RELATIONAL CONTRACT IN CONSTRUCTION INDUSTRY IN MALAYSIA
NURUL ALIFAH BINTI JATARONA
A project report submitted in partial fulfillment of
the requirements for the award of the degree of
Master of Science (Construction Management)
Faculty of Civil Engineering
Universiti Teknologi Malaysia
NOVEMBER, 2007
iii
To my beloved father, mother, husband, siblings and friends
iv
ACKNOWLEDGEMENT
Praise is to the Almighty Allah the God of the Universe who gave me
chances to live this beautiful life. This piece of work would not become possible
without the contributions from many people and organizations. In this segment, I
would like to acknowledge each and every person who has contributed their effort in
this study by whatever means directly or indirectly. Most importantly, I would like to
acknowledge my supervisor, PM Dr. Aminah bt. Md. Yusof for her kind assistance
and advice, beneficial criticisms and observations throughout this master project.
I would also like to thank the respondents of this study that I had interviewed
and asked for help in improving my questionnaire survey form. Their precious
comments and ideas have provided me with very useful background data and
information. Not forgetting to all the contractors that help me by completing the
questionnaire survey, a special thanks to all of you. Your kind and generous help will
always be in my mind.
Many thanks go to my relatives back home especially to my beloved father
and mother, Mr. Jatarona b. Mohd Nor and Mrs. Zainab bt. Kulub M.Nasir. Not to
forget, my loving husband, Mr. Mohd Afdhal who has been supported me throughout
my study and to all my friends from whom I have received a great deal of support
while conducting this research as well as studying at UTM. For the rest of the
persons who had not been mention here, who have participated in various ways to
ensure my research succeeded, thank you to all of you.
v
ABSTRACT
For many years, the construction industry has relied on formal contracts to
define and enforce the obligations and rights of contracting parties. Nonetheless,
existing formal contracts are subject to some disadvantages hence and alternative is
required to address the issue. The objectives of this study are to study the current
practice of construction contract, to analyze problems associated with the application
of traditional contract in Malaysia and to appraise the knowledge and the application
of Relational Contract in Malaysia.
The data used in this study was collected
through literature study and questionnaire survey from Class A contractor in Johor
Bahru. Data was analyzed using Statistical Package for Social Sciences Software
(SPSS) and the results analyses were presented in frequency and average index
value. The finding shows that traditional contract has been identified to be the most
frequently used contract in Malaysia due to its familiarity to works with but there are
problem associated to the traditional contract. Potential barrier such as lack of client
knowledge also being identified in this study and lack of client knowledge is found
to be the most critical reason in adopting relational contract. The traditional contract
can be improved through the incorporation of Relational contract’s element such as
clearly defined scope, integrated project team, alignment of goals and open honest
communication. It can be concluded that relational contract is still new in Malaysia.
Many of the practitioners in the industry are not aware of this approach. However,
they agree that some of the elements in relational contract can be adopted in order to
overcome the weaknesses in traditional contract.
vi
ABSTRAK
Industri pembinaan di Malaysia buat sekian lama bergantung pada kontrak
tradisional dalam mementukan tanggungjawab dan hak pihak –pihak yang
berkontrak. Walau bagaimanapun terdapat beberapa kelemahan dalam kontrak sedia
ada dan suatu pembaharuan diperlukan dalam menangani isu ini. Objektif yang
digaris dalam kajian ini ialah mengkaji jenis kontrak yang digunakan dalam industri
pembinaan dalam masa kini, menganalisa masalah yang berkaitan dengan
penggunaan kontrak di Malayasia dan untuk mengkaji pengetahuan serta aplikasi
Kontrak Perhubungan di Malaysia. Data dalam kajian ini diperoleh daripada kajian
literatur dan melalui borang soal selidik. Borang soal selidik ini telah diedarkan
kepada kontraktor kelas A di sekitar bandaraya Johor Bahru. Statistical Package for
Social Sciences Software (SPSS) telah digunakan dalam menganalisa data-data
tersebut. Hasil analisis telah dibuat dengan menggunakan dua kaedah iaitu data
frekensi dan nilai purata index. Analisis, kajian menunjukkan bahawa kontrak yang
lazim digunakan dalam industri pembinaan adalah kontrak tradisional. Ini kerana
kontrak tersebut mudah digunakan.
Namun begitu, masih terdapat beberapa
kelemahan yang perlu ditangani. Faktor yang menghalang kontrak perhubungan
turut dikaji dan didapati faktor utama yang menghalang kontrak perhubungan ini
ialah kerana kurangnya pengetahuan berkaitan kontrak tersebut.
Elemen dalam
kontrak perhubungan seperti penerangan skop yang jelas, intergrasi dainatra pihak
berkontrak, matlamat yang sama bagi setiap pihak dalam sesuatu projek serta
mengamalkan komunikasi yang telus dilihat dapat menangani kelemahan dalam
kontrak tradisional.
Kesimpulannya, kontrak perhubungan ini masih baru di
Malaysia dan kebanyakan pihak tidak mengetahui tentang penggunaannya.
Walaubagaimanapun kebanyakannya bersetuju bahawa terdapat beberapa elemen
didalam kontrak perhubungan yang sesuai digunakan dalam menangani kelemahan
kontrak tradisional ini.
vii
TABLE OF CONTENTS
CHAPTER
1
2
TITLE
PAGE
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENTS
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
viii
LIST OF TABLES
xii
LIST OF FIGURES
xiii
INTRODUCTION
1
1.1
Problem Statement
3
1.2
Aim and objectives
4
1.3
Research Methodology
5
1.4
Scope of Study
7
1.5
Importance of this Study
7
1.6
Conclusion
8
CONSTRUCTION CONTRACT
9
2.1
Introduction
9
2.2
Current Practice in Malaysia
9
2.3
Types of Contract Procurement used in Malaysia
10
2.3.1
Traditional Contract
11
2.3.2
Design and Build Contract
13
2.3.3
Management Contract
14
viii
2.4
2.3.4
Construction Management
14
2.3.5
Hybrid
15
2.3.6
Miscellaneous Contracts
16
2.3.7
Term Contract
18
2.3.8
Selection Preferences Type of Contract
18
Traditional Contract
19
2.4.1
Why use Traditional Contract?
19
2.4.2
Criticism on Traditional Contract
21
2.4.3
Advantages and Disadvantages of
27
Traditional Contract
2.4.4
2.5
3
4
Limitation on Traditional Contract
Conclusion
30
31
RELATIONAL CONTRACT
32
3.1
Introduction
32
3.2
Relational Contract
32
3.3
Benefits of Relationship Based Contract
35
3.4
Potential Barriers to Adopting Relational Contract
37
3.5
Paradigm Shift from Traditional To Relational Contract 39
3.6
The use of Traditional Contract in Malaysia
40
3.7
Conclusion
41
METHODOLOGY
42
4.1
Introduction
42
4.2
Literature Review
42
4.3
Develop Questionnaire
43
4.4
Survey
44
4.5
Data Analysis
45
4.5.1
Frequency Analysis
45
4.5.2
Average Index Analysis
46
4.6
Conclusion
47
ix
5
PRELIMINARIES ANALYSIS
48
5.1
Introduction
48
5.2
Data Collection
49
5.3
Respondent Background
50
5.3.1
Gender Distribution
50
5.3.2
Age Distribution
51
5.3.3
Position Distribution
52
5.3.4
Experience Distribution
53
5.4
6
Conclusion
54
ANALYSIS AND DISCUSSION
55
6.1
Introduction
55
6.2
Traditional Contract
56
6.2.1
Contract that is regularly used
56
6.2.2
Problems with Traditional Contract
57
6.3
Relational Contracts
64
6.3.1
Knowledge on Relational Contract
64
6.3.2
Potential Barrier in adopting Relational
65
Contract
6.3.3
6.4
7
Element to be added in Traditional Contract 68
Conclusion
72
CONCLUSION AND RECOMMENDATION
73
7.1
Introduction
73
7.2
Objectives
73
7.2.1
Objective 1: To study the current study of
74
Construction Contract
7.2.2
Objective 2: To analyzed problems
74
Associated with the application of
Traditional Contract in Malaysia
7.2.3
Objective 3: To appraise the knowledge
and the application of relational contract
In Malaysia
75
x
7.2.4
Objective 4: To recommend an
75
improvisation of traditional contract
through Relational Contract elements
7.3
Conclusion
76
7.4
Recommendations for further study
76
REFERENCES AND BIBLIOGRAPHY
77
xi
LIST OF TABLES
TABLE NO
TITLE
PAGE
3.1
Attitudes and Behaviors
37
4.1
The level of Agree for Average Index Analysis
45
6.1
Analyses on Problem with Traditional Contract
57
6.2
Analysis on Potential Barrier in Adopting Relational
65
Contract
6.3
Analysis on added factors for Traditional Contract
68
xii
LIST OF FIGURES
FIGURE NO
TITLE
PAGE
1.1
Methodology flow chart
6
2.1
Traditional Delivering Method
11
2.2
Stages in traditional method in delivering project
11
3.1
Partnering / Alliance Curve
38
5.1
Responses Percentage
48
5.2
The percentage of Gender Distribution
49
5.3
The Percentage of Age Distribution
50
5.4
The Percentage of Respondent Position in the company
51
5.5
The Percentage of Respondent Experience Distribution
52
6.1
The practice of contract procurement in the construction
55
Industry
6.2
Problem with traditional contract
56
6.3
Critical Problem with Traditional Contract
60
6.4
Problems with traditional contract: Less critical
62
6.5
Distribution of having problem with Traditional Contract
64
6.6
Potential Barrier in adopting Relational Contract
66
6.7
Element to be added in Relational Contract
68
CHAPTER I
INTRODUCTION
1.0
Background of the study
Construction projects are undertaken by many parties, all with their own
goals and motivations which may not always be aligned. The alignment is normally
pursued through a contract between parties which aim at achieving are commonly
agreed goals. A contract is a voluntary agreement between two or more parties, and
the purpose of a contract is to set out the rights, responsibilities, and liabilities of the
parties. The contract allocates risk among the parties. Contracts may be formal and
written, with fairly explicit described behaviors and understanding. Years of legal
analysis and substantial experience have gone into drafting and fine-tuning the
standard forms of contract that are commercially available. Nonetheless, they are not
perfect for every project or every party. Different groups of contracting parties, and
also people within the same group, interpret contract clauses in different ways.
For that reason, many contracts are custom made to suit individuals and
projects. The contractual interrelationship between parties to a construction project
will often determine what remedies are available as well as allocation of
responsibility and liability. Furthermore, they are governed by contracts, which do
not necessarily produce win-win outcomes.
In Malaysia there are two type of
contract that is commonly used which are traditional contract and design and build
contract. In traditional contract method, contractor agrees to build the design that
provided by the client. The contractor only has responsibility for construction and
2
not for design. Design and Build comes in various forms but is typified by the
contractor taking both design and construction responsibility. In integrated D&B
contracting the contractor develops the design and constructs the building based on a
set of requirements provided by the employer.
However recently there is a new approach in contracting in Malaysia
construction industry which is relationship contracting.
Implementation of
traditional contracting systems in construction industries frequently lead to
confrontations and unresolved issues associated with different commercial alignment
of individual parties. Hence, the modern type of contracting systems emerges, hoping
to replace and sealed up the adversarial traditional style of management.
According to a publication by Alan McLennan Strategic Services, an alliance
network company in Australia, relationship contracting is a term applied to
contracting arrangement where management of relationship is given precedence over
the dictate of a standard form of contract. It is a strategic alliance between
organisations to achieve mutual benefits. Relationship contracting is based on trust,
appropriate risk allocation, teamwork, sharing of profit or loss and most importantly
the alignment of goals.
Basically, relationship contracting falls into two broad categories. They are
either project based or long term strategic alliance. Project based contracts are
commonly known as project-specific partnering and the arrangement will last until
the end of the project. The arrangement is between the principal and a few
contractors. The other form would be a long-term partnering or more likely to be
termed as alliancing because it usually last for years between the principle and the
main contractor.
3
1.1
Problem Statement
In traditional contracts, contractual and flexibilities that are required in ever
changing construction scenarios are not supported in order to face uncertainty and
complexity. These include split responsibility between construction and design.
This can and unfortunately often does lead to disputes about whether defects are
really design defects (for which the employer is responsible) or defects in materials
and workmanship (for which the contractor is responsible). The other major
disadvantage of this route is that the final design is often not fully developed before
construction starts and this can create problems and price uncertainty. This can make
general contracting unsuitable for public bodies with budgetary constraints.
