How a Construction Contract Can Make or Break You

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A large part of construction management involves risk. So, it’s critical to get out ahead of managing risk on a job, and that starts at the very beginning – understanding, managing and properly handling contracts.

Image: ConstructionExecutive.com

When project managers (PMs) better understand and achieve contractual obligations, companies can:

  • work smarter
  • be more profitable
  • face fewer unknowns
  • have less liability
  • benefit from lower transaction costs
  • improve pricing
  • realize more profits

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Fortunately, there are technology tools, like Autodesk Build Cost Management, that simplify the contracts process. This can make construction professionals more efficient and give them a better understanding of the risk their company faces during a project.

Even after you conduct your research, prepare your bids and negotiate, construction projects are still risky. Things you don’t plan for will happen – things that can break your company. The consequences – in other words, who pays for those unexpected events – are tied to and described in the contract. As Josh Levy explained on a recent Bridging the Gap Podcast, the contract contains the roots of risk.

Image: ConstructionExecutive.com

Managing risk involves knowing ahead of time what the contract says you are responsible for if something goes wrong on the job. Even if the terms are non-negotiable, you still need to be aware of the responsibilities you are facing. It may be possible to make up for that risk (build in a cushion) somewhere else before the contract is executed.

Therefore, it is to your advantage to have real data, real market analysis to back up your decisions before you sign a contract. Technology like Construction IQ can provide predictive machine learning to give you insights and the ability to understand the potential consequences you’re facing. This type of contract intelligence helps you make common sense decisions you can live with – decisions that can make your company stronger.

Image: MIT Sloan Management Review, Mashek

Collaboration, both internal and external, is important among the people who understand the contract provisions and those who don’t. After all, the contract can seem like a document steeped in mystery to some. But good communication can form a bridge between the back office and the field. Collaboration can also remove external barriers.

Whether you end up with a contract that is considered advantageous or not, the project managers and contractors will have to comply with the terms of that contract; they need to understand it to stay in compliance. The myriad details on a job can weigh heavily on PMs. Often there is not much give and take during construction, and yet PMs are charged with making the right decisions to meet contract requirements.

While no technology in existence is perfect and, likewise, no job is perfect, construction teams need to power through to give their best performance on a job. The best way to deal with things you don’t plan for on a job is to face adversity, realign and continue to move forward. When you are growth-minded, you will be willing to learn from challenges and consistently get better.


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