizable project. The working drawings and specifications cannot possibly account for all the variables that influence the plan of work on site. The agreed contract price or compiled schedule of quantities can only serve as a guide and the monitoring and control to the end will determine the final cost.

There are two types of extra costs that emerge in a contract:

  • There is always scope for improvement that can be made while a contract is in progress. Generally this will be an additional cost but if this expenditure is more cost effective, the outcome can only be of benefit to the client.
  • The occurrence of unforeseen circumstances must be expected on a site where there are unknowns and where soil conditions and the local weather are main factors. To overcome arising difficulties, solutions would normally mean changes to the method and specification and involve extra cost.

In both these instances, in the absence of an unbiased mediator on site, it is left to the contractor to make the client aware of any changes envisaged and inform him of the extra cost. This cannot be an independent and unbiased decision and the contractor will aim to solve problems with the least amount of aggravation and good reward for the extra work. He cannot be blamed for this approach. On the other hand the client is looking to save money and achieve the most cost effective solution. Disputes can lead to a souring of the contract/client relationship and every effort should be made to resolve differences as soon as they arise. They should not be left to haggle over at the end of the contract when memories have faded.

The value of a mediator

The appointment of an independent qualified person as a consultant is generally side stepped because of the apparent additional cost. On a closer look however, there are a number of points that make this decision beneficial to both parties.

  • Ideally a detailed professional investigation of the project beforehand should identify most of the risks that could be encountered. A comprehensive work plan and specification prepared by a consultant gives the contractor a clear idea of the scope of work, reducing the number of items where he must account for the risks.
  • An independently prepared set of contract documents enables the client to compare quotations from different contractors to carry out the same specified work under the same terms and conditions.
  • Independent monitoring and regular site meetings controlled by a consultant should ensure nothing is overlooked. Attending to changes in plans, extra costs and disputes assists in keeping the contract duration on time and within budget. Technical decisions reached early can prevent unnecessary costs. Nothing is more costly to a contract than repeating an item of work that should have been done correctly the first time.
  • The allowance of a contingency amount in the schedule of quantities enables the consultant to make an unbiased decision on any extra costs that emerge without overstepping the budget.
  • It is vital for decisions to be made at critical stages in the contract. The client cannot guarantee to be available at these times and make the necessary decisions required immediately. Incorrectly completed work can result in unnecessary costs at a later stage – apart from the inconvenience in delaying completion.
  • The fee cost can be insignificant when extra costs are controlled and the contract is systematically managed.

Where there is little risk and the client has the time and expertise to monitor and control the contract properly, he can successfully engage a contractor and attain a good result. However, the consultant offers unbiased control and enables competitive quotations to be attained for the same work and set of conditions. In addition, he can be invaluable in curbing unnecessary costs when immediate technical decisions are required. Finally, for a contract to be successful both the contractor and client must be happy on completion. Misgiving by either party only leads to mistrust and so it is essential that both client and contractor are able to retain the same respect for each other at the end of the contract as they did at the beginning.

Gordon Jaaback

July 2005