Contract Management for Construction Projects: Challenges and Solutions

Contract Management for Construction Projects: Challenges and Solutions

Written By
Joy Cunanan
Updated on
July 12, 2024
Reading time:

Construction projects are complex undertakings that involve the creation, renovation, or expansion of buildings, infrastructure, or other structures. These projects are executed through contracts, which are legally binding agreements between the project owner or client and various parties such as contractors, subcontractors, suppliers, and consultants. Construction contracts are unique in several ways compared to contracts in other industries, primarily due to the nature of the construction process and the inherent risks involved. As a result, the construction industry faces unique challenges when it comes to contract management. In this article, we will explore some of the key contracting challenges faced by construction companies and offer solutions to overcome them.

Get regular updates about contract management and digital transformation!
Thank you!
You email has been subscribed to our newsletter.
Oops! Something went wrong while submitting the form.

What are the Common Challenges in Construction Contracting?

Scope and Complexity

Construction contracts often involve detailed specifications, drawings, and schedules that define the scope of work. These contracts can be highly complex, with multiple phases, milestones, and deliverables. The scope of work may also include various technical requirements, quality standards, and regulatory compliance measures.

Payment Terms and Conditions

Construction contracts typically include detailed provisions regarding payment, including the contract price, payment schedule, and mechanisms for handling changes, extras, and deductions. Payments are often tied to project milestones or the completion of specific tasks, making payment management a critical aspect of contract administration.

Risk Allocation

Construction contracts allocate risks among the parties involved, including risks related to delays, cost overruns, design changes, and unforeseen site conditions. These contracts may include provisions for liquidated damages, warranties, insurance requirements, and indemnification clauses to address potential risks.

Regulatory Compliance

Construction projects are subject to various laws, regulations, and codes that govern the design, construction, and operation of buildings and infrastructure. Construction contracts must comply with these legal requirements, including zoning laws, building codes, environmental regulations, and safety standards.

Project Delivery Methods

Construction contracts can vary based on the project delivery method, such as design-bid-build, design-build, construction management, or public-private partnerships. Each delivery method has its own set of contractual requirements and implications for project management and risk allocation.

Dispute Resolution

Due to the complex nature of construction projects, disputes are not uncommon. Construction contracts often include provisions for dispute resolution, such as mediation, arbitration, or litigation, to resolve conflicts that arise during the project.

Challenges in Contract Management for Construction Projects

Complexity of Contracts

Construction contracts are often complex documents that can be difficult to understand and manage. They may include detailed specifications, drawings, schedules, and technical requirements, making them challenging to interpret and administer.

Implementing a contract management software that can handle the complexity of construction contracts can help streamline the process. This software can centralise all contract-related documents, track changes, and automate notifications, reducing the risk of errors and misinterpretations.

Change Orders

Changes are common in construction projects due to design modifications, unforeseen site conditions, or client requests. Managing change orders effectively is crucial to avoid delays, cost overruns, and disputes.

Putting a change order management system in place which provides clear procedures for documenting, reviewing, and approving changes can help manage change orders efficiently. This system should track changes to the scope, schedule, and budget, ensuring that they are properly documented and accounted for.

Communication and Collaboration

Construction projects involve multiple stakeholders, including owners, contractors, subcontractors, suppliers, and consultants. Effective communication and collaboration among these parties are essential for successful project delivery.

Using collaboration tools and project management software can facilitate communication and collaboration among stakeholders. These tools allow for real-time sharing of information, document management, and task tracking, ensuring that everyone is on the same page throughout the project lifecycle.

Risk Management

Construction projects are inherently risky, with potential risks ranging from delays and cost overruns to safety hazards and legal disputes. Managing these risks effectively is crucial to project success.

Implementing a risk management plan that identifies, assesses, and mitigates potential risks can help minimise their impact on the project. This plan should include strategies for addressing common risks, such as weather delays, supply chain disruptions, and regulatory changes.

