Effects of Construction Contract Types on Project Performance Study

This essay explores the relationship between different construction contract types and project performance, focusing on the construction industry in Saudi Arabia. It identifies challenges such as contract notice glitches, project delays, and ineffective management. The research questions address the connection between contract forms and project performance variables and how to choose the appropriate contract types to maximize project success. It discusses the impact of risk allocation, expected benefits for contractors, and the contractor's ability to control expenses. The study also examines the influence of employer preferences, the speed of project completion, and the quality of project outcomes in relation to different contract types, such as lump-sum, target-cost, and cost-plus contracts. The paper hypothesizes that the use of integrated contracts improves the performance of building projects, testing null and alternative hypotheses using non-parametric statistics.

Effects of construction contract types on project performance
1. Introduction: Aim, objectives and feasibility of the dissertation
1.1- Background
The aim of the paper is to analyze the issue of construction contracts and the value of the project
performance. According to the previous research, it is said that there is a profound connection between
the performance of a project and the different kinds of building contracts. This particular section of the
paper reflects the connexion between the performance of a project and different types of building
contracts and will answer that the contract selection will affect the project or not? A contract is an
agreement between the two or more parties, establishing mutual duties enforceable by law (Yih
Chong, Balamuralithara and Choy Chong, 2011). A building contract is a legal and agreement between
the two parties that depend on different policies and conditions that are documented. These two parties
may be one or more owners or one or more contractors (Koksal, 2011). There are mostly three types of
construction contracts: Traditional contracts, which is well known as 'design bid build' (such as:
Fixed price contracts), Management oriented contracts, and Integrated contracts (such as: Design &
Build contract). The types of construction contracts, define several areas of a project, for example,
 A contract explains the scope of a particular project
 It assigns risk factors between the parties
 A contract can identify the non-performing factors in a project
 A contract can identify or reduce project costs (Lambropoulos, 2013).
However it is to be noted that there are less number of previous study on the relationship between the
construction contracts and their relationship with the project success. It is also to be noted that the
relationship and interconnection between the two variables have not been discussed must in the
previous studies conducted. All the previous researches have largely focused on the conceptualisation
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of the different building contracts and their elaborate description. However it is imperative to note that
the area of their interconnection and the positive impact that building contracts could make is not
clearly spelt out. Hence this paper will be focusing on the issues relating to the question of
construction contracts and their interrelationship with the likelihood of project success(Malinga et al
2018).
1.2- Problem statement
There are certain inherent issues with the construction contract in general and within the context of
Saudi Arabia. Some of the biggest challenges of the construction contract are namely: there are issues
like glitches in the contract notice, expected a delay in the execution of the projects, ineffective
contract management and lack of proper administration. Lastly, it is important to note that there is
higher number of employee termination (Intersec-ksa.com, 2019). Even though it is to be noted that
there are large budget allocated for the construction of private sector investment of and other reforms
of the construction laws, there are issues of the construction contracts which requires detailed research.
It is to be argued from the above discussion that the construction industry of Saudi Arabia is
comparatively young than the rest of the countries with a successful past due to oil resource of the
country however it is important to note that the country is suffering due to the issue of quality, work
and time. One of the crucial factors that are affecting the Saudi construction industry is the completion
of the job within the assigned period and the quality of performance related to efficiency. It is further
argued that the task is not being allocated at right time and in most of the cases it is faced with the
issues of tussle between the different stakeholders. Hence it is to be argued that there is a lack of
research in understanding the different contract issues and the problem arising out of them. Hence this
paper will be focusing on the analysis of the areas of different contract and their relation with project
performance in the construction industry of Saudi Arabia. It has been observed that the construction
sector of the Saudi Arabia is facing with some of the issue of slowdown in growth and this is
something to be focused upon the problem arising out of the construction contracts and their effective
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assessment (Adriaanse, 2016). Hence it can be suggested that there is need to develop the issue of
different construction contracts and their relation for the effective performance of projects.
