Construction contracts: The cost of mistrust

Current contractual relationships are mainly based on confrontational situations that reflect the level of trust (or mistrust) in the contract documents. This can be the driver to increase the total cost of a specific project and affect the overall relationship between the contracting parties. This has been tested in the construction industry in Canada, and appears to be generalizable across North America. Based on two independent surveys (including the one presented in this paper) of Owners, Consultants and Contractors across Canada, the assessed premium associated with the five most commonly used exculpatory clauses in construction is between 8 and 20% in a seller's market. It should be obvious that trust and contracting methods are related and that this relationship is of vital importance to effective project management and contract administration. To date, little work has been done to explore the advantages of this relationship. This paper presents some of the results of a survey conducted across the Canadian construction industry that identifies some opportunities for better risk allocation mechanism and contracting strategies that are based on a trust relationship between the contracting parties. These opportunities are based on a trust relationship that can be the root cause for a significant saving in the annual bill for construction. © 2003 Elsevier Ltd and IPMA. All rights reserved.