See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/269083016

Appropriate Contracting Strategy for Fast-Track Projects

Conference Paper · January 2011

DOI: 10.3850/978-981-08-7920-4_S1-CP20-cd

CITATIONS READS

0 191

3 authors:

Mohammad Moazzami Reza Dehghan

The University of Calgary Sharif University of Technology
6 PUBLICATIONS   9 CITATIONS    30 PUBLICATIONS   73 CITATIONS   

SEE PROFILE SEE PROFILE

Janaka Ruwanpura
The University of Calgary
166 PUBLICATIONS   911 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Automated Monitoring and Control for Construction Projects View project

Optimization of Schedule Acceleration in Design Phase of Construction Projects View project

All content following this page was uploaded by Mohammad Moazzami on 10 August 2015.

The user has requested enhancement of the downloaded file.

 Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
ISEC-6, Zürich, June 21–26, 2011

Appropriate Contracting Strategy for Fast­Track 
Projects 
MOHAMMAD MOAZZAMI1, REZA DEHGHAN2, and JANAKA Y. RUWANPURA3
1
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: mmoazzam@ucalgary.ca
2
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: rdehghan@ucalgary.ca
3
Departmentof Civil Engineering, University of Calgary, Calgary, Canada
E-mail: janaka@ucalgary.ca

Earlier project completion is the main purpose of fast-tracking strategy in construction projects.
Reducing project duration is achieved by starting the construction phase of the project before
completing the design package as well as overlapping activities in each phase. Starting an
activity without complete data and information in fast-track projects creates more risks and
uncertainties than normal situations. Contract is a mechanism to allocate these extra risks and
liabilities between contracting parties. Inappropriate risk assignments in contractual
relationships results in more risk premiums and contingencies which will end with greater
overall project cost. This study explains the critical shortfalls of applying traditional contractual
frameworks in fast-tracking and illustrates the main characteristics of a convertible contractual
framework as an appropriate strategy for fast-track projects. In this paper, execution and
conversion processes of convertible contracts are discussed and significant advantages of this
strategy are identified. Also, the contracting execution process of a project with a conventional
contract and a similar project with a convertible contract are compared through an industrial
case analysis.

Keywords: Project contract, fast-tracking, cost reimbursable, lump sum, convertible contract,
two-stage tendering.

1 Introduction convertible contractual framework, as an

In fast-track projects, the required time to
estimate the project outcomes is significantly
reduced due to activity overlapping, which
results in high level of risks and uncertainties.
Traditional forms of contracts like Cost
Reimbursable and Fixed Price or Lump Sum
mostly shift the project risks to the owner or
the contractor inequitably. This study explains
major difficulties of applying conventional
contractual frameworks in fast-tracking at two
levels: contract provisions and contract types
and illustrates the main characteristics of a
appropriate contracting strategy for fast-track
projects. In this paper, different strategies of
execution and conversion in convertible
contracts are discussed and significant
advantages of such contracts are identified.
2 Contractual Problems
The main contractual problems of fast-track
projects are discussed at two levels: contract
provisions and contract types. This study
shows that 1) the lack of adapted provisions
for fast-track projects results in applying