1.3- Draft research questions and hypotheses (add 1200 words)
This particular research paper proposes to investigate answers to the following questions:
1- What is the relationship between different forms of construction contracts and the variables of
project performance?
2- How to choose the appropriate construction contract types in order to maximise the likelihood of
project success?
The questions posed above are justified through a review of literature and determination of the
literature gap that this study proposes to fulfil. A study of literature revealed that there are two main
problems identified concerning construction contracts. Firstly, neither of the contractual parties is
aware of the impact that construction contract types have on project performance (Doloi, Iyer and
Sawhney, 2011; Alzahrani and Emsley, 2013). This is probably because convenience is being
considered a more viable factor in the choice of construction contract type rather than knowledge of
the impact of contract choice. The creation of this awareness through a multi-step process and with
academic quantitative evidence can help contractors as well as owners to understand the true
significance of the issue and make informed choices regarding the nature of outcomes associated with
each of the contract types.
Secondly, although the shift from traditional to newer forms like management-oriented and integrated
contracts signified issues with the traditional contracts related to project performance, there is still no
conclusive evidence to show that these relatively more unique types of construction contracts are in
any way superior to traditional contracts. Thirdly, and more importantly, there has been limited focus
on a comparative study of the types of construction contracts and impact on project performance on a
global basis. The topic has been under-researched, and those papers that do focus on the issue
investigate it from a theoretical or single-country perspective (Kagiri and Wainaina, 2017). Therefore,
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I can say that the three research questions proposed above; have hence been formulated with the stated
theoretical justification.
The impact of various criteria for the choice of type of contract is contemplated concurring to the
consequences of the review, meetings as well as other activities to be performed. The impact of the
hazard designation is analyzed on the first basis. It has been affirmed that the ideal chance
dissemination by the collection is a basic moment that picking the type of contract relies on as
anticipated from the writing (Al-Harbi, 2006).
Hypothetically, such groupings ought to have adequate budgetary solidarity to hold up under the
possible challenges. This is anyway troublesome to evaluate, as the reactions of the overview and
meetings may be one-sided in light of the fact that the budgetary quality is a delicate subject. By and
by, this may not appear an essential concern, yet rather the worry is by all accounts the capacity of the
claim party (the Contractor) to withstand failures of the project (meet with respondents 4 and 5). The
impact of the expected benefit by the Contractor will be affirmed in the meeting with respondent in
Determination of type of the contract especially in the case of the construction contracts. The feeling
that a few Contractors would acknowledge higher hazard (entering a single amount contract) on the off
chance that they anticipate more benefit, building possibilities and a higher prime factors into the fixed
cost. By and large, the consequences of the study coordinate the writing in regards to the distribution
of risks. This implies that cost-in addition to expenditure base rate and target-cost ought to have the
more productive as far as risk allocation is concerned.
At long last, the Contractor's capacity to control the expenses has an impact, for example respondent
expressed in the studies that the Contractor ought to be apportioned more risks, since all in all he can
control a bigger number of risks as compared with the employer. As in Hosseinian and Carmichael
(2014), the decision of the sharing proportion of half for Project X will definitely not be clarified more
distant than being half of the reserve funds/abundance for each and every group, so it will appear to
have been picked rather discretionarily, coordinating the discoveries of Badenfelt (2008).
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As to Employer's inclinations, it doesn't appear the incentive for the Manager's cash would be a very
significant factor for the choice, in light of the fact that the three contracts will be likewise evaluated.
This affirms the writing that likewise did not discover noteworthy contrasts in the evaluated contracts
in this regard (Antoniou, et al., 2013b) (Ward and Chapman, 1994). Target-cost contracts appear to
prompt a speedier finish of the task, in light of the fact that there are impetuses for the Contractor to be
quicker and the task can begin with a fundamental structure, which is in concordance with the
discoveries of Antoniou, et al. (2013b) and Fuller (2015). With respect to other two contract types, the
respondents have various assessments, although the singular priced is somewhat snappier by and large.