The traditional form of contracts emphasizes the separation of roles in the
parties involved and a rather unbalance allocation of risks. The standard form of
contract encourages self-interest and protection of individual positions (McLennan).
It handles the contracts in a mechanical ways, indicating the time span, obligations
and other notices in writing. It ignores some of the crucial aspects dealing with
behaviors and commitments such as trust, honesty, fair dealing, good faith and open
communication. According to Scott (2001), the limitations of traditional contracting
are:
· Misalignment between the owner and the individual contractors
· Misalignment between the individual contractors
· Lack of access to the contractors’ skills and expertise at a time when they
can best and most influence the eventual outcome
Traditional contracting tends to escalate the project time and targeted cost due to
unforeseen circumstances such as dispute between client and contractors. Moreover,
the contractors have no interest or intention to reduce the overall project cost and
construction schedule. There is no incentive or benefit for them to gain.
4
On the other hand, relationship contracting offers an approach to encourage
cost savings and reduction in construction time through systematic contracting
procedures. At worst, it contains schedule overruns and cost. The relationship based
contracts is designed to overcome the limitation of traditional contracting. It opens
up the doorway to continuous improvement in performance, communication, trust,
risk management and future collaboration. Relationship contracting is founded on
the principle that there is a mutual benefit to he client and the contractor to deliver
the project at the lowest cost – when cost increases both the contractor and the client
are worse off (Sai On Cheung etc.). The core values of the relationship rely upon
commitment, trust, respect, innovation, fairness and enthusiasm. What is actually
meant by relational contract and how its application could help to ease current
dilemma in construction contract.
Do the contracting parties have substantial
knowledge on relational contract and to what extend its application in Malaysia? A
study should be carried out to investigate these statements.
1.2
Aims and Objective
The aim of the study is to investigate problem in pursuing traditional contracts with
the view of introducing relational contract in construction practice. The aim is
supported by the following objectives:
(i)
To study the current practice of construction contract.
(ii)
To analyze problems associated with the application of traditional
contract in Malaysia
(iii)
To appraise the knowledge and the application of Relational Contract in
Malaysia.
(iv)
To recommend an improvisation of traditional contract through relational
contract’s elements
5
1.3
Research Methodology
Research methodology starts with problem formulation which consists of
identifying area of study and selection of topics. Relational Contract in Malaysia has
been chosen as the area of this study. After identify the area of this study, aim and
objectives of this study were set. Then, literature review work been carried out
involving a through searching and investigating relational contract related issues
through different primary and secondary sources such as textbooks, articles, journals,
papers and international conference paper.
In additional, there also effort on
searching and browsing through internet web pages, internet websites, online library,
electronic database and online articles and journals to seek for supplementary
information.
The purpose of the literature review was to gather important
information related to the topic and deepen the understanding of relational contract,
the advantages and potential barrier in adopting it in the construction industry.
Based on the literature review work, a questionnaire was developed. There
were five sections in the questionnaire contains of questions related on problems in
traditional contract and relational issue. Each section in the questionnaire required
respondent to answered questions that gives information required for the study.
Then, the questionnaire has been distributed to Class A contractors in Johor Bahru
area.
Out of 44 questionnaires distributed, only 22 questionnaires returned.
Returned questionnaire has been analysed by using software namely Statistical
Package for Social Sciences Software (SPSS). In the analysis, two method has been
used which is Frequency Analysis and Average Index Analysis.
Based on the
analysis, findings were obtained and a conclusion was derived based on the results.
Findings and conclusion must be referred and answered the aim and objective that
has been set before. Figure 1.1 shows the methodology flow chart of this study.
6
Problem Formulation
ƒ
Identify area of study
ƒ
Selection of topic
Aim & Objectives
Literature Review
•
Magazine
•
Journal
•
Internet
•
Article
•
Book
Questionnaire
Analysis
ƒ
Statistical Package for
Social Sciences
Software (SPSS)
Finding 1
Finding 2
Finding 3
Conclusion
Figure 1.1: Methodology Flow Chart
Finding 4
7
1.4
Scope of Study
(i)
This research study on the current contract practice in Malaysia. It also
will cover the problem occurs in traditional contracting practice.
(ii)
Further, it will cover on how the relational contract could overcome the
weakness of current contract.
(iii)
The study is mainly to investigate the acceptability and knowledge of
relational contract in Malaysia
(iv)
The questionnaire will be conducted in Johor Bahru.
(v)
Respondent of this study is from Class A Contractor.
(vi)
Analysis that is going to be used for this study is Statistical Package for
Social Sciences Software (SPSS).
1.5
Importance of this study
The importance of this study is to know the current contract procurement that
is regularly used in the industry. This information is important in order to see the
pattern in contracting whether there is any development or new criteria stated by the
client in choosing type of procurement. Furthermore, problem in current contract
used is identified through this study and improvisation can be made by introducing
the new philosophy in contracting. Relational Contract is introduced to the industry
and their acceptance is studied.
8
1.6
Conclusion
This chapter has illustrated in details on fundamental of the study. In this
chapter, background of the study was discussed in detailed.
The natures of
construction industry were illustrated. The following sub-section is on problem
statement where problems in the traditional contract have been illustrated. Aim and
objective were defined in this chapter. There four objective that has been outlined.
Research methodology of this studies also being discussed. There also limitation in
the study. Those limitations have been outlined in scope of study. Lastly is on the
importance of the study.
CHAPTER II
CONSTRUCTION CONTRACTS
2.1
Introduction
In the previous chapter, the discussion was on the aim and objective of the
study, problem statement, method used in this study, scope of this study and the
importance of the study. Thus chapter will deal with construction contract.
This chapter is divided into three sub-sections which will discuss current
practice in Malaysia, types of contract procurement used in Malaysia and traditional
contract detail. The following sub-section will examine current practice in Malaysia.
2.2
Current practise in Malaysia
In Malaysia there are generally three category of procurement system being
adopted which are separated and co-operative procurement system, where the
responsibility for the design and construction aspects of the project are the
responsibility of separates organization. This kind of procurement is known as
Traditional Contract.
Another procurement method are integrated procurement
system, where design and construction become the responsibility of the organization,
usually a contractor and the owner only has one organization to deal with. This
procurement are known as design and built contract.
10
Last category of procurement is management oriented procurement. This
contract emphasize on overall management of the design and construction of the
project, with the latter element usually carried out by works or package contractors
and the management contractor having the status and the responsibility of a
consultant. However this management contract are no longer been used in Malaysia
as it is cause a lots of problem and the government of Malaysia has decided not to
used it for further project undertaking.
Out of these three categories, there are numerous variant formed by different
arrangements between the owner and the contractor. As it is commonly found in
Malaysia, the procurement system is very much related to the contractual
arrangement between owner and the contractor. This arrangement is dictated by the
standard form of contract used. The typical forms are JKR 203, PAM, ICE, FIDIC
and some bigger corporation such as TELEKOM, TENAGA NASIONAL,
PERBADANAN PUTRAJAYA and PETRONAS are using their own forms. These
forms might have been used as result of default, as compared with other procurement
systems. There are several types of construction procurement in Malaysia. These
are discussed in the following section.
2.3
Types of Contract Procurement used in Malaysia
Common types of construction procurement used in Malaysia were traditional
contract, design and build contract, management contract, construction management,
hybrids contract and miscellaneous contract. Each of the contracts will be illustrated
in detail in the following sub-section.
11
2.3.1
Traditional Contract
Traditional contract is known to be the most popular procurement used in
construction industry in Malaysia. This sub-section explores traditional method.
Most of the government tender used traditional contract in their projects. According
to Stephen Wearne (1997), the same scenario happened in North America, the UK
and other industrialized and developing countries where one main contractor is
employed to construct a project. In traditional contract, the owner has separate
contract with the both the designer and the general contractor.
There is no
contractual relationship between the designer and the general contractor.
In this delivering method, the design is typically completed before the
contractor is hired. It is the contractor’s project manager responsibility to obtain the
project plans and specifications, developing a cost estimate and project schedule for
construction, established a project management system in order to manage the
construction activities and managing the construction.
The traditional delivery
method is illustrated in Figure 2.1 and a stage in traditional method in delivering
project is shown in Figure 2.2.
The method is widely used as it has been in the practice for a long time. As
the technique is subject to some weaknesses, the Design and build has been
introduced. It is discussed in the following sub-section.
12
OWNER
GENERAL
CONTRACTOR
DESIGNER
CONSULTANT
SUBCONTRACTOR
Figure 2.1: Traditional Delivery Method
Brief
Feasibility
study
Scheme
Design
Production
Design
Tender
Construction
Occupation
Financial
commitment
Low
Low
Moderate
Moderate
High
Figure 2.2: Stages in Traditional method in delivering project
13
2.3.2
Design and Build Contract
A design and build contract also known as a ‘package deal’ or ‘turnkey
contract’ is one under which contractor undertakes both designing and constructing
the contract works, which are to be completed in such a way to meet the requirement
of the employer.
According to Janssens (1991), design and build building
procurement whereby the contractor who constructs the works, also undertake all of,
or a portion of the design of the work. Unlike many other contractual arrangements,
Design and Build requires the contractor to undertake design for the project.
This contract requires the contractor to be responsible for both design and
construct part.
However, contractors have three major methods to discharge their
design responsibilities; by employing in-house designers, engaging external
consultants or a mixture of both. Based on the studies done by Y.Y Ling (1998),
whether they employed in-house designers or external consultant does not make a
huge difference to the project delivering.
The most important is the attitude of the Design and Build contractor who is
the project leader. Therefore, leadership of the contractor is more important than the
procurement route adopted. Besides leadership, an experience in Design and Build
project is another important factor in determining the performances of designers.
There is also development in construction contract due to growth in
construction project. There is an emergence need to have a management contract as
it seem to be difficult for the contractor to manage the construction part and
management part. This contract will be discussed in the following topics.
14
2.3.3
Management Contracting
A comparatively recent development on large and complex projects has been
the emergence of the ‘management contractor’ whose only role is to manage,
coordinate and supervise the work of numerous specialist by whom the whole of the
construction work is carried out.
Under a modern management contract, these
specialists are employed as subcontractor to the main or management contractor but
the latter is relieved of any responsibility to the employer for subcontractor defaults.
The underlying philosophy of this type of procurement is that the
management of the construction process constitutes a particular expertise which can
be distinctly identified and accordingly addressed through the employment of the
management contractor. Compared to traditional general contracting and design and
build types of contracts, management contracting is unfortunately deficient in the
availability of standard forms of conditions of contract. In Malaysia, no particular
authority, institution or body has published any such form.
2.3.4
Construction Management
Construction management contracts are sub-set of the general corpus of
management type of contracts and as such share common characteristics with
management contracts. These have metamorphosed recently into an alternatively to
the latter type of contract and are being employed mainly on large and complex
projects having multiplicity of trades, user and designers.
In essence, a construction management contract is an arrangement under
which the employer enters into a direct contractual relationship with each of the
specialist contractors, while at the same time employing a ‘construction manager’ to
provide managerial and supervisory services for the project.
The obligations
undertaken by the construction manager in such a case depend upon the terms of the
contract by which he is employed. In addition to traditional, design and build,
15
management contract and construction management, there is hybrid approach to
procurement system.
2.3.5
Hybrids
In addition to the main types of contract strategy as described before, there have
also hybrids such as:
(i)
‘Develop and construct’ contract:
This is similar to a design and build contract, but a concept design is
prepared by independent professionals engaged by the employer before
the design and build contractor is selected.
(ii)
Design and Manage Contract:
This is similar to a management contract, but the contractor is also
responsible for detailed design or for managing the design process.
(iii)
‘Design and Construction Management’ Contract:
This is similar to construction management but the construction manager
is also responsible for detailed design or for managing the design process.
There are no published standard form contracts governing any of the above
hybrids and the practice is to employ ‘ad hoc’ or ‘bespoke’ forms customize for the
particular project or application. In construction industry, there also contract that are
being utilized by the industry.
Those contracts are stated under miscellaneous
contract that will be illustrated in the following sub-section.
16
2.3.6
Miscellaneous Contracts
Over and above the common methods of contract procurement describe
above, there exist other types of contracts that are being utilized by the local
construction industry. These are essentially variations of the conventional methods
and have been developed to address specific uses. Such contract include as bellows:
(i)
‘Build, Operate and Transfer Contract’:
This is a type of privately financed contract whereby the contractor
finances the project, designs it, undertakes the construction owns and
operates it over the concession period and on its expiry transfers the
beneficial ownership of the project back to the employer.