1
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
exculpatory clauses in contract language by
contracting parties which consequently leads
to inequitable risk transferring to other parties;
2) it is necessary to develop a contract type fit
for fast-tracking to optimize the risk allocation
between contracting parties.
2.1 Contract provisions
The general and special conditions of
contracts typically consist of written clauses
and provisions which specify the interests and
obligations of contracting parties and assign
the risk of contracting between them.
Standard forms of contracts consist of
contract clauses to allocate the project risks
between the contracting parties. These include
the standard forms of contracts published by
the American Institute of Architects (AIA)
and endorsed by the Associated General
Contractors of America (AGC), Canadian
Construction Documents Committee (CCDC),
FIDIC (International Federation of Consulting
Engineers) and Joint Contract Tribunal (JCT).
However, there are some chronological
statements in the literature that confirm the
lack of adapted provisions in standard contract
forms for fast-track projects. In 1983, Bynum
stated, “The author is unaware of any AGC or
AIA forms specifically tailored for use in fast-
track situations”. According to Fisher Jr.
(1990), no provisions in the AIA forms deal
with fast track or are even remotely related to
the special problems raised by fast-track.
Most fast-track projects are performed in a
design-build delivery system and are governed
under its contract documents. However,
design-build contract documents do not quite
fit for fast-tracking. Saltz (2007) supports the
argument, “It is not unusual for design-build
contracts to be used in fast-track situation but
the forms do not really contemplate fast-track
construction and must be modified to
accommodate that situation”.
Lack of adapted contract clauses for fast-
track projects in standard forms of contracts;
results in using exculpatory clauses to transfer
risks of the project to other party. Zach
2
(1996) found that as a classic risk-assignment
approach, the owner seeks to transfer all risks
responsibility to the contractor. The usual
consequence of this inequitable risk
assignment is considering more contingencies
and premiums by designers and contractors in
their bid price which will end with greater
overall project cost. According to Zaghloul
and Hartman (2003), the assessed premium
associated with the five most commonly used
exculpatory clauses in construction is between
8% and 20%.
2.2 Contract types
Contracts generally fall into one of the three
following main categories:
• Lump Sum or Fixed Price
• Unit Price
• Guaranteed Maximum Price (GMP)
• Cost Reimbursable
Several variations are commonly used in the
cost-reimbursable contracts including cost-
plus percentage of cost, cost-plus fixed fee,
cost-plus incentive fee and guaranteed
maximum price contracts.
According to Carty (1995), the best way
to understand the various types of
construction contracts is to view them from
the perspective of the risk involved. He states
that the range of risk from a contractor point
of view runs from a fixed-price contract at one
end of the spectrum to a non-risk cost
reimbursable contract at the other end.
Lump sum or fixed price contract requires
a well define scope of work that completely
provides project performance requirements.
Under a lump sum contract, the contractor is
obliged to perform the whole project work on
a fixed price basis and assume most of the
project risks and liabilities. The main
advantage of this approach is to know the
ultimate time and cost required to complete
the project.
Under a cost-reimbursable form of
contract, the owner agrees to reimburse the
 Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
ISEC-6, Zürich, June 21–26, 2011

contractor all of its costs plus an agreed upon

fee and often, all of the contractor's main 3 Convertible Lump Sum Contract
office costs, costs of financing, etc., are
According to Brkic and Romani (2009), in
included in the fee (Carty, 1995). Cost
recent years and mostly in the Middle East,
reimbursable contracts are more flexible to
some owners and contractors decided to apply
changes and unpredictable situations.
a combined contractual scheme in oil and gas
However, in this contractual framework the
projects to address the need for fast-track
owner does not have a clear vision of its
execution. This scheme is called Convertible
financial commitment and the contractor is
Lump Sum contract, which provides the main
not incentivized to minimize the project costs.
benefits of both lump sum and reimbursable
(Nkuah, 2006). Under this contracting
contracts and optimizes the risk allocation
strategy, project risks are mostly transferred to
between the owner and the contractor.
the owner. Selecting contractor in a cost
There are different approaches to execute
reimbursable contract is usually a subjective,
construction projects under a convertible
easy, and fast process, while it is formal,
contract based on the owner preference and
difficult, and slow in lump sum contracts.
the transition strategy from the Front-End
However, due to the complete project
Engineering Design (FEED) phase to the
definition, the execution phase of the project
execution or EPC phase of the project. One
is usually more efficient and shorter in lump
approach is to engage the contractor at the
sum framework.
pre-execution phase of the project to be
Some studies show that these two
involved in planning and design development
conventional contractual frameworks, lump
processes and critical services like ordering
sum and cost reimbursable, are not quite fit
long lead items. The contractor proposes its
for fast-tracking. According to Jergeas (2001),
unit rates as well as the conversion factors and
changes and associated claims are common
the initial contract will be signed based on the
when fixed price contracts are applied to fast-
pre-agreed conversion mechanism and a pre-
track projects. Since the fast-track strategy is
agreed methodology for project cost baseline
widely used in the design-build delivery
definition (Brkic & Romani, 2009).
method, it is very important to analyze the risk
In this approach the EPC bidding/award
distribution between contracting parties by
process is omitted and the owner continues the
using various contract types in the design-
execution of the project with the same
build. Oztas (2004) studied the risk
contractor who performed the FEED. The
distribution between contracting parties in a
contractor performs the FEED and part of the
design-build system considering different
detail engineering under a cost reimbursable
contract types. The results of his study
contract and once the scope of work is well
indicate that cost plus fixed fee and cost plus
defined, the material quantities are known,
percentage of cost as two main variations of
and the most subcontract packages have been
cost reimbursable contracts are the most risky
tendered by the contractor, the contract will be
contract types for the owner.
converted to fixed price. According to Brkic
Therefore, in cost reimbursable and lump
and Romani (2009), the best timing for
sum contracts, the balance of power is shifting
“conversion” is after completing 50-60
between owners and contractors and applying
percent of detail engineering (Brkic &
each of them in fast-track projects with
Romani, 2009).
additional risks and uncertainties reduces the
success of projects.