This negates the writing expressing that cost-in addition to contracts will in general accelerate the task
on account of the plausibility of doing structure and execution parallel (Bajari and Tadelis, 2014). In
any case, it could be clarified by the Contractor's motivating force to diminish costs in the singular
prices contract, which straightforwardly rely upon the term of the works.
As indicated by the feedback of the study and other collections, it gives the idea that extra expenses
and target-cost contracts improve the nature of the task result more than other forms of contracts.
Target-cost contracts are appraised as being somewhat superior to cost-in addition to ones in this
regard, which affirms the discoveries of Antoniou, et al. (2013b) and Chan, et al. (2010), who report
that the quality will in general become better utilizing target-cost contracts. Bajari and Tadelis (2014)
likewise guarantee that cost-in addition to contracts give preferable quality over single amount ones.
The objective cost contract is evaluated as obviously more agreeable than the other two. All things
considered, the cost-plus contract is evaluated as very agreeable, as opposed to the type of contract
known as lump-sum. This matches the writing research which asserts that objective expense and cost
plus contracts upgrade participation (Chan, et al., 2010), yet the consequences of the present study
Suprapto, et al. (2016). illustratesthat the participation in the objective cost contract is altogether
superior to in the expense as compared to cost-plus contract, comparatively to the discoveries in
Endeavoring to accomplish a reasonable and adjusted contract may likewise impact the choice of
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contract, as effectively found by Badenfelt (2008). When all is said in practical format, the objective
expense is viewed as more attractive than the other two by the respondents. Some scholarly articles
guarantee that trust between the collection which supports the utilization of target-cost contracts
(Badenfelt, 2008)
Hypotheses
Research Hypotheses
The study which was conducted for testing null hypotheses (H0) and alternative hypotheses (H1)
bellow involved the use of non-parametric statistics.
H0: Use of the integrated contracts improves the performance of building projects: The
frequencies of responses are not disproportionately distributed on the national internal contracts so that
the involvement level in the system o0f building procurement can be questioned. The frequencies of
responses are disproportionately distributed on the national internal contracts so that the involvement
level in the system of building procurement can be questioned. Time and cost resulted to
underperformance of national internal contracts in the process of building the procurement systems.
There is a good performance was realized based on time and cost in the system of building
procurement.
There is an inappropriate application of tools by national internal contracts for the construction of
projects in the procurement system. There is a proper application of tools by the national internal
contracts for planning construction of the project in the procurement system. There is difference of
respondents’ ranking distribution planning challenges of the project on NICs(national internal contracts)
in the building procurement system. No ranking distribution difference in in the project planning
challenges on national internal contracts in the system of procurement building.
H1: Use of Integrated contracts does not improve the performance of building projects. There is
difference in respondents’ ranking distribution in the project planning of national internal contracts
and its influencing factors on the project procurement system. Same ranking distribution of the
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respondents’ in the project planning of national internal contracts and the significant influencing
factors on the project procurement system. On the basis of success indications in the project planning
of the contractors, the ranking distribution is difference in the system of building projects
procurement. On the basis of success indications in the project planning of the contractors, the ranking
distribution is the same in the system of building projects procurement.
1.4- Aim and Objectives
The aim of the research is to analyse the relationship between the construction practices and their
contribution in the project performance. Hence following questions have been formed to address the
issues. The objectives of the research are:
 To explore the relationship between the contract types and project performance.
 To explore different types of contracts used in construction practices and their impacts on
project performance.
This objective will be beneficial to understand the various types of contracts used in the
building projects and their advantages and disadvantages. Thus, a cost-benefit analysis of the
different types of contracts can be performed to identify the right kind of contract to achieve
and maximise the likelihood of success in construction projects.
 To evaluate the contract types and the project performance within the global context by taking
up the case study of Saudi Arabia.