(ii)
‘Serial Contract’:
This is a contract resulting from a procedure called ‘serial tendering’.
Fundamentally, a serial tender is a standing offer to carry out work for
more than one project in accordance with the tender submitted for the
initial project or based on hypothetical bills of quantities representing
the average project of a series.
(iii)
Continuation Contract:
This is an ad hoc arrangement to extend the scope of the initial or
original contract beyond its original contract domain. For example, if
there is no standing offer to do more work than that originally
envisaged.
The original and continuation contract are dealt with
separately. If and when the latter arises, the original contract may be
used as a basis for realizing the continuation contract.
17
(iv)
Periodic Contract:
This is similar to a term contract, but the execution of work or supply
of goods is required at intervals, regularly or on demand rather than
being continuous for a stated time.
(v)
Partnering Contract:
This contract is in essence an extension to the normal serial contract
whereby over a predetermined period of time, the contractor
automatically receives all new contracts from the employer with
payment to be made by reference to an initially agreed formula.
(vi)
Independent Contract
This is essentially a contract for services whereby the party
undertaking a stipulated task for an agreed consideration is free to
select his own mode of doing it. He is either under the control or
direction of the other.
There are no published local standard forms of conditions of contract
governing the above miscellaneous contracts and use is made of ‘ad hoc’ or
‘bespoke’ form. There another type of contract called as term contract. Term
contract is a contract used for minor work during a specific time. This type of
contract is discussed in the last sub-section under types of procurement used in
Malaysia in the following sub-section.
2.3.7
Term Contract
A ‘term contract’ is one by which an employer seeks to make a provision for
the carrying out of certain categories of work (usually minor work of alteration or
repair and/or maintenance) during specified period of time. Depending upon the
18
term on which tenders are invited and accepted, the resulting legal relationship may
be a contract which binds the contractor to carry out whatever work of the specified
description the employer chooses to order during period stated.
Alternatively, the acceptance of a tender may result in a ‘standing offer’ by
the contractor, which ripens into a contract on each occasion that an order is placed
but which may be revoked at any time. At the moment, there is no local standard
form of conditions of contract for a term contract though there is a tendency to either
modify the JCT Standard form of measured term contract (1998 Edition) or to
generate ‘bespoke’ forms.
As been discussed in the topics before, there is many type of construction
contract used in Malaysia. Contractor may choose any of the contracts above in their
project. However, there is a selection criteria outlined in previous study. Those
outline and the reason why the contractors choose to use certain contract is discussed
in next sub-section.
2.3.8
Selection preferences type of contract
The uncertainties in the construction industry are generated by some of the
construction projects exceeding their time and cost budgets. At the time when the
cost of building and of borrowing money regarded as high, clients are less willing to
tolerate such uncertainties.
Although cost, time and quality are the three most
important considerations, the business of building procurement invariability calls for
some compromise or conscious balancing of these priorities. A study has been
conducted by Maizon Hashim (1998), on the client criteria on the choice of
procurement system in Malaysia. The result of these studies shows that clients who
want to control the design and variations to a large extent in their project will follow
the traditional procurement path.
19
Client who wants a relatively fast method for their project will take the design
and build procurement path as the construction time is reduced because the design
and build will proceed in parallel and there is also a guaranteed cost and completion
date.
Clients who want to modify or develop the design requirements during
construction will take the management contracting procurement path because they
can adjust the programmed and costs for their projects. It can be concluded that
whatever method of procurement is used, the client ought to make clear to the
tendering contractor what the objectives of the project are and how they relate to one
another. As the traditional contract is said to be the most used contract procurement
in Malaysia,
the next sub-section is going to give a clear view on traditional
contract in order to deepen the knowledge in this type of contract.
2.4
Traditional Contract
There has been many reasons to why the preferences to adopt different type
of contract in construction. The following section illustrates why traditional contract
is still being used by the industry although there is many other contract in the
industry. The criticism on traditional contract is also being illustrated deeply in this
sub-section. Furthermore, advantages, disadvantages and its limitation also being
discussed.
2.4.1 Why used Traditional Contract?
The traditional procurement system is predominant in the Malaysian
construction industry and, until 1992 at least, able to satisfy its requirements
(Masterman, 1992). As is well known, it is characterized by the contractor not being
responsible for the design or the documentation work (e.g. Goldfayl, 1999,
Rwelamila and Meyer 1999) and with a clear division between the design and
construction process responsibilities (Rowlinson, 1999, Martin, 2000). Also, each
phase in the traditional system is separate (Tenah, 2001, Walker and Hampson,
20
2003), with the design and construction processes being quite different (Wearne
1997). Each phase also contains different stages. The design development phase, for
example, comprises project briefing, feasibility studies, outline proposals, scheme
design and detail design (Smith, 1998). The reasons for the system’s continuance are
obvious to many observers:
(i)
It exploits the economic potential of the free market by enabling
contractors to be selected either by open or select competition among
an unlimited number of pre-qualified competitors (Rowlinson, 1999).
(ii)
The separation of design and construction appointment and service
provision C effectively restricts the amount of opportunistic business
behavior of those involved until the design is completed.
(iii)
Considerable flexibility is allowed for unforeseen events occurring
during the construction phase, e.g., ground conditions, changes in
scope and design, and errors in documentation (e.g., Turner, 1990;
Goldfayl, 1999; Walker and Hampson, 2003).
(iv)
It is a ‘value for money’ delivery system which employs participants
with different talents and combines these talents into a business
relationship to produce the desired results with greater certainty
(Rowlinson, 1999).
As been illustrated before, it is undoubtedly that traditional contract is the
best contract used. However, behind these reasons, there’s also criticism made on
traditional contract. Criticism on traditional contract will be illustrated in the next
sub-section.
21
2.4.2
Criticism on Traditional Contract
The traditional system has, however, been declining noticeably in popularity
in Malaysia in recent years (Tan, 2001). The same has also been noted in many
countries (Mo and Ng 1997) - a particular criticism being that it is unable to cope
with the complexity and dynamic nature of the current construction industry
(Rwelamila and Meyer 1999). The paper, reports an exploratory survey conducted in
Malaysia to ascertain the reasons for this decline. In particular, the concern are with
four major criticisms of the traditional system identified in the literature:
a) Time consuming aspects of the development processes
b) The effect of cost uncertainty
c) The effect on buildability
d) Fragmentation of organisational interfaces
a)
Time consuming aspects of the development processes
A 1997 survey showed only 54% of the clients in Malaysia to be satisfied
with the completion time for traditionally procured projects (Hashim, 1997). This
may be partly attributed to the complexity in designing modern buildings
(Newcombe, 1996). The traditional system, however, has also been continuously
identified as the slowest method of procuring construction projects available to a
client (Masterman, 1992, Chang and Ive, 2002). It is said to be the most convoluted
and inefficient in Malaysia (Tan cited in Hashim, 1997) and elsewhere (Rowlinson,
1999). One reason given for this is that the traditional system is a sequential process
(Masterman, 1992).
The construction phase, for example, should not begin until the design is
completed. However, the preparation and approval of drawings, and the mistakes
22
and discrepancies found in the design documents are frequent causes of delay in the
design phase (Chan and Kumaraswamy, 1997). As a result, whole development
process is lengthened (Turner 1990). Similarly, when the design team permits the
client to postpone the briefing decisions until the later stages, this results in key time
delays – again causing the whole project to be delayed (Barnes cited in Chan and
Kumaraswamy, 1996).
Of course, the effects of delays are well documented: severe criticism arises
when projects run far longer than planned and legal disputes always arise over how
much responsibility each party is willing to take for delays (Chan and
Kumaraswamy, 1996; Tenah, 2001); the developer may be forced to sell or lease the
building to cover the interest incurred (Hashim, 1997); although extensions of time
may help the contractor, the initial completion date of the project is still affected with
concomitant affects on the client (The Aqua Group, 1996); impacts on inflation,
where the final cost of large projects is much more than the first estimation (Taylor et
al 1999); etc. In an attempt to overcome these problems, the time made available for
the design phase is often reduced to below what is regarded by many practitioners as
a reasonable minimum (e.g., Emmitt, 1997). As a result, the design documents are
said to be “inevitably incomplete” (Yates, 2002; Walker and Hampson, 2003).
Errors also regularly occur in the form of differences in dimensions between
plans and sections, incorrect dimensioning of walls and openings between the
drawings and on-site (Ogunlana et al 1996). In many cases, project designs and bills
of quantities are not prepared before the contractor is selected due to the lack of
design information available (Masterman, 1992; Rwelamila and Meyer, 1999). Far
from saving time overall, therefore, this inevitably results in delays in the
construction phase due to unclear drawings and specifications, which prevents
contractors planning for the resources required for the work (Chan and
Kumaraswamy, 1997). Another implication of a reduced design period is an increase
in variations later. Variations are not only a source of annoyance in terms of time
and cost (Bromilow cited in Chan and Kumaraswamy, 1997) but are “a timeconsuming and expensive undertaking” (Hovet, 1994). They also always lead to poor
23
on-time performance (Chan and Kumaraswamy, 1996). Based on the reasons listed
above it is showed that development process in traditional do takes longer time.
b)
The effect of cost uncertainty
An associated issue concerns cost uncertainty. Although the description of
‘lump sum price’ under the traditional system seems to imply that the cost of the
project will be the amount of the accepted tender, this is rarely the case in practice
(Cooke, 2001). As Rowlinson (1999) and Turner (1990) point out, there is cost
certainty only at the beginning stage of the construction process - no one actually
knows the final construction project price until the project has been completed
(Hovet, 1994). In short, although a traditional lump sum tender may give the lowest
tender price, it may not result in the lowest overall construction cost. Because of the
long period of time taken to design, document and tender, there are inevitably
significant changes in the market forces, tender prices, interest and inflation rates
(Lavender, 1990; Turner, 1990).
Price fluctuations in construction materials have also been found to be
particularly significant in economically unstable countries (Akinci and Fischer, 1998;
The Aqua Group, 1999; Kayode cited in Akpan and Igwe, 2001). For most projects,
however, variations that occur during the construction phase have the most
significant and inevitable effect on final cost (Kumaraswamy and Walker, 1999;
Rowlinson, 1999; Rwelamila and Meyer, 1999; Akpan and Igwe, 2001). The
variations result in many extra claims (Morledge, 2002) and are often “very
expensive” (Lavender, 1990).
“Scope growth” during the construction phase has been identified as a
particular problem, with the majority of cost increase being derived from this source
(Akinci and Fischer, 1998) From the clients’ point of view, contractors are seeking
opportunities to create profit and additional revenue (Yates, 2002) and variations
provide such an opportunity. Also, variations cause confrontational disputes over
24
what might be a fair price for a project (Walker and Hampson, 2003). In fact, it is
this very issue of increased claims by low bidders that is said to be one of the reasons
for the increased usage of the design and construct system (Molenaar et al 1999).
c)
The effect on buildability
What looks good on paper or the computer screen can be difficult to build
and designs are sometimes impractical (Tenah, 2001). As mentioned earlier, this can
result in variations initiated by either clients or contractors. Buildability, as “the
extent to which the design of a building facilitates ease of construction, subject to the
overall requirements for the completed building” is considered to be underprovided
for most construction projects (CIRIA cited in Low 2001). It is said that clients are
dissatisfied with building designs which do not provide value for money, in terms of
constructability (Low and Abeyegoonasekera, 2001); their new facilities can be
difficult to operate and expensive to maintain (Markus, 1997); productivity levels
become difficult to raise and there is “incapacity to handle current realities”
(Kumaraswamy and Dulaimi, 200); and that the neglect of buildability is just not
sustainable in the long term (Barker, 1998).
This also points to the conclusion that the lowest initial cost is not necessarily
the most cost effective option or provides the greatest return. It is incumbent on
designers, therefore, to incorporate buildability into their designs. To do this, it is
obvious that contractors need to be involved in the design phase in order to maximise
buildability, as they know the significant variables affecting their ability to complete
projects within a given budget and schedule and to an acceptable level of quality
(Walker and Hampson, 2003; Ling, et al 2004). With the traditional system,
however, the contractor’s input into the design process is “minimal” and “often nil”
(Rowlinson, 1999). With this separation of contractors from the design development
stage, therefore, the opportunity to incorporate buildability into the design is largely
lost (Masterman, 1992; Walker and Hampson, 2003) and clients cannot receive the
best possible design solution (Love et al 1997). Additionally, architects, who are
seen to be traditionally the leader of the construction process, seem unwilling to give
contractors the leadership of this process (Dulaimi et al 2004).
