An Opportunity For Commercial Managers & Lawyers: Understanding The Impact Of Contracts & Their Terms

Once again, contracts and commercial judgment have proven their value and importance, this time in the successful delivery of the London Olympics ‘megaproject’.

Andrew Davies leads research on innovation in infrastructure projects and systems at Imperial College Business School in the UK. He has investigated the performance of the Olympic Development Authority in delivering the required infrastructure on time and within budget – and undertaken comparison with similar projects, such as the redevelopment of Wembley Stadium (four years late and substantially over budget) and Heathrow’s Terminal 5 (highly successful development but flawed implementation).

His conclusions represent valuable insights for anyone involved in the design and delivery of contracts for complex projects:

–       avoid traditional fixed-price contracts unless there is a clear and collaborative mechanism to resolve issues and changes.

–       avoid parceling out the risk to contractors. Risk must be shared by the client and the contractors, driving a collaborative approach.

–       avoid disjointed testing and acceptance. A coordinated approach that allows adequate time for full system tests must be built into the agreement.

–       avoid unrealistic budgeting. A cooperative approach with transparent data means that the relationships between the client and delivery partners are positive from the outset.

Interestingly, Dr. Davies observes that ‘heavyweights in project management’ are the people learning from these experiences – surely, if true, a condemnation of the commercial and legal profession who should above all have a sense of which contracts work best and what terms and practices are needed to support successful delivery. Or once again, are we focused only on the situations that go wrong and ensuring we have the right penalties in place?