To achieve this objective, secondary data on the contract types and their outcomes in the
respective projects should be collected for the construction industry of Saudi Arabia and that
information will be analyzed using appropriate methods to evaluate the performance of the
projects. The research hypothesis will be tested with specific data on Saudi Arabia and a
general inference will be drawn for the global context. Secondary data on the global
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construction industry will also be explored to make a valid comparison on the impact of
contracts on the construction projects.
The leading role of a construction contract is to identify the scope of a project and to establish
obligations, rights and responsibilities among the parties and along with this, allocation of risks is also
there. Therefore, the acceptance of a contractual contract reflects an acceptance of the duties that come
from an equal risk that is the risk of lower or zero-performance, and non-compliance of the obligations
that affect the performance of a project regarding its costs, time and quality (Hughes, Champion and
Murdoch, 2015).
The purpose of the paper is to study different types of construction contracts, for example, Integrated
and Traditional Contract on project building and the performance of the cost. This particular study
may also elaborate on the conception of the Architects, Quality Inspectors, Project Managers and
Contractors as well (Bhargava et al., 2010).
1.5- Feasibility of the Study
In the construction industry, the project becomes over budget is a common problem that is faced by
the contractors (Kikwasi, 2013). So, this particular paper will be helpful for those organisations that
need to control their project costs in the pre-determined project's period. The contractors face this
particular issue because construction contracts are made at a very early stage of a project
(Ramanathan, Narayanan and Idrus, 2012). In order to judge the feasibility of this report, it may get
sufficient information regarding the identified issue from the different construction firms around the
world, and with this, I have sufficient experience, skills, and knowledge in the arena of construction
projects management; in order to do research adequately.
1.6- Why study this topic ((add 300 words)
This study proposes to investigate the effects of construction contract types on project performance.
This specific focus area has been exclusively under-researched in Saudi Arabia, with no documented
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evidence for the current practice in terms of the contract type favoured by professionals. Since there is
relatively limited information regarding the most frequent construction contract agreement between
stakeholders, there is in consequence even less information regarding the impact of the types of
contract agreements on the project performance in the country. Therefore, this study will potentially
benefit multiple stakeholders; it will add to the limited literature base on construction contract
agreements favoured and the impact of construction contracts on project performance. It will also be
beneficial to construction contractors and associated professionals like architects, quality inspectors
and project managers intimately involved in the construction process. This study will likewise prove
advantageous to the country by providing knowledge about current trends and practices in terms of
construction contract agreements and the inter-connected factors that impact these agreements in the
first place.
The study has also been proposed to fulfil an important research gap that exists within Saudi Arabia in
the context of current practice trends in construction contracts as well as the project performances
based on the contract agreements employed.
A large portion of specialists who directed research on Construction contract types focused on
clarifying the implications, where should these development contract types be utilized by taking a
gander at the favourable circumstances and burdens. Analysts, for example, Backrush (2015) and
different specialists clarified various sorts of development contract types past to what clarified by
Public Procurement Act (Sikka, and Lehman, 2015) of Saudi Arabia and its guideline( Sikka, and
Lehman, 2015). For example, Lump Sum contract as well as fixed price contracts have sub contracts
which were not clarified by Public Procurement Act (Sikka, and Lehman, 2015) and its
guideline(Sikka, and Lehman, 2015). However these subcontracts can be contemplated inside and out
and archived to be utilized by LGAs for development in Contract execution. Specialists who
researched on this territory were excessively broad, on-specific and did not relate between contract and
its impacts on the performance of the project. For example, to oversee contract like lump sum is very
extraordinary to deal with an agreement like Costs reimbursable contract. In such contracts of lump
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contract money related hazard and obligation goes to temporary worker while in the agreement like
Costs reimbursable contract money related hazard and obligation still stay to customer whereby is
required to have skilful specialized work force to direct the task. Wellspring of assets/Financier of the
task has impact on the Construction Contract type's determination. For instance determination of
Construction contract type to the task financed by Road subsidizes is very extraordinary to the venture
financed by LGAs claim sources (Kidson et al 2013).