25
In reality, however, each project participant in the traditional system is a
separate entity and there is no overall management and coordination in this system
(Tenah, 2001). It is also said that it is difficult for the architect to exercise objectivity
in his/her decisions (Turner, 1990). Moreover, the abilities of architects to manage
projects have been questioned over the past two decades (Masterman, 1992) and a
better solution may be to involve the contractor more in the process. Furthermore,
one of the major problems in the traditional system is thought to be that it pushes the
budget setting responsibility onto the clients and the design consultants (Masterman,
1992; Hovet, 1994). Again, this points to the possible benefits from involving the
contractor more closely in the process.
d)
Fragmentation of organizational interfaces
It has been observed that the traditional system does not create a unified team
in which experience, feedback, and new ideas are shared (Tenah, 2001), with team
members often not putting the clients’ requirements as their first priority (Smith,
1998) - resulting in completed projects that are not fully responsive to the client’s
needs (Markus, 1997). The separation of design and construction is an obvious cause
of this. In an organisational context, this separation extends into the various sub
processes involved also. For a large construction project, these sub processes can be
extensive with a concomitant effect on relationships (Harmon, 2003).
This situation, termed the fragmentation of organisation interfaces, has been
held to be a major weakness in the traditional system (Love et al, 1997). As has been
observed by many commentators, a particular problem associated with the
fragmentation of organisation interfaces within the traditional system is the tendency
towards adversarial relationships (e.g., McDermott, 1999). This is said to arise
predominantly because of the separation of the design and construction teams (e.g.,
Turner, 1990) - a situation viewed as one of “fragmentation, friction and mistrust”
(Newcombe, 1997), with the gap between design and construction contributing to
“major behavioural, cultural and organisational differences between project
26
individuals and groups” (Love et al, 1997). It is argued, for example, that the
architect and other key members of the design team fail to provide essential
management to coordinate the overall process of planning, design and construction
(Turner, 1990).
Similarly, the rush to complete the design often creates problems in
coordination between the project team members (Ogunlana et al, 1996). As a result it
has been suggested that communication problems can be reduced through the design
and construct procurement system, for example, because of the reduced number of
communication links with this approach (Kashiwagi, 1999). Also, as Kadefors
(2002) points out, the client fears that the contractor will scrutinise the contractual
documents for errors and ambiguities that may lead to claims, exploit their
monopolist position by excessive pricing of extra work, or save money by lowering
quality. This client dissatisfaction has also led some researchers to conclude that the
traditional system fails to provide an appropriate relationship between the client and
the contractor (Ngowi, 1997).
The problems caused by fragmentation of
organisational interfaces, however, go beyond the separation of design and
construction. There are “conflicts, inconsistencies and mismatches” between all the
project
team members
(Hegazy
et al, 2001), possibly due to simple
misunderstandings or prior assumptions or beliefs (Gardiner and Simmons, 1998).
These have often been attributed to communication difficulties caused by
either language differences (Ngowi, 1997; Loosemore and Lee, 2002) or differences
in the communicating cultures involved (Loosemore and Lee, 2002). Chan and
Kumaraswamy (1997), for example, report that inadequate communication among all
project team members’ results in problems in project coordination and schedules.
Likewise, Murray et al. (2002) found many communication problems at the
contractor-subcontractor-architect design interfaces, while poorly communicated
design changes have also been noted as leading to costly variations (Zaneldin et al,
2001). In addition, culture has been identified as affecting the degree of uncertainty
and anxiety of project participants – these being lower on projects where members of
different organisations share the same culture (Ngowi, 1997).
27
An alternative explanation of the source of conflict relates to the hierarchical
power structure implicit in the traditional system (Newcombe, 1996; Liu and
Fellows, 1999) leading to conflict between the project team members and clients
(Newcombe, 1996; Girmscheid and Hartmann, 2002). A further view is that
adversarial relationships arise in the traditional system because of the liabilities and
penalties on a party who has either done something wrong, or instructed another
party to do something wrong (Kumaraswamy and Dulaimi, 2001).
The above discussion had shown the weakness of traditional approach.
Despite these weaknesses, the traditional contract possesses some advantages which
explain in the following sub-section.
2.4.3
Advantages and disadvantages of traditional contract
Traditional contract is still the most popular procurement in Malaysia and
other developing countries as it is a well known contract. The credibility of this
contract is well known. The advantages are listed below:
ƒ
Tenders are on a like-for-like basis
ƒ
Scheme fully pre-designed and specified
ƒ
Early commitment to maximum price
ƒ
Reduced estimating risk (and therefore cost to Employer)
ƒ
Provides contractually agreed prices for valuation of variations, cost control
and analysis
28
ƒ
Standards are easier to control
ƒ
Two-stage tendering allows Contractor to have input in to design and
buildability and helps
ƒ
team-building, thereby helping avoid future adversarial attitudes
ƒ
Several ready made contracts available for use depending on size and
complexity of the scheme and the pre-construction design timescale available
- cost plus, activity schedule, bills of quantities (full or approximate).
However,
Tan
(1985)
viewed
the
traditional
method
of
project
implementation in Malaysia as being too lengthy; it needs a radical overhaul and
restructing to make the process faster and more efficient. This method today, is
taking severe battering from all quarters and the most severe complaints are coming
from their clients themselves. Nonetheless as the projects become larger and more
complex and also the requirement of the client change, this method has come under
increasing attack due to cost and time overruns.
Allan McLennan and Graham Scott (2002) viewed many of the current
procurement method and delivering systems of building and other construction
projects are not sustainable.
On the contrary, those methods are demonstrably
inequitable, adversarial, ineffective and inefficient and consequently fail to achieve
the outcomes sought by the major parties involved.
Due to those factors the
construction industry is significantly under performing and its contribution to the
economy in general and to the creation of wealth in particular is seriously
compromise. This situation is in urgent need for a solution.
Through Allan McLennan and Graham Scott (2002) observation, particularly
over the last decade show that:
29
ƒ
Unpredictable and excessive cost over runs regularly occurs and this makes
financial management of infrastructure programs very difficult (40% in some
cases; Construction Queensland Report).
ƒ
Poor and unacceptable quality outcomes occur and this includes the
unreliable management of quality assurances systems and processes.
ƒ
Poor and inadequate designs are causing contract management difficulties.
ƒ
A low trust, blame culture causes ongoing poor relations and
ƒ
There is a growing waste of emotional and physical energy in adversarial
disputes
The inevitable conclusion is that there remains a powerful need for reform in the
industry.
It is noticeable that the traditional way of dealing with the human
involvement in contract documentation is characterized by master-servant concepts,
hierarchy of decision making authority, bureaucratic rules driven outlook,
responsibilities detailed in mechanical way, e.g. compliance with time limits and
other like clauses and lastly self interest and self serving provisions. According to
those factors it is time to investigate a quantum shift in the way humans interact in
the contractual setting.
Concept like “good faith”, “fair dealing”, “trust” and
“trustworthiness” need to take on specific meaning within contractual agreements.
An alternative way of delivering projects is needed in order to overcome the
weakness of traditional contract and Relationship contracting seems to be the option
to overcome those weaknesses. The disadvantages of traditional approach create the
limitation of traditional contract as discussed in the following topic.
30
2.4.4
Limitation of traditional contract
Current practice of traditional contracting has some limitations that impact the
performance of the project. There are three principle areas identified by Scott (2001)
as shown below:
ƒ
Misalignment between the owner and the individual contractors
The owner is primarily concerned with the delivery of the project as a whole
where as contractors only focus on the completion of the work they are paid
for. They have no further interest in the project once their service has been
completed. The contractors hardly have any incentive to design and build the
project in an economical as well as optimal way. This shows a misalignment
between the owner and the contractors as they have separate commercial
objectives.
ƒ
Misalignment between contractors
Traditional contracting structures often lead to misalignment between
individual contractors because each contractor has the financial interest in its
own performance only. They do not see any benefits in working proactively
to improve the efficiency of the project as a whole. Moreover, the
inefficiency of others might allow one to institute claims, blaming the failure
to perform of others has caused their inability to fulfill their contractual
obligations.
31
ƒ
Lack of access to contractor expertise
The strength and expertise of contractors are rarely effectively utilised by the
owner in traditional contracting. The failure to engage key contractors in the
early stage imposed potential penalties for the owner such as a more
uncertain cost estimates, greater uncertainty in the project execution
schedules and less comprehensive knowledge on the total risk profile of the
entire project.
As all disadvantages and limitations have been recognized, many studies have
proposed the alternative as to adopt Relational Contract. Chapter III is discussing
further on Relational Contract.
2.5
Conclusion
This chapter has been illustrated in detailed on traditional contract. The
discussion is on the current practice in Malaysia which has been discussing on how
contracting work is done in Malaysia. The next topic is on types of procurement
used in Malaysia. In this subsection, seven types of contract have been illustrated.
Those contracts were traditional contract, design and build contract, management
contracting, construction management, hybrid contract, miscellaneous contracts and
the term contract. Selection preferences type of contract preferred by the contractor
also has been outlined. The next sub-section is on the traditional contract. The
discussion is on the used of traditional contract, the criticism on traditional contract,
the advantages and the disadvantages of traditional contract and its limitation. The
next chapter will be on Relational Contract.
CHAPTER III
RELATIONAL CONTRACT
3.1
Introduction
Traditional contract has been discussed in detailed in the previous chapter.
As been mentioned in that chapter, traditional contract has several disadvantages that
lead to some limitation.
These limitations can be overcome by applying the
relational contract approach.
Therefore relational contract will be discussed in
detailed in this chapter.
This chapter is divided into five sub-section that are relational contract in
general, benefits in relational contract, potential barrier in adopting relational
contract, paradigm shift from traditional to relational contract and the last one is the
use of relational contract in Malaysia.
3.2
Relational Contract
Relational contracting (RC) is based on recognition of mutual benefits and
win-win scenarios through more cooperative relationships between the parties. RC
principles underpin various approaches, such as partnering, alliancing, long-term
contracting, joint venturing and other collaborative working arrangements and better
risk-sharing mechanisms (Alsagoff and McDermott, 1994; Jones, 2000). According
to these RC principles, parties do not strictly adhere to the legal mechanisms
33
provided in specific contracts, but instead operate from a dynamic standpoint within
a collective framework of contractual, economic, and behavioral forces (Macaulay,
1963).
Relationships between the parties are therefore important, particularly in
complex, lengthy, and evolving transactions, as seen in construction projects, where
the underlying contractual scenario may change considerably over time. Relational
Contract is based on a dynamic relations scenario, all segments (i.e., past, present,
and future) of which are interrelated (Macneil, 1974), rather than partitioned as
discrete transactions. Proactive measures are suggested for unfolding future
transactions as and when they eventualize. Relational Contract provides the means to
sustain ongoing does, the need for the contract may be of less importance (Macneil,
1978).
Relational Contract considers contracts as promises of doing something in the
future, but not all events can be foreseen (discerned or realized), and as all the
information needed cannot be perceived completely (collected or measured or
quantified) at the time of contracting, mutual future planning is required. This may
well give rise to “opportunism” (Lyons and Mehta, 1997) that benefits one party at
the expense of other(s) and needs trust and trustworthy behavior (to counteract
opportunism) among the parties. A party is trustworthy if it successfully resists
opportunism, and trusting if it believes the other party is trustworthy. Mutual trust is
a social relation characterized by both parties being both trusting and trustworthy.
Two types of trust work as safeguards against opportunism: self-interested trust (SIT)
and socially oriented trust (SOT).
SIT is forward looking in expecting direct rewards from cooperation in the
form of continuing business. On the other hand, SOT is backward looking and based
on a history of working relationships and social relations that create shared values,
moral positions, and friendships that discourage opportunism, even if the probability
of future trade is low (Lyons and Mehta, 1997). This trust is generated through
individual
motivation
and
attitudes
and
also
through
individual
and
interorganizational relationships (Fukuyama relations in long and complex contracts
34
by adjustment processes of a more thoroughly transaction-specific, ongoing,
administrative kind.
This may or may not include an original agreement, and if it 1995), which
considerably influences the project outcomes and is critical to the relationships of the
contracting parties (Drexler and Larson, 2000). Such trust can sustain cooperative
behavior and the envisaged JRM in the face of unforeseen events and emerging
problems. Results from recent studies (as discussed in later sections) show that this
motivation and attitude are now detectable in the industry. However, while non-legal
enforcement mechanisms clearly play a major role in RC, legal mechanisms may
also play a part in such exchange arrangements. Equally, more formal (i.e., legal)
contractual arrangements are accompanied by supportive non legal mechanisms.
