Page 425 - Global Project Management Handbook

PARTNERING IN PROJECTS 20-13

contractor bears higher risk, he or she should be rewarded appropriately, though this can
be reduced if the client builds in a safeguard.
2. The ex post governance arrangements to encourage cooperative working and joint prob-
lem solving to deal with risks, both foreseen and unforeseen, as they occur. Additional
rewards may be required to deal with unforeseen risks, but if cooperative working is
encouraged, these can be agreed on in a way that rewards the contractor appropriately
but encourages him or her to continue to achieve the client’s objectives.

Contractor Controls the Risk
The contractor alone will control the risk if the risk lies mainly in the method of deliver-
ing the project. In this case, a fixed-price design-and-build type of contract is appropriate.
The contractor should be left alone to solve the problems on the project. In this case, the
client often can get a cheaper price than with a cost-plus or remeasurement type of con-
tract, but if the contractor is left alone to solve the problems, he or she can reduce the cost
of the project to achieve good profit margins. However, safeguards should be built in to
compensate the contractor if any totally unforeseen risks occur. Unforeseen risks remain
the client’s responsibility. Also, although the client should leave the contractor to solve
his or her own problems and not interfere, the client should maintain an open-door policy
so that he or she is available if the contractor needs to speak to him or her. The contractor
may have two equally preferred options and want to see which suits the client better, or
some risks may occur that the client is better able to deal with.
If there is more than one contractor involved in the project, then the contractors
should form a joint venture, consortium, or partnership so that they can share the risk and
work together to eliminate it.

Client Controls the Risk
The client will control the risk if it mainly lies in the design of the asset to be delivered
by the project. In this case, it is best to divide the project into a design and construction
phases. The design project will be undertaken by a design consultant on a time-and-materials

or target-price basis. The construction contract should start only when the design is com-
plete, or else the risk becomes shared, and a partnering arrangement should be adopted.
The construction work typically is done on a remeasurement basis, but this is effectively
fixed price if the design is complete when construction starts. As mentioned earlier, safe-
guards should be built into the contract to deal with any unforeseen risks, and although
joint problem solving should not be necessary during construction, processes should be
built into the contract should they be needed.

CONCLUDING REMARK

In this chapter I have mainly discussed projects where the project work is done by an
external contractor. On all projects, however, whether done by an external contractor or
internal staff, you should encourage cooperative working between the client or sponsor
and contractor or project manager. Cooperative working on projects is a necessary condi-
tion for project success. Without it, the project will fail. Every project should be viewed
as a partnership between all the project participants, where they work together rationally