Contract Compliance

Ensuring compliance with contract terms and conditions is essential to avoid disputes and legal issues. However, monitoring compliance manually can be challenging, especially in large-scale construction projects.

Using contract management software with compliance monitoring features can help track and enforce contract terms. These features can alert project managers to upcoming deadlines, monitor performance metrics, and generate reports to ensure that all parties are meeting their contractual obligations.

Document Management

Construction projects generate a large volume of documents, including contracts, drawings, specifications, change orders, and correspondence. Managing these documents effectively is crucial for project success.

Utilising document management systems that can centralise and organise project documents can help streamline the document management process. These systems should include version control, access controls, and search capabilities, making it easier to find and share documents among project stakeholders.

Dispute Resolution

Disputes are not uncommon in construction projects, and they can arise due to various reasons, such as delays, defects, or payment issues. Resolving these disputes in a timely and cost-effective manner is crucial to avoid project disruptions.

Including dispute resolution clauses in construction contracts that specify mechanisms for resolving disputes, such as mediation, arbitration, or litigation, can help manage disputes effectively. These clauses should outline the process for resolving disputes and the responsibilities of each party involved.

Quality Management

Ensuring that construction projects meet quality standards and specifications is essential for client satisfaction and regulatory compliance. However, managing and verifying quality throughout the project lifecycle can be challenging.

Building a quality management system that includes quality assurance and quality control processes can help ensure that construction projects meet or exceed quality standards. This system should include regular inspections, testing, and documentation to track and verify quality throughout the project.

Resource Management

Construction projects require careful management of resources, including labour, materials, equipment, and finances. Inefficient resource management can lead to delays, cost overruns, and disputes.

Designing a resource management software can help track and allocate resources effectively. This software can provide real-time visibility into resource availability, utilisation, and costs, allowing project managers to make informed decisions and optimise resource allocation.

Safety and Compliance

Ensuring the safety of workers and compliance with health and safety regulations is a top priority in construction projects. Failure to comply with these regulations can result in accidents, injuries, and legal liabilities.

Implementing a safety management plan that includes safety policies, procedures, and training can help ensure a safe working environment. This plan should also include regular safety inspections and audits to identify and mitigate potential hazards.

Schedule Management

Construction projects are often subject to tight deadlines and schedules. Delays can have cascading effects on the project timeline and budget, making schedule management critical.

Utilising project scheduling software can help create, manage, and track project schedules. This software can identify critical path activities, monitor progress, and adjust schedules as needed to ensure that the project stays on track.

Cost Control

Controlling costs is essential to ensure that construction projects remain within budget. Cost overruns can strain project finances and lead to disputes between parties.

Implementing a cost control system that tracks project costs, compares them to the budget, and identifies cost-saving opportunities can help control costs. This system should include regular budget reviews, cost tracking, and forecasting to ensure that the project remains within budget.

Fortify your Contract Management Process with Lexagle. 

Much like most industries in the modern age, the construction industry can undoubtedly benefit from a contract management platform. Lexagle's contract management software offers a comprehensive solution to address the unique challenges faced in managing construction contracts.

One of the key benefits of Lexagle is its ability to centralise contract-related documents. Construction projects often involve a large volume of documents, including contracts, specifications, drawings, and change orders. Managing these documents manually can be time-consuming and prone to errors. Lexagle provides a centralised repository for all contract-related documents, ensuring that stakeholders have access to the most up-to-date information at all times.

Effective communication and collaboration are also essential in construction projects, and Lexagle's platform facilitates this by providing collaboration features. Stakeholders can easily share information, manage documents, and track tasks, ensuring that everyone is on the same page throughout the contract lifecycle across multiple projects. 

Learn more about our other features by booking a demo today.

Contract Management for Construction Projects: Challenges and Solutions
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

Related Articles

Eagle Logo mask background

Streamline your contract management process with Lexagle and accelerate your business.

Contact us for a short demo today, and to discuss how Lexagle can best fit your organization’s needs!