This is seen in present construction industry approaches to RC through
partnering and alliancing. Project partners work as a team on the basis of a charter
that is not legally binding, so that the original contract will take precedence in case
any problem is not resolved as partners. RC approaches appear useful in achieving
the overall objective, which is to reduce the sum of production and transaction costs
(Walker and Chau 1999). RC offers a cost-effective means of encouraging
collectively beneficial behavior when transactions are exposed to opportunism, but a
fully contingent (or complete) contract is too costly (if not impossible) to specify. In
fact, all possible contingencies and their likely outcomes cannot be prepared for,
given the many potential permutations. RC is characterized by the subordination of
legal requirements and related formal documents to informal agreements in
commercial transactions, such as verbal promises, or partnering charters.
This mode of governance calls upon all parties to (1) recognize the positive
gains from maintaining the business relationship, (2) transcend the hostility, and (3)
overcome the uncertainties associated with unforeseen events in order to improve
overall efficiency through motivation and improved attitudes. Disagreements are
then negotiated toward solutions that do not jeopardize the relationship between the
parties. Such objectives and approaches also provide an ideal framework for the joint
management of risks (i.e., JRM) that cannot be foreseen or clearly allocated to one
35
party at the outset. Relational contract seem to be the best alternative way in
contracting and benefit of this contract that will be illustrated below, strengthen this
statement.
3.3
Benefits of Relationship Based Contracts
The most important question to be answer with regard to relationship
contracting is why.
Why there is a need for the client to adopt relationship
contracting as compared to traditional contracts? The question could be easily
answered by looking at the benefits of using relationship contracting.
Benefits
offered by relationship contracting as described by ACA (1999):
ƒ
Cost
- Optimum project life cycle cost
- Reduce capital expenditure costs
- Acceptable financial results for both clients and contractors commensurate
with their inputs and the risks undertaken by each party
- Improve operating performance
- “cost of change” curve will be significantly flatter
ƒ
Time
- Certainty of project time
- Reduced project delivery time
ƒ
Risks
- Better management of inherent risks
- Clearly defined risk allocation / sharing at outset
36
ƒ
Relationships
- Enhance business relationships
- Establishment and achievement of common / aligned goals
- Improvement behaviour of the parties to the contract, especially where the
contract experiences practical and / or financial difficulties
- A greater personal satisfaction for all projects parties
- Avenue for repeat business with resulting benefits to clients and contractors
ƒ
Technology / Innovation
- Greater incentive and encouragement to innovate in design, technology,
systems, processes and techniques
- Greater incentive and encouragement to apply the latest technology
ƒ
Optimum standard
- Optimum standards of quality, safety, industrial relations, community
relations and environmental performance during the project execution and
in operation
- Development of the industry’s professionals and workforce
- Increase industry research and development as a result of improved
Financial certainty
- World best standards of project delivery
- Increase flexibility to match changing project requirements
Relational contract approach recognized to be the alternative approach in
contracting as it promotes a lot of benefit to the industry. However, there is potential
barrier in adopting this approach. That potential barrier is illustrated in the next
section.
37
3.4
Potential Barriers to adopting Relational Contract
There are several barriers to overcome before the relationship contracting can
be successfully implemented. Most clients and contractors are settled in the mindset
of the traditional contracting environment that is of course adversarial. Though it
might not be the best solution for them but it is within their comfort zone and they
are familiar with the terms and obligations within the traditional context. When a
relationship contract is to be adopted, they must be committed to adapt to the new
changes and embrace the challenges ahead in order to achieve mutual benefits. Table
3.1 shows the summarized form of attitudes and behaviors that the contracting parties
should be prepared to face.
38
Table 3.1: Attitudes and Behaviors (Alan McLennan Strategic Services)
Before changing into new approach of contracting, there must be an
understanding on how the paradigms shift from traditional contract to relational
contract. The paradigm shift is illustrated in the next section.
39
3.5
Paradigm Shift from Traditional Contract to Relational Contract
Figure 3.1: Partnering / Alliance Curve from Lendrum (2003)
Figure 3.1 shows the partnering / alliance curve which represent the phases of
shift from a traditional based contracting system to a relationship contracting system.
The curve outlines the progression of partnership and their possible impact over time
on some crucial performance criteria such as quality of relationship, rate of
investment, adding value and competitive advantage.
There are basically three
phases during the transition process. At the initial stage of a partnering or alliance, all
the contract partners have to learn how to trust one other. All their ‘attitudes and
behaviors’ as mentioned earlier would need to shift towards a new paradigm, a
paradigm that promote credibility and trust. If this fails, the failure of the relationship
would be imminent.
40
The building of relationship begins to consolidate if the partnering or alliance
sustain through the first phase. After the second phase, the consolidation process
would have been completed. The contract partners would be able to see significant
improvements in performance and relationships. Not forgetting, partnerships and
alliances are dynamic living things whose rate of progress and direction can be
changed by myriad internal and external factor (Lendrum, 2003). For this reason,
different partnerships and alliances develop at a different rate and the continuous
improvement is not linear over time. Understanding the paradigm shift is important
as its shows that changes is not easy and need a lots of energy in changing the
attitude of contracting parties. However, this approach had shown its successful
achievement by employing this new approach.
3.6
The use of Relational Contract in Malaysia
The primary purpose of the research project is to develop a system or a
method to evaluate the suitability of adopting relationship based contracting system
in civil engineering contracts in Malaysia. Relationship contracting is still a new
paradigm for many construction firms in Malaysia regardless of their scale.
Nevertheless, the successfulness of applying relationship contracting in the
construction of the Kuala Lumpur International Airport (KLIA) has proved to be a
good start and an excellent example for further consideration of applying such
contracting system in future development. Rashid (2002) mentioned that the
application of project-based partnering during the construction of KLIA is said to be
among the key factors that enable the mega airport project to be completed in record
time. More achievement can be achieved by starting adopting relational contract
approach. However, the most important thing is that, the industry must ready to
accept the changes and willing to sacrifice in term of money and time in learning this
new approach.
41
3.7
Conclusion
This chapter has been illustrated in detailed on Relational Contract. The
discussion is on the relational contract itself, the benefits of the contract, and
potential barriers in adopting it, paradigm shift from traditional contract to relational
contract and the use of relational contract in Malaysia.
The first sub-section which is on relational contract were discussing in detail
about relational contract and the element of the contract. Next is on the benefit of
relational contract. Benefit on relational has been divided into six items which is
cost, time, risk, relationships, technology/innovation and optimum standard.
Potential barriers have been illustrated in detail in Table 3.1.
Next sub-section is on the paradigm shift from traditional contract to
relational contract. Figure 3.1 illustrated the changes in graphic. The used of
relational contract also has been discussed. From the discussion, it is found that a
few mega projects in Malaysia such as the construction of KLIA (Kuala Lumpur
International Airport) is using Relational contract during contracting. The following
chapter is on Methodology.
CHAPTER IV
METHODOLOGY
4.1
Introduction
Literature work on Traditional contract and Relational contract has been
discussed in detailed in the previous chapter. Method in conducting the whole study
is illustrated in this chapter.
This chapter is divided into four sub-sections that are literature review,
developing questionnaire, data collection and data analysis.
All sub-section is
discussed in detailed below.
4.2
Literature review
The literature review involved a through searching and investigating
relational contract related issues through different primary and secondary sources
such as textbooks, articles, journals, papers and international conference paper. In
additional, there also effort on searching and browsing through internet web pages,
internet websites, online library, electronic database and online articles and journals
to seek for supplementary information. The purpose of the literature review was to
gather important information related to the topic and deepen the understanding of
relational contract, the advantages and potential barrier in adopting it in the
43
construction industry. The second state involves data collection via questionnaire.
The development of questionnaire is discussed below.
4.3
Develop Questionnaire
A sounding methodology is required in order to meet the aim and objectives
of this study. The first part of the main objectives of master project is to study the
current practice of construction contract and the problems associated with the
application of traditional contract in Malaysia.
Surveys on local companies are
carried out. The respondents mainly are Class A contractor. Based on previous
work done by Lim Chuan Jye (2005), questionnaire approach is the most effective
method in carrying out the survey. The questionnaire consists of five distinct parts –
the company profile, respondent profile, traditional contract, problem in traditional
contract and Relational contract. Most of the question needs the respondent to rank
answer, ranging from strongly agree to strongly disagree. The structured
questionnaire controls the response as well as easier to understand the questionnaire.
The first and second section of the questionnaire was on company and
respondent profile.
Both sections were design to provide information on the
background of the company and the respondent. That information is important to the
researcher to access the genuinity of the respondent. In both section, which is
section A and B, respondents are required to tick the answer provided. Respondent
will tick the most suitable answers. Question in Section A requires the respondent to
provide the company name, company telephone number, nature of company, age of
the company and classification of company whereas in Section B were sex, age of
respondent, respondent position in the company and his experience.
Sections C and D were on Traditional Contract.
Both sections required
respondent to circle the most appropriate to each statement. Question is rated in
ranking mode from ‘the most frequently used’ to ‘never used’ and from ‘Strongly
44
agree’ to ‘strongly disagree’. Questions covered in this section have been classed
into five criteria. The criteria were as follow:
ƒ
Type of contract document used
ƒ
Type of contract used
ƒ
The reason why used traditional contract
ƒ
Respondent opinion on Traditional contract
ƒ
Problem in Traditional Contract
The last section was Section E which is on Relational Contract. Respondent
were asked on whether they have been used or heard about Relational Contract.
Then, they were asked on factors that they would like to add into current contract and
the potential barrier in adopting Relational Contract. The purpose of those questions
is to get the clear view on respondent’s readiness in accepting the Relational
Contract. An example of questionnaire is attached in Appendix A.
4.4
Survey
In spite of the literature review, interview with practical company personal or
his management team has been done in order to gain practical information, hands-on
issue and experiences related to traditional contract. The survey commenced in early
August 2007. List of Class A contractor in Johor Bahru were obtained through PKK
(Pusat Khidmat Kontraktor) website. Personal interview been carried out as well as
drop-by the survey to the respondent. A set of questionnaire was presented to each
respondent for better communication purposes during the interviews. This method is
ensuring the questionnaire returned promptly.
45
The survey was tedious and many difficulties throughout been the process
such as difficult to get response, delay in replying the survey and reluctant to answer
the questionnaire. Forty four companies have been approach but only twenty two
companies but only twenty two have response to the survey. The most probably
reason for this is many felt insecure due to sensitive issues in contracts and they
don’t have time to respond to the survey due to their work load. Most of the
respondent used Traditional Contract. This suits previous literature, stating that
traditional contract is the most popular contract used in Malaysia.
4.5
Data Analysis
SPSS have been used in analyzing the questionnaire. Frequencies analysis is
employed. The outcome of the analysis presented in the form of frequencies of
respondent, percentage and mean index. In this studies, mean index range from 4.00
to 5.00 is considered as strongly agree. From the analysis, the results are presented
in the form of charts and tables. Finally results were compared with the findings in
literature review in order to discover whether the objectives of the study been
achieved or not.
4.5.1
Frequency Analysis
Frequency analysis used a tabular form to represent the result of data analysis
of frequency of response that respondents gave to the different variables in the
questionnaire.
The result was tabulated in the form of frequency number and
percentages according to total respondents. For graphic result presentation, bar chart
and pie chart are used as summaries.
46
4.5.2
Average Index Analysis
In average index analysis, the result will be further summarized to obtain the
overall level of importance and evaluation in the Malaysia Construction Industry.
The respondents were requested to determine the most regularly contract used,
problems face with traditional contract, knowledge on relational contract and the
potential barrier in adopting it in construction industry. The average index analysis
for each variable was calculated by using the similar classification of the rating
scales follows:
Average Index =
∑ ai.xi
∑ xi
Table 4.1: The level of agree for Average Index Analysis
Average Index
Rating Scale
0.00 ≤ Average Index (I) ≥ 1.00
Strongly Disagree
1.00 ≤ Average Index (I) ≥ 2.00
Disagree
2.00 ≤ Average Index (I) ≥ 3.00
No Strong Feeling
3.00 ≤ Average Index (I) ≥ 4.00
Agree
4.00 ≤ Average Index (I) ≥ 5.00
Strongly Agree
*Source by researcher
47
4.6
Conclusion
In this chapter it has been illustrated on the method in the study.
The
discussion is on the literature work. Method in doing the literature work has been
outlined in this sub-section. Mainly, literature work involved a through searching
and investigating relational contract related issue through different sources such as
textbooks, articles, journals, paper and conferences paper.
