Construction and Law

What is relationship-based contracting?

December 1, 2013
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What is relationship-based contracting?
Members of the team at Holland-based Elzinga & Volkers at a job site. Photo via fb.com

I don’t think I'm alone in the opinion that there are many ways construction buyers, construction managers and subcontractors can resolve disputes without the use of the heavy-handed legal language that fills construction agreements.

Contracting, by its very definition, is an industry governed by various legal documents and agreements, which define and direct the relationship between two or more companies. 

These contracts, typically based on templates provided by the AIA, or American Institute of Architects, dictate all aspects of the owner to contractor and contractor to subcontractor relationship.

The documents are widely accepted in the construction industry and set up a clear structure for the administration of construction projects.

However, relationships are critical to the success of any construction, subcontractor or building supply company — and they're the key to resolving disputes without turning to documents.

1. Know your team

There are real people behind the signatures on construction agreements.

It is critical to any relationship that you understand the person you are working with. Project teams should endeavor to make a personal connection, in addition to establishing the legal side of the relationship.

On simple agreements and less-complicated projects, regular team lunches can go a long way to creating an environment where concerns are shared openly and misunderstandings are solved quickly.

Thinking longer term, for more complex agreements, you may consider a team-building retreat or formal exercise to create an even deeper bond.

There is no substitution for face-to-face conversation, which leads me to my next point.

2. Pick up the phone or, better yet, meet face to face

Emails and texts have simplified and sped up human communication, and the transfer of information makes business faster and more efficient.

I spend a large part of my work day interacting with project teams via these electronic communication forms. While I am not the first to caution against overusing emails and texts, I must reiterate how detrimental it is to relationships when it replaces one-on-one conversation with long, legalese-filled content that is only designed to “cover your butt” or maliciously trap someone in an unfair commitment. When situations become contentious, the risk of misunderstanding increases. 

When team members discuss matters over the phone or — better yet, face to face — creative solutions, instead of just the best legal interpretations, that benefit everyone can usually be found.

3. The best place for a contract is in the file drawer

We have a saying in our office: “The minute the contract comes out of the file, you’re in trouble.”

As I mentioned before, construction agreements outline procedures for dispute resolution, but they are typically lengthy, expensive legal proceedings that cost project teams significant dollars and time. They distract from the ultimate goals of high-quality projects completed on time and under budget. Legal proceedings also compete for resources that might be used to more effectively advance your business, namely time and money.

The best contracts are coupled with a genuine relationship between two parties, which can usually keep contracts in a file drawer where they belong.

4. Shared risk vs. legal fees

Legal professionals are valuable, well-trained experts who provide much-needed guidance to many businesses, but the cost of legal services can be significant.

Sometimes dispute resolution without legal consul can be less expensive to each party and maintain the integrity of the legal agreements between the two groups. Minor disputes happen daily on construction projects and are usually worked out efficiently and cost-effectively through relationships.

There is a time and place for legal representation, but when a professional relationship with shared risk and understanding exists beyond the contract, both parties can avoid potentially high legal costs.

Now, you may be thinking, “Of course we would love to get rid of the lawyers and the legal documents, but there is too much risk in construction for that.”

I agree with you completely. Construction is a dangerous, high-risk business where mistakes can result in huge amounts of monetary loss.

I am not advocating for the replacement of legal construction agreements, just that we do not rush to them for all the answers when solving disputes. Contracts do not leave room for personal relationships — relationships that can positively affect the progress of a construction project.

As a tool for creating a successful project, there is no substitution for direct human interaction. 

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