ABSTRACT

This chapter describes a schema for contracts which judges their ability to align the contractor's objectives with the owner's to create a cooperative project organization. It also describes modern practice on choosing contract structures and payment terms to allocate risk on projects. The chapter reviews that a contract is the method by which the owner creates the project organization and aims to develop a cooperative organization, not a conflict one. It then provides the two schemas for providing ex-ante incentivization and ex-post governance on projects, and shows that how these apply to the different contract structures and forms of payment. The chapter proposes a methodology to choose a contract strategy based on: who controls the risk: the client or contractor, or both, the complexity of the project and where the risk lies: in the project's product or process, or both.