3
Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
This approach brings several benefits to
the project. Avoiding the difficult and long
EPC tendering process results in significant
timesaving in overall project duration. Also,
starting the project under a cost reimbursable
contract reduces the risk premiums and
contingency amounts and the owner achieves
a fixed price for the project when the
contractor is able to bid a more reasonable and
accurate price. In addition, involvement of the
contractor in the pre-execution phase provides
early communication between the owner and
the contractor to develop design package that
reflects contractor’s views regarding
constructability, work sequencing, and
selecting subcontractors (Lawrence, 2009).
However, there might be some problems
in this approach in relation to early
involvement of the contractor in the pre-
execution phase of the project. In this
situation, and in the absence of a direct
competition, the contractor has high level of
power in negotiating the fixed price and
delaying the conversion time (Lawrence,
2009). According to Davis and Dornan
(2008), one strategy to mitigate this problem
is to require the contractor to bid a guaranteed
maximum price for performing the main EPC
work and basic design review in pre-execution
phase. Once there is enough information to
have an accurate estimate, the contracting
parties negotiate a fixed contract price which
is below the guaranteed maximum price
offered by the contractor. Otherwise, they will
continue the project under the original
guaranteed maximum price with an
appropriate shared saving mechanism to
ensure that the contractor is incentivized to
minimize the costs.
Another approach to perform the projects
under a convertible contractual framework is
Two-Stage Tendering that is being used with
an increasing frequency in UK (Lawrence,
2009).
In first stage, a contractor is selected
based on experience, skills, and resources
rather than price to perform services such as
collaborating with the design team to agree a
4
final design, agreeing a program and cost plan
and tendering early and long lead subcontract
packages (Davis & Dornan, 2008). The owner
and the contractor sign a separate pre-
construction services agreement on a fixed fee
cost reimbursable basis.
In second stage, the owner and the
contractor will seek to agree and enter into a
lump sum or guaranteed maximum price
design-build contract. The conversion from a
pre-construction agreement to a lump sum
design-build contract will typically occur
when the contractor has successfully tendered
70-80 percent by value of the subcontract
packages for the project (Lawrence, 2009).
The main advantage of this approach is that in
case the contractor attempts to price stage two
above its original guaranteed maximum price,
the owner has an exit rout and is able to return
to the market to tender for an alternative
contractor (Davis & Dornan, 2008).
4 Industrial Case
Brkic (2007) compared the contracting
execution processes in two similar polymer
projects in the Middle East area. The first
project was performed on a lump sum basis
and the second one executed under a
convertible scheme. In both projects, licenses
were pre-selected by the owner and contractor
was obliged to carry out FEED and EPC
phases of the project. Tables 1 and 2 show the
results of the study in terms of activity
durations in pre-bid, bidding/award, Feed, and
EPC phases of both projects.
The initial contract was signed after three
months in the second project, while it was
signed after almost one year for the first
project. In the second project, the contract was
started under a cost reimbursable scheme and
on an open book basis and converted to a
lump sum contract after ten months. Omitting
the EPC bidding/award process in the second
project resulted in significant timesaving and
its overall project duration was seven months
shorter than the first project.
 Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
ISEC-6, Zürich, June 21–26, 2011