Next is developing the questionnaire. Each section of the questionnaire was
discussed. The questionnaire consist of five distinct parts which is the company
profile, respondent profile, traditional contract, problem in traditional contract and
the last part is on relational contract. The following topic is on survey process. List
of Class A contractor were obtained from the PKK (Pusat Khidmat Kontraktor)
website.
Personnel interview as well as drop by questionnaire was used in
distributing the questionnaire.
The last sub-section is on data analysis. SPSS have been used in analyzing
the questionnaire. Frequencies analysis is employed. The outcome of the analysis
presented in the form of frequencies of respondent, percentage and mean index.
Then result was presented in the form of charts and tables. The following chapter is
on Preliminaries analysis.
CHAPTER V
PRELIMINARIES ANALYSIS
5.1
Introduction
In the previous chapter, it has been discussed deeply on the methods used in
conducting this study. Method of analysing the data also discussed in that chapter.
Data collection and preliminaries analysis will be discussing deeper in this chapter.
This chapter is divided into two sub-sections that are data collection and
respondent background.
Both sections are based on section A and B in the
questionnaire. Each of the sub-section will be discussed in detailed in the following
sub-section.
5.2
Data Collection
In this chapter, a detail analysis of data and result will be shown and
elaborated by using Frequency Analysis. Registered company with Pusat Khidmat
Kontraktor (PKK) were randomly selected as a targeted respondents to determine
contract that are regularly used, their opinion on traditional contract and problem
faced with the contract and their acceptances to Relational Contract through
questionnaire survey. Only Class A contractor were chosen in this survey. Coverage
of this organization was hoped to represent the local construction industry. Among
49
44 set of questionnaire form distributed, there were 22 set of replied with completed
questionnaire form that cover 50% of the total 44 set questionnaire form in the study.
In order to determine the contract that are regularly used, their opinion on
traditional contract and problem faced with the contract and their acceptances to
Relational Contract, frequency analysis and mean index analysis have been used in
this study. The classification of the rating scales are as follows:
reply
not reply
50%
reply
50%
not reply
Figure 5.1: Response Percentage
As mentioned earlier 44 questionnaire have been distributed, but only 22 are
returned. The scenario is presented in Figure 5.1
50
5.3
Respondent Background
5.3.1
Gender Distribution
The gender distribution is vital to show the involvement of men and women
personal in the study. The gender distribution is shown as follows:
Female
23%
Male
Female
Male
77%
Figure 5.2: The percentage of gender distribution
As shown in Figure 5.2, the gender distribution among the respondent shows
that most of the respondent are male which represent 77%, while 23% of the
respondent is female.
51
5.3.2
Age Distribution
The age distribution analysis is vital to show the respondent age in this study.
The age distribution is shown as follows:
50-59 years
5%
40-49 years
9%
20-29 years
30-39 years
30-39 years
32%
20-29 years
54%
40-49 years
50-59 years
Figure 5.3: The percentage of age distribution
Age distribution among the respondent is shown in Figure 5.3. The figure
shows that the large portion goes to age ranging from 20-29 years old which is 54%.
Age ranging from 30-39years old is 32%, 40-49 years old is 9% and the smallest
portion is age ranging from 50-59 years old which is only 5%.
52
5.3.3
Position Distribution
Position in the company of the respondent also is important factor that need
to be considered in this study. The respondent’s position in the company is shown as
follow:
Site Supervision
9%
Construction Manager
9%
Construction Manager
Quantity Surveyor
27%
Engineer
Project Manager
Engineer
32%
Quantity Surveyor
Site Supervision
Project Manager
23%
Figure 5.4: The percentage of respondent’s position in the company
The percentage of Respondent’s position who answered the survey is shown
in Figure 5.4. It is shown that 32% of the respondent is an engineer, 23% is a project
manager and 27% is quantity surveyor while both site supervisor and construction
manager each is 9%.
53
5.3.4
Experience Distribution
An experience of the respondent is another importance aspect that needs to be
considering in the study.
The categories of number of experiences years that
involved in the construction industry are as follow:
1-2years
32%
1-2years
3-4years
4-5years
7 years and above
49%
7 years and above
4-5years
5%
3-4years
14%
Figure 5.5: The percentage of respondent’s experience in the company
Most of the respondents have experience in construction industry more than 7
years. This shows in Figure 5.5, where 49% of the respondents have more than 7
years experience. 32% of respondent with 1-2 years experience, 14% with 3-4 years
experience and 5% with 5-6 year experience. From the figure, it can be concluded
that most of the respondent is experience staff and knowledgeable in construction
industry.
54
5.4
Conclusion
This chapter has been discussing on the preliminaries analysis. All data and
results were presented in table and pie chart. Analysis is using frequencies analysis.
The analysis is on the response percentage where from 44 questionnaire distributed,
only 22 are returned. Next sub-section is on the respondent background where the
gender distribution, age distribution, position distribution and experience distribution
has been analyzed and presented in this chapter. Next chapter will be discussing on
analysis and discussion of the results.
CHAPTER VI
ANALYSIS AND DISCUSSION
6.1
Introduction
Data collection and preliminary analysis had been discussed in the previous
chapter. In this chapter, findings of the study will be illustrated in detail. This
chapter is divided into two sub-sections mainly traditional contract and relational
contract. Each of the sub-section will be analyzed and discussed in detail in the
following sub-sections.
6.2
Traditional Contract
6.2.1
Contracts that are regularly used
The type of contract procurement regularly used by the industry is one of the
most important factors in the study. Figure 6.1 shows types of contract procurement
used by the industry.
56
Contract used in Malaysia
5%
5%
5%
13%
traditional contract
design & build
Management
Project Alliancing
Partnering contract
72%
Figure 6.1: The practice of contract procurement in the construction industry
In this survey, twenty two respondents were taken in to consideration.
Respondents Class A contractors.
From the survey, 72% of respondents used
traditional contract, 13% used design and build, the remaining used other contracts
such as management contract, project alliancing and partnering contract.
The
literature work shows that traditional lump sump system, design and build or turnkey
system and management contracting are used in practices.
The traditional lump sump system was favoured in Malaysia before the
introduction of the turnkey system in 1983. However this Turnkey or Design and
Build system is subject to one major weakness that is the increase of construction
cost. This survey also reveals that the traditional contract is one of the frequently
selected procurement systems in Malaysia. The scenario is illustrated in Figure 6.1
57
6.2.2
Problems with Traditional Contract
Knowing the frequency of Problems that respondents face with in Traditional
Contract is important for this study in order to prove that there were weaknesses in
that contract. Figure 6.2 shows the distribution of respondent facing problems with
traditional contract.
yes
No
50%
Yes
50%
no
Figure 6.2: Problem with traditional contract
From the above figure it is clearly shows that 50% admit to facing problems
with traditional contract and another 50% encounters no problems at all. Potential
problems that have been identified in literature work are listed in Table 6.1 and each
of the problems has been analyzed and the analysis is shown in Table 6.1.
58
Table 6.1: Analysis on the problem with Traditional Contract
Frequency
No
1
2
3
4
5
6
Average
Reason
The process stages
i.e. design
development stage,
documentation
stage, tendering
stage and
construction phase
have a longer
duration than other
nontraditional
procurement
methods.
Construction cannot
commence if the
design is
incomplete.
Severe criticisms
and legal disputes
result in slow
growth in the
economy when
projects are
delayed.
The decision
processes of the
traditional
procurement system
are slow and
convoluted.
The selection
processes for
architects and
contractors are time
consuming.
The time
consuming aspects
of the development
processes
contribute to the
need for extension
of time (E.O.T).
1
2
3
4
5
Total
Index
0
0
3
4
4
11
4.091
Categories
Strongly
agree
0
1
0
4
6
11
4.364
Strongly
agree
0
0
2
7
2
11
4.000
Strongly
agree
0
0
2
8
1
11
3.909
Agree
0
1
3
6
1
11
3.636
Agree
0
0
2
7
2
11
4.000
Strongly
agree
59
Frequency
No
7
8
9
10
11
12
13
14
15
Average
Reason
Variations often
lead to unnecessary
increases in the
final cost of
construction.
Cost increase
derives from scope
growth during the
construction period.
The tender price
accepted is not the
overall construction
cost of the project.
There is cost
certainty at the
commencement
stage of the
construction
processes.
Very few projects
are completed
within the tendered
price.
Variations occur as
a result of the
incomplete designs
that are never
finalized for
tendering.
Full drawings and a
complete bill are
often not ready
when a project goes
to tender.
There is no
buildability input
by contractor
during the design
period.
The lowest bid does
not ensure quality.
1
2
3
4
5
Total
Index
0
0
1
8
2
11
4.091
Categories
Strongly
agree
0
0
2
7
2
11
4.000
Strongly
agree
0
1
3
6
1
11
3.636
Agree
Agree
0
0
4
6
1
11
3.727
Agree
0
0
5
3
3
11
3.818
Agree
0
0
4
5
2
11
3.818
Agree
0
0
6
3
2
11
3.636
Agree
0
1
6
3
1
11
3.364
0
1
1
4
5
11
4.182
Strongly
agree
60
Frequency
No
16
17
18
Average
Reason
There is no
integration between
the design and
Construction
processes.
The designers are
not knowledgeable
about the relevant
design construction
inputs.
It is difficult for an
architect to exercise
decision objectivity
in playing the roles
of both designer
and project
manager.
1
2
3
4
5
Total
Index
0
0
6
4
1
11
3.545
0
2
3
5
1
11
3.455
0
1
5
4
1
11
3.455
Categories
Agree
Agree
Agree
From the study, it shows that 50% of the respondents admitted that they are
encounter problem with Traditional contract. Table 6.1 shows problems related with
traditional contract. The blue box represents average mean index ranging from 4-5
which can be considered as critical problems while the yellow box represent average
mean index below than 4-5 and will be considered as less critical.
Potential problems that have been listed are Process stages in traditional
contract which takes longer time than other contracts (P1), construction that cannot
commence if the design is not complete (P2), severe criticism and legal disputes
which result in slow growth in economy when the project is delayed (P3), the
decision processes of the traditional procurement system
which are slow and
convoluted (P4), the selection processes for architects and contractors which are time
consuming (P5), time consuming aspect of development that will lead to the need for
the extension of time (P6), variation which often leads to unnecessary increase in the
final cost of construction (P7), cost increase which derives from scope growth during
the construction period (P8), the tender price accepted which is not the overall
construction cost of the project (P9),
there exists cost certainty at the
61
commencement stage of the construction processes (P10), very few projects are
completed within the tendered price (P11),
variations occur as a result of the
incomplete designs that were never finalized for tendering (P12), full drawings and a
complete bill were often not ready when a project goes to tender (P13), there is no
buildability input by contractor during the design period (P14), the lowest bid does
not ensure quality (P15), there is no integration between the design and construction
processes (P16), the designers are not knowledgeable about the relevant design
construction inputs (P17) and it is difficult for an architect to exercise decision
objectivity in playing the roles of both designer and project manager (P18).
It has been analyzed that seven problems are categorized as critical problems
and the other eleven problems are categorized as less critical from the listed
problems. Figure 6.3 illustrate surveyed among the respondent while Figure 6.4
visualizes on less critical problems.
4.36
4.40
Av era g e In d e x
4.30
4.18
P1
4.20
4.09
P2
4.09
4.10
P3
4.00
4.00
LL
4.00
P6
4.00
P7
P8
3.90
P15
3.80
P1
P2
P3
P6
P7
P8
P15
Problem with traditional contract
Figure 6.3: Critical problems with traditional contract
62
In Figure 6.3, it is shown that there are seven critical problems identified
through mean index analysis.
The problems were process stages in traditional
contract which takes longer time than other contracts (P1), construction that cannot
commence if the design is not complete (P2), severe criticism and legal disputes
result in slow growth in the economy when project are delayed (P3), time consuming
aspect of the development will lead to the need for extension of time (P6), variation
often lead to unnecessary increases in the final cost of construction (P7), cost
increase derives from scope growth during the construction period (P8) and the
lowest bid does not ensure quality (P15).
“Construction works cannot proceed if there are changes in design” (P2) with
mean index 4.36, seems to be the most critical problem in traditional contract as
visualized in Figure 6.3. It has been agreed that in traditional contract when there are
changes in design or specification of material, construction work on that part cannot
proceed. It is because of the nature in the traditional contract itself where it promotes
fragmentation in contracting. Any changes in construction work has to be approved
by parties involved in the construction and these processes consume took a lot of
time and may stop the construction work. This situation will delay the project
delivery date and increase the construction cost. The effect is critical and that may
be the reason that has been agreed to be the most critical problems compared to
others.
