Relationship Contracting for Stakeholder Relationship Management

Question: Discuss about the Relationship Contracting for Stakeholder Relationship Management. Answer: Relationship Contracting Introduction Relationship contracting is that form of contract system wherein management of relationship is to be given pattern over and the dictate of a standard form of contract. It emphasizes on trust, teamwork and sharing of profit or loss. It is no new form of contract; it has been there in existence since the year 1980 onwards. The use of conventional in the construction industry may lead to issues that is very to be resolved in relation to the different arrangement for different parties in different business scenario (Bourne and Lynda, 2016). Relationship contracting are of two types, it can be accordance of the project or it can be a contract which is for a long term period and can prevail for a long period of time. Traditional Contracting If we take traditional contracting, it increases the cost of the project and the expenses in relation to project as it may cause some dispute that may arise between the constructor and the contractor (Dwyer et al. 2014 ).The conventional contracting further have contradictory motives for both the contractor and the constructor. One will try to finish the project with minimum time and cost on the other hand the contractor will try to extend the project timing for his personal interest. The detail reason is explained later in details with example: As both the party in a contract sits together to decide the scope of work along with the involvement of the parties. It helps the contractor to be always on the toes and it does not allow the contractor to take the client for granted (Eadie et al. 2015).It also helps to decide the procure method and the process surrounding the procurement. Now-a-days greater number of relationship contracting can be seen as it reduces adverse team relation, as there is involvement from both the parties as they both are working for a common goal In a traditional contract, the client defines, develops and designs the document in relation to the project before going into contract. In general, a construction company mention a compensation and time limit in the contract (Gransberg, Douglas D and Eric Scheepbouwer 2015). Traditional contracts have long been going on and as the project becomes very complex in nature other issues arises that needs to be addressed. In modern construction project the issues that arises are: Community requirements and desire for involvement in planning Resident title Political issues Unrelated stakeholders, interest groups The inherent doubts in brown field sites Environmental issues Uncertainty in scope definition These issues may result in time and cost (Gutierrez et al. 2014). As the construction companies wants to maximize their margins and the client wants the project to be delivered at the lowest cost. Relationship contracting is a business relationship. It is a mutual benefit from that the client and the contractor comes along to deliver the project at the lowest possible price. Alignment of goal The alignment of goals between the client and the contractor is common among all the parties. The alignment of goals helps in effective teamwork and communication between the client and the contractors. If we have common goals (Haslam Mckenzie and Fiona et al. 2013). Risk allocation As we know that risk cannot be eliminated but can be transferred and distributed amongst the parties involved in the procurement process. Clearly defined scope It is an arrangement between the main contractor and the client. It also includes suppliers, subcontractors, relevant parties, and other stakeholders. Form of contract In relationship based which is based on the contract project and delivery ensures physical delivery of the project to the requirement of the client (Hughes et al. 2015). Integrated project team In an integrated project, team includes the senior members of the project and the client. The team member is accountable for the designing of