In Roads subsidize financed venture, there is great payment of assets while Activities financed by
LGAs' own source dispensing of store isn't great some of the time the assets are not accessible in light
of the fact that accessibility of assets relies upon the accumulations from the natives. So the analysts
on Construction Contract types did not relate between contract type’s choice and wellspring of assets
with the impact on contract type choice and the agreement the executives(Abbas 1998). A couple of
scholars had been done on the effect of development contract types on the contract the executives in
Saudi Arabia.
Partners in the development Industry need more familiarities on this particular sector like criteria for
choosing the Construction contract types and which is fitting development contract types for LGAs'
condition for New activities or Rehabilitation extends, the familiarities which will be gotten will be
significant for LGAs staffs and partners in Construction industry with the motivations behind
abstaining from getting things done as it used to be traditionally with old fashion and style as well as
improving the agreement execution. The study thus comes at the right time(Al-Jarallah, and Mohan
1986).
1.7- Literature review ((add 3250 words)
2.1- Theoretical framework
Undoubtedly, theories are articulated to demonstrate, predict, and explain phenomena. In various
cases, they can challenge and broaden present knowledge within the limitations of a research study.
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The conceptual context also called its theoretical outline is the structure that will hold, or backing, a
theory of an investigation study.
Numerous factors from prior studies have been identified to impact the choice of the type of contract
agreement. These include social issues like trust and commitment factors, inter-organizational factors
such as the definition of the scope of work and resultant risk and uncertainty and external factors like
economic environment, national policies, political stability as well as market volatility (Suprapto et al.,
2016; Fugar and Agyakwah-Baah, 2010). Additionally, even if all these factors are considered while
making agreements, long project durations cast an air of risk and uncertainty on collaborative
arrangements of associative stakeholders such as architects, contractors, quality inspectors or project
managers. The conceptual framework proposed by Suprapto et al. (2016) encompasses these inter-
related aspects of the building on a form of relational collaboration between contractor and owner of
the project as opposed to traditional contracts. A similar but extended approach has been proposed by
Grove et al. (2016); as in the below diagram:
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Figure 1: Contract types and related performance (Source: Grove et al., 2016)
The model is a complex one and in essence goes against prior established assumptions that favorable
contracts, irrespective of the type of contract agreed upon, are only possible in favorable conditions
while affirming a growing body of literature that theorizes that favorable contract types can be enacted
in unfavorable conditions. This model has been chosen to test existing conditions in Saudi Arabia in
terms of the contract type prevalence within a politically stable, fast-growing economic environments,
and impact on project performance.
Furthermore, in addition to these two frameworks, the researcher will also analyses the current
contract agreement phenomenon through the principal-agent theory (Chang, 2013) and the transaction-
cost theory (Li, Arditi and Wang, 2012) to explain the socio-economic foundations behind contract
type decision-making and its impact on performance in Saudi Arabia.
2.2- Contract types and project performance- an overview
The prevailing school of thought believes that project performance is significantly dependent on
contract type (Kim et al., 2009; Mir and Pinnington, 2014; Al-Zahrani and Emsley, 2013). However,
Suprapto et al. (2016) hypothesize that relational collaboration between the stakeholders makes a
difference in project performance outcomes. Researchers argue that a relational contract type is based
on mutual trust not only between owner and contractor, but also within an inter-firm context, as being
an essential factor within the construction team that takes the construction work forward.
Ning (2018) like Suprapto et al. (2016) affirms that contract types have no impact on project
performance except in cases where the contract is not well-drafted and is not clear on its scope of
definition and performance variables expected. However, the researcher considers that deviance in the
written contract and its practical application impact project performance more significantly than the
actual contract type itself.
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