Devising contract terms in construction contracts to produce efficient performance

The substance of contract terms has a major influence on the performance by the parties to a construction project. Analysing risk has become an important pursuit in project management and its significance is not questioned since the financial consequence of project uncertainties can be very high. It has been proposed by some sources that a balanced risk allocation in a construction contract will produce improved satisfaction of the parties to construction contracts. This paper reviews this concept and challenges some of the claims made by merely allocating risk. The research involved an examination of the theories of organizational economics and their relevance in devising contract terms with the aim of producing a model which would increase the efficiency of contract performance. Although the attributes produced in new institution economics have been examined previously they have restricted their analysis to organizational governance. The paper gives clear indication that the same attributes can be used in producing a more efficient contract.