Table 1. Contracting Execution Schedule in This paper introduces an appropriate

Project 1 contracting strategy for fast-track projects, the
convertible lump sum contract, that recently
Activity Start-Finish has been used in the Middle East oil and gas
(month) projects. The concept is very similar to a two-
ITB Preparation 1-3 stage tendering process being used in UK
Bid Preparation 4-8 construction projects. There are different
Technical Evaluation 9-10 approaches to apply a convertible contract in
Commercial Evaluation 11-12 fast-track projects based on the owner’s
Signing the Contract 12th preference and transition strategy from the
FEED 13-16 FEED to EPC phase of the project. The
Detailed Engineering 15-35 convertible contractual framework combines
Procurement 17-38 the flexibility of the cost reimbursable
Construction 22-42 contracts at the early phases of the project
Commissioning 40-46 with the inherent restraint of the lump sum
contracts. The risk premiums and contingency
amounts are reduced and owner is able to
Table 2. Contracting Execution Schedule in achieve a fixed price for the main work of the
Project 2 project when the contractor is in a position to
bid a more reasonable and accurate price.
Activity Start-Finish Analysis of the execution processes in two
(month) similar projects in industry illustrates the
ITB Preparation 1 benefits of convertible scheme in terms of
Bid Preparation 2 flexibility, efficiency, and timesaving.
Initial Contract Finalization 3rd
FEED 4-8 6 Acknowledgement
Cost Estimate 5-9 Special thanks to Dr. George Jergeas and Dr.
Open Book Cost Finalization 8-9 Francis Hartman, professors of project
Long Lead Item P.O 9th management at the University of Calgary for
Conversion Contract Finalization 10th their advice, help and supports.
Engineering 7-27
Procurement 10-31 References
Construction 13-35
Commissioning 32-39 Brkic, D., Optimizing Risk by Adopting New
Convertible Contracts, in Rice Global
Engineering and Construction Forum, Rice
University, Huston, Texas, 2007.
5 Conclusion Brkic, D. and Romani, D., Unconventional
Contractual Schemes for Fast-Track Projects in
In this study, the contractual problems of
the Oil & Gas Industry, in Petrotech 2009,
the fast-track projects have been explored at Delhi, India, 290-294.
two levels: contract provisions and contract Bynum, S.D., Construction Management and
types. The results show that fast-track projects Design-Build/Fast Track Construction from the
suffer from a lack of specific contractual Perspective of a General Contractor, Law and
frameworks as well as customized provisions Contemporary Problems, Duke University
in standard contract documents. School of Law, 46(1), 25-38, 1983.

5
 Appropriate Contracting Strategy for Fast-Track Projects
Moazzami, M., Dehghan, R., and Ruwanpura, J. Y.
Carty, G.J., Construction, Journal of Construction
Engineering and Management, 121(3), 319–
328, 1995.
Davis, C. and Dornan, P., The Rise and Rise of
Two-Stage Tendering, The International
Construction Law Review, 25 (4), 419–424,
October, 2008.
Fisher, Jr., Fast Track Construction-A Legal
Quandary, 4Prob. & Prob. Magazine, 28-33,
March/April, 1990.
Jergeas, G.F., Claims and Disputes in the
Construction Industry, AACE International
Transactions, ISSN: 1528-7106, CDR.03.1-
CDR.03.4, October, 2001.
Lawrence, E., Two Stage Tendering, Construction
Management Guide Website,
www.cmguide.org, 2009.
View publication stats
Nkuah, M.Y., Progress and Performance Control of
a Cost Reimbursable Construction Contract,
Cost Engineering, 48(5), 13–18, 2006.
Oztas, A., Risk analysis in fixed-price design-build
construction projects, Building and
Environment, 39 (2), 229-237, February, 2004.
Saltz, S.G., The New AIA Design-Build Contract
from the Design-Builder’s Perspective, Probate
& Property Magazine, 8-11, July/August, 2007.
Zach, James. Risk Sharing – Good Concept, Bad
Name, Cost Engineering, 38(7), 26-31, July,
1996.
Zaghloul, R. and Hartman, Z., Construction
contracts: the cost of mistrust, International
Journal of Project Management, 21(6), 419–
424, August, 2003.