The second critical problem with 4.18 mean index is “the lowest bid does not
ensure quality’ (P3). This is true based on the interviews with respondents that the
lowest bid does not ensure quality as there may be error during the estimating
process. Error in the estimating process will affect the quality of work as contractors
will use low quality material that will lead to the inequality work. The next critical
problems which have the same mean index which is 4.09 is “stages in traditional
contract take longer time” (P1) and “variation which often leads to unnecessary
increase in the final cost” (P7). Fragmentation in traditional contract does take a
longer time as any decision made has to be proved or agreed by parties involved in
the construction.
This process takes a longer time as it is difficult to obtain
cooperation from them. Last three critical problems derived from this survey were
63
P3, P6 and P8 where each of them has 4.00 for their mean index. These problems
result in the increase of project time and lead to higher cost of the project.
These findings confirm to Tan (1985). Tan viewed the Traditional method of
project implementation in Malaysia as being too lengthy hence needs a radical
overhaul and restricting to make the process faster and more efficient. Variation and
scope growth during construction also considered as problems as both will increase
the overall cost of the project. Cost and time have linear relationship where cost will
increase as time increases. It is important to control the problem to avoid an increase
in the construction cost.
4.00
3.91
P4
3.90
3.82 3.82
3.80
P5
3.73
3.70
3.64 3.64
3.60
Average
3.50
Index
3.40
P9
3.64
P10
3.55
3.46 3.46
3.36
P11
P12
3.30
P13
3.20
P14
3.10
P16
P17
3.00
P4
P5
P9
P10 P11 P12 P13 P14 P16 P17 P18
P18
Problem with Traditional Contract
Figure 6.4: Problems with traditional contract: Less Critical
Figure 6.4 shows less critical problem associated with traditional contract. It
shows that the highest mean index with 3.91 in less critical problem is “the decision
process of the traditional procurement system which is slow” (P4). This problem can
be considered or categorized as the most critical problem as the value is near to 4.00.
Once again, this is a problem relating to fragmentation in traditional contract.
64
Fragmentation affects the quality of traditional contract. It is difficult to obtain
agreement on something from parties involved in the construction contract.
The figure shows that the less critical problem or minor problem faced by the
construction industry is P14 which is “there is no buildability input by contractor
during the design period” with the mean value 3.36. Buildability in construction is
not really a problem as the pattern or method of work in construction is almost the
same as long as it doesn’t involve a difficult structure. Everybody in the industry
knows the basic in commencement the work, so input from the contractor on
buildability is not a critical problem.
6.3
Relational Contract
As far as relational contract is construct the survey addressed several issues
such as knowledge on relational contract, potential barriers in adopting relational
contract and elements to be added in traditional contract.
6.3.1 Knowledge on Relational Contract
Knowing the frequency of respondent’s knowledge in Relational contract is
important in this study in order to investigate a level of understanding among
respondents on this matter. Distribution of knowledge on Relational Contract is as
follow:
65
Yes
23%
Yes
No
No
77%
Figure 6.5: Distribution of respondent facing problems with traditional contract
It may appear that many of the practitioners in the construction industry in
Malaysia have no knowledge or are aware of the Relational contract. Figure 6.4
shows that 77% of the respondents never used or heard about Relational Contract.
Only 23% knew or have heard about the contract. However, 23% who answered
YES, have actually never used Relational Contract. The knowledge come through
reading or just knowing in an informal way such as from other practitioner in the
industry. It can be concluded that none of the respondents have used the relational
contract. However, surprisingly the entire respondents indicate that they mightl not
encounter problems in adopting Relational contract.
6.3.2
Potential Barriers in adopting Relational Contract
Factors that have been considered in this study are Potential barrier in
adopting Relational contract element in traditional contract. Distribution of potential
barrier in adopting Relational Contract is as follow:
66
Table 6.2: Analysis on potential barrier in adopting Relational Contract
No
1
2
3
4
5
Frequency
1
2
3
4
5
Total
Average
Index
2
0
3
8
9
22
4.000
Strongly
agree
1
4
3
10
4
22
3.545
Agree
1
3
3
9
6
22
3.727
Agree
1
2
2
11
6
22
3.864
Agree
1
0
7
9
5
22
3.773
Agree
Reason
Lack of client
knowledge (about
project processes
and Relational
Contract)
Lack of trust
between contracting
parties
Failure to share
information
between contracting
parties
Persistence of
“Master” (e.g
Client/prime
consultant) and
“Slave” concept
Unfair risk-reward
plan
Categories
Table 6.2 shows the analysis on potential barriers in adopting relational
contract. In the table, the blue box represents average mean index ranging from 4-5
which can be considered as the most potential barrier, while the yellow box
represents the average mean index below than 4-5 and will be considered as not
really a barrier in adopting relational contract. List of potential reasons were listed in
the table are lack of client knowledge (R1), lack of trust between contracting parties
(R2), failure to share information between contracting parties (R3), persistence of
“Master” (e.g Client/prime consultant) and “Slave” concept (R4) and unfair riskreward plan (R5).
67
4.00
4.00
3.86
3.90
3.77
3.73
3.80
R1
Average 3.70
Index 3.60
R2
3.55
R3
R4
3.50
R5
3.40
3.30
R1
R2
R3
R4
R5
Potential Barrier in adopting Relational Contract
Figure 6.6: Potential Barrier in adopting Relational Contract
Analysis in Table 6.2 is then illustrated into a bar chart as shown in Figure
6.6. From the bar chart, it shows that the highest mean index is 4.00 which is lack of
client knowledge (R1). R1 has the highest rated as respondents agree that knowledge
of the relational contract is important before applying it. Both client and contractor
must understand well how the contract works, such as the content of the contract and
the project process in order to ensure the effectiveness of this contract.
Other factors which have mean index below 4.00 and can be considered as
not becoming a potential barrier in adopting relational contract. Those factors were
R4 with 3.86, followed by R5 with 3.77, R3 with 3.73 and the last reason is R2 with
3.55. R4 which is persistence of “Master” (e.g Client/prime consultant) and “Slave”
concept. This concept does not really occur in Malaysia’s construction industry as
contracting parties in the industry usually have a good relationship between them.
So, the “Master” and “Slave” concept rarely occurs a barrier because the situation in
this country.
68
Unfair risk reward plan (R5) is also not a potential barrier in the construction
industry, everybody knows their role or their scope of work also the portion of risk
and reward that they should receive in the project. Based on informal discussions
with respondents, most of them state that they know the risk and agreed with the risk.
So, this will not be not an issue as far as the barrier to the application of relational
contract is concerned. Failure to share information between contracting parties (R3)
is also considered as not being a barrier in adopting relational contract as in
traditional contract sharing information is not a problem.
Contracting parties do not hesitate to share information as they realize that
they need to cooperate in order to achieve the project goal. Lastly, is (R2) which is
lack of trust between contracting parties. Since they are willing to share information
in traditional contract, they would not face much difficulty in accepting the ‘open
book’ concept in relationship contract. Again, they have established a certain level of
trust between them. Trust is another important issue if a relationship contracting was
to be successfully implemented. From the study, it can be concluded that the only
potential barrier in adopting Relational Contract is the lack of client knowledge.
This is because Relational contract may not be adopted if the client himself doesn’t
understand the fundamental of relational contract.
6.3.3
Elements to be added in traditional contract
Element in relational contract are then studied and are then applied to
determined whether it is suitable to be added in traditional contract. Analysis on
element to be added is shown in Table 6.3 as follow:
69
Table 6.3: Analysis on added factors for Traditional Contract
No
Frequency
1
2
3
4
5
Total
Average
Index
Reason
1
Alignment of goals
0
0
4
10
8
22
4.182
2
Risk allocation
0
0
7
9
6
22
3.955
0
0
0
10
12
22
4.545
0
0
7
9
6
22
3.955
0
0
5
6
11
22
4.273
0
1
10
8
3
22
3.591
0
0
4
10
8
22
4.182
3
4
5
6
Clearly defined
scope
Form of contract
Integrated project
team
Gain share / Pain
share
Categories
Strongly
Agree
Agree
Strongly
Agree
Agree
Strongly
Agree
Agree
Open honest
7
communication /
behavior / Change
Strongly
Agree
of attitude
5.00
4.50
4.55
4.18
3.96
4.27
3.96
4.18
3.59
4.00
3.50
E1
3.00
Average
2.50
Index
2.00
E2
1.50
E5
1.00
E6
0.50
E7
E3
E4
0.00
E1
E2
E3
E4
E5
E6
E7
Element to be added in Traditional Contract
Figure 6.7: Elements to be added in Traditional Contract
70
Table 6.3 shows the elements to be added in traditional contract. In the table,
the blue box represents average mean index ranging from 4-5 which can be
considered as elements to be added, while the yellow box represent average mean
index below than 4-5 and will be considered as not being an element to be added in
traditional contract. The list of potential elements to be added were listed in the table
are the alignment of goals (E1), Risk allocation (E2), clearly defined scope (E3),
form of contract (E4), Integrated project team (E5), Gain share / Pain share (E6) and
Open honest communication / behavior / Change of attitude (E7).
Analysis in Table 6.3 then had been illustrated into bar chart as shown in
Figure 6.7. From the bar chart, it shows that the entire respondents agreed that out
of seven elements in relational contract, four are highly recommended to be adopted
in current contract practices in order to improve the outcome of the project and
achieve a win-win situation. Clearly defined scope followed by Integrated Project
Team, alignment of goals and open honest communication is the most wanted
element to be added in traditional contract. In Figure 6.6 also shows the highest
average index, which is 4.55, is clearly defined scope. The importance of defining
scope is because everybody in the construction project directly or indirectly
influences the overall outcome of the project. By a clearly defined scope, every level
in the organization will have a better understanding between each other and work
together in order to achieve the goal. From the study, it can be concluded that this
element is the critical element that the industry needs to add in traditional contract in
order to improve its quality and that the industry should to understand that having
individual goals for each party is not helping the industry in upgrading its quality or
to ensure the successfulness of the project.
The second element to be added is the integrated project team (E5) with the
mean index 4.27. This element is about cooperation between contracting parties.
Nowadays, the Malaysian construction industry is aware that each party must be
integrated project team. Just being a team is not enough in producing a good
product. It must be an integrated in order to upgrade the nature of work in current
contract.
71
The third and forth element to be added is alignment of goal (E1) and open
and honest communication (E7) with the mean index 4.18. Alignment of goal is
important as every parties involved should have the same goal and avoid individual
goals.
Individual goals lead to one party achievement and not everybody
achievement. One or two party success in their part or work won’t ensure the
successfulness of the project. That why it is important to have the same alignment of
goals. Another element is open honest communication. Honesty is important as it
leads to trust between each other. Trust must be built from the start of the project till
it ends, as it can avoid bad feeling between each other.
There also elements that have mean index below than 4-5 which were Risk
allocations (E2), form of contract (E4) and Gain share/Pain share (E6). From the
figure, it shows that E2 and E4 have the same mean index which is 3.96 while E6
with 3.59. Risk allocation is not an element to be added as it has been practiced in
traditional contract. In traditional contract, every party knows their risk in contract
project undertaking. Type of contract is also not an issue as it as contracting parties
know the term and condition for each contract and agreed on the regulations upon
entering the contract. The last element is gain share and pain share. This element is
also not an element to be added as each parties once again said that the portion of
risk and reward has been stated in the contract and there is no way for the contracting
parties to share other parties pain. Most of the respondents are comfortable with the
current nature and prefer it to be maintained.
From the analysis, it can be concluded that it is important to define project
goals and project scopes in a complete and unambiguous manner. It is importance to
have an Integrated Project Team in achieving the project goals. It must operate on
mutual trust that puts the best interest of the project ahead of purely self-centered
gains, achieving a single and unified team (ACA, 1999). Alignment of goal is vital
in facilitating effective teamwork and communication. In order to encourages
everyone to confront issues and differences from the perspective of developing
solutions rather than allowing them to escalate into disputes, open honest
communication is one that should be recommended to be added into current contract.
72
6.4
Conclusion
This chapter has illustrated in detail analysis that has been done. In the
analysis, it is found that contracts are regularly used is traditional contract as the
contract is familiar to work with, the most critical problem in traditional contract is
that construction cannot commence if the design is incomplete as fragmentation
made decision is difficult to obtain and this leads to the extension of the project
duration, the only potential barrier in adopting relational contract are lack of client
knowledge as the understanding in the contract is important before applying it and
element to be added in traditional contract is a clearly defined scope followed by
integrated project team, alignment of goals and open honest communication.
CHAPTER VII
CONCLUSION AND RECOMMENDATION
7.1
Introduction
Findings and discussion of this study have been discussed in previous
chapter. All those findings have been concluded and are presented in this chapter
according to the outlined objective that been listed in chapter 1.
Based on the analysis, the summary of results in identifying the most
regularly contract used in construction industry, problems in traditional contract,
potential barrier in adopting Relational Contract and the element of relational
contract that want to be added in traditional contract are as below:
7.2
Findings
The following are the conclusions derived from the literature study and
questionnaire survey conducted.
74
7.2.1
Objective1: To study the current practice of construction contract
The first objective has been achieved through questionnaire survey. The
questionnaire consists of five type of contract procurement that is used in Malaysia
which is traditional contract, design and builds contract, management contract,
project alliancing contract and partnering contract. From the analysis, it is shown
that traditional contract is the most regularly contract used in Malaysia.
7.2.2
Objective 2: To analyze problems associated with the application of
traditional contract in Malaysia
Second objective has also been achieved through questionnaire survey. 18
potential problems have been listed in the questionnaire. From 18 problems listed, it
is found that out of 18, 7 problems are recognized to be the most critical problem
faced by the industry. These problem is the process stages i.e. design development
stage, documentation stage; tendering stage and construction phase have a longer
duration than other nontraditional procurement methods, Construction cannot
commence if the design is incomplete, severe criticisms and legal disputes result in
slow growth in the economy when projects are delayed, The time consuming aspects
of the development processes contribute to the need for extension of time (E.O.T),
Variations often lead to unnecessary increases in the final cost of construction, Cost
increase derives from scope growth during the construction period and the lowest bid
does not ensure quality.
From those problem listed above, it is found that
construction cannot commence if the design is incomplete is the most critical
problem faced by the industry.
75
7.2.3
Objective 3:To appraise the knowledge and the application of Relational
Contract in Malaysia
Third objective was achieved through questionnaire survey.
Respondent
knowledge in relational contract was studied. Through the study, it is found that
only 23% of the respondent knew about this approach. Surprisingly, it can be
concluded that most of the respondent don’t know about the contract.
Potential
barrier in adopting relational contract had been identified. It is found that lack of
knowledge in relational contract especially in the project process is the critical
potential barrier in adopting Relational contract.
7.2.4
Objective 4: To recommend an improvisation of traditional contract
through Relational contract’s elements
The
fourth
objective
was
Improvisation of traditional contract is
achieved
through
questionnaire
survey.
found in the study. Element in relational
contract that can be used or adopt in the traditional contract is listed in the
questionnaire. Based on the survey, it is found that alignment of goals, clearly
defined scope, integrated project team and open and honest communication is the
elements that need to be added in traditional contract in order to improve the quality
of the contract.
However, it is agreed that clearly defined scope is the most
important element to be added in the traditional contract compared to others element.
Improvisation is important in upgrading the traditional contract in order overcome it
weakness.
76
7.3
Conclusion
From those findings, Traditional contract is undoubtedly will be continue to
be used in Malaysia. Traditional contract remain its popularity because of it is
familiar to work with and there is no hidden agenda between contracting parties.
Contractors feel save using traditional contract. Moreover traditional contract has
been used for along time and lots of amendment made to improve the contract.
Traditional is considered as a stable contract compared to other contracts. However,
practitioners admitted that there also weaknesses in traditional contract.
It is
recommended that those weaknesses can be overcome by adopting some of
Relational element such as clearly defined scope between contracting parties,
adopting integrated project team in contracting, alignment of goals among
contracting parties and an honest communication. Generally, this study has achieved
its aims and objectives of studying the problem in traditional contract, knowledge of
the practitioners on relational contract and the application of Relational Contract in
Malaysia
7.4
Recommendations for further study
This project has provided substantial information on the concept of relationship
contracting and the potential of its application in Malaysia. It is hoping that the
research would open up the door to further introduction and promotion of
relationship contracting in Malaysia. Further work that could be carried out in future
research is listed below:
1) Obtain the latest development in relationship contracting through various
resources.
2) Conduct a survey with large sample size and a variety of construction projects in
different sectors.
76
REFERENCES AND BIBLIOGRAPHY
Australian Constructors Association, 1999, Relationship contracting – Optimising
project outcome, ACA, North Sydney.
Ashworth,A 1996, Contractual procedures in the construction industry, 3rd edn.,
Addison Wesley Longman Limited, England.
Australian Constructors Association, 1999, Relationship contracting – Optimising
project outcome, ACA, North Sydney.
Tan, E.K, 1985, Radical Changes Urged for Industry, Building and Construction
News Yearbook, Malaysia.
Maizon Hashim, 1997, Clients’ Criteria on the Choice of Procurement Systems- A
Malaysian Experience
Rashid K, 2002, Construction procurement in Malaysia – Process and systems,
constrains and strategies, International Islamic University Malaysia, Kuala Lumpur.
Scott B, 2001, Partnering in Europe – Incentive base alliance for projects, Thomas
Telford Publishing, London.
Lendrum,T 2003, The strategic partnering handbook – The practitioner’s guide to
partnerships & alliances, 4th edn., McGraw Hill, Sydney.
Thorpe D. & Dugdale G., 2003, Procurement and risk sharing, Client driving
innovation international conference, Australia. 62
77
U.S. Department of State Foreign Affairs Handbook Volume 6 Handbook 2—
Contracting Officer’s Representative
Turner,J (ed.) 2003, Contracting for project management, Gower Publishing Limited,
Oxon.
Y.Y. Ling, Procurement Design Services for Design-Build Projects, School of
Building & Estimate Management, National University of Singapore
Gan Eng Toh, Procurement Strategy Selection for Construction: An Artificial
Neutral Network Approach, Faculty of Build Environment, Universiti Teknologi
Malaysia.
George Baker, Robert Gibbons, Kevin J. Murphy, 2001, Relational Contract and the
Theory of the Firm, Journal of Economic.
UNIVERSITI TEKNOLOGI MALAYSIA
Questionnaire Form
Dear Sir / Ma’am,
The purpose of this questionnaire is to study the RELATIONAL CONTRACT IN
MALAYSIA. All information given by the respondent will be kept confidential. Thus,
your sincerity and honesty in answering this questionnaire is much appreciated. Please
submit the complete form using the envelope given. Thank you for your cooperation.
Prepared By
Nurul Alifah Binti Jatarona
Student of Master of Science (Construction Management)
Faculty of Civil Engineering
UTM, Skudai
Johor
(Contact No. : 012-4563960)
Under Supervision Of
Assoc. Prof. Dr. Aminah binti Md. Yusof
Lecturer
Faculty of Civil Engineering
UTM, Skudai
Johor
(Contact No. : 012-7102340)
1
Introduction
Relationship contracting has been available as a style of infrastructure delivery since
early 1980s. It is a term applied to contracting arrangement where management of
relationship is given precedence over the dictate of a standard form of contract. It is a
strategic alliance between organisations to achieve mutual benefits based on trust,
appropriate risk allocation, teamwork, sharing of profit or loss and most importantly the
alignment of goals. Traditional contracting systems in construction industries frequently
lead to confrontations and unresolved issues associated with different commercial
alignment of individual parties which tends to escalate the project time and targeted cost.
On the contrary, relationship contracts offer an approach to encourage cost savings and
reduction in construction time through systematic contracting procedures thus
overcoming the limitations of traditional contracts.
Section A: Company Profile
1.
Company
: ______________________________________________
2.
Telephone Number
: _________________________________
3.
Nature of company
:
Client
Contractor
Consultant
Other: _____________________________
2
4.
Age of the company
1-2 years
3-4 years
5-6 years
7 years and above
5.
Classification of company:
CIDB
PKK
Others: __________________________________________
Section B: Respondent Profile
1.
Sex:
2.
Age:
Male
Female
20-29 years
30-39 year
40-49 year
50-59 year
3
4.
Position in the company
Engineer
Project Manager
Quantity Surveyor
Construction Manager
Site Supervisor
5.
Experience in construction industry
:
1-2 years
3-4 years
5-6 years
7 years and above
Section C: Traditional Contract
Please Circle the response that you think is most appropriate to each statement.
1. What kind of contract document you used?
Question
Most
Frequently
used
5
Frequently
used
Neutral
Seldom used
Never
used
4
3
2
1
a.
JKR 203
b.
PAM
5
4
3
2
1
c.
CIDB
5
4
3
2
1
d.
IEM
5
4
3
2
1
4
2. Which of the following contract that you are usually used?
Question
Most
Frequently
used
5
Frequently
used
Neutral
Seldom
used
Never
used
4
3
2
1
a.
Traditional Contract
b.
Design & Built Contract
5
4
3
2
1
c.
Management Contract
5
4
3
2
1
d.
Project Alliancing Contract
5
4
3
2
1
e.
Partnering Contract
5
4
3
2
1
3. Why you choose this contract?
Question
a.
b.
c.
d.
e.
f.
Familiar to work with as it is
a well known contract
Easy and straight forward
Standards are easier to
control
Suitable to use whether for
experience or inexperience
contractor
Faster track
Cost certainty
No
Strongly
Strong Disagree
Disagree
Feelings
Strongly
Agree
Agree
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
5
4
4
3
3
2
2
1
1
Strongly
Agree
Agree
No
Strong
Feelings
Disagree
Strongly
Disagree
5
4
3
2
1
5
5
4
4
3
3
2
2
1
1
5
4
3
2
1
5
4
3
2
1
4. What do you think about Traditional Contact?
Question
a.
b.
c.
d.
e.
Suitable to use whether for
experience or inexperience
contractor
Cost certainty
Time predictability
Easy and straight forward
contract
Tenders are on a like-forlike basis
5
f.
g.
Scheme fully pre-designed
and specified
Early commitment to
maximum price
5
4
3
2
1
5
4
3
2
1
5. Did you face any problem due to traditional contract?
Yes (proceed to Section D)
No (proceed to Section E)
Section D: Problem in Traditional Contract
Please Circle the response that you think is most appropriate to each statement.
Question
1.
2.
3.
4.
5.
The process stages i.e.
design development stage,
documentation stage,
tendering stage and
construction phase have a
longer duration than other
nontraditional procurement
methods.
Construction cannot
commence if the design is
incomplete.
Severe criticisms and legal
disputes result in slow
growth in the economy
when projects are delayed.
The decision processes of
the traditional procurement
system are slow and
convoluted.
The selection processes for
architects and contractors
are time consuming.
Strongly
Agree
Agree
No Strong
Feelings
Disagree
Strongly
Disagree
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
6
Question
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
The time consuming aspects
of the development
Processes contribute to the
need for extension of time
(E.O.T).
Variations often lead to
unnecessary increases in the
final cost of construction.
Cost increase derives from
scope growth during the
construction period.
The tender price accepted is
not the overall construction
cost of the project.
There is cost certainty at the
commencement stage of the
construction processes.
Very few projects are
completed within the
tendered price.
Variations occur as a result
of the incomplete designs
that are never finalized for
tendering.
Full drawings and a complete
bill are often not ready when
a project goes to tender.
There is no buildability input
by contractor during the
design period.
The lowest bid does not
ensure quality.
There is no integration
between the design and
Construction processes.
The designers are not
knowledgeable about the
relevant design construction
inputs.
It is difficult for an architect
to exercise decision
objectivity in playing the
roles of both designer and
project manager.
Strongly
Agree
Agree
No Strong
Feelings
Disagree
Strongly
Disagree
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
7
Section E: Relational Contract
1. Have you used or heard of relationship contracts?
Yes
No
2. Factors that you like to added into your current contract in order to improve the
outcome of the project and achieve a win-win situation if possible?
Question
a.
b.
c.
d.
e.
f.
g.
Alignment of
goals
Risk allocation
Clearly defined
scope
Form of contract
Integrated project
team
Gain share / Pain
share
Open honest
communication /
behavior / Change
of attitude
Strongly
Agree
Agree
No Strong
Feelings
Disagree
Strongly
Disagree
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
8
3. Potential barrier in adopting Relational Contract
Question
a.
b.
c.
d.
e.
Lack of client knowledge
(about project processes and
Relational Contract)
Lack of trust between
contracting parties
Failure to share information
between contracting parties
Persistence of “Master” (e.g
Client/prime consultant) and
“Slave” concept
Unfair risk-reward plan
Strongly
Agree
Agree
No
Strong
Feelings
Disagree
Strongly
Disagree
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
Your cooperation in this matter is appreciated.
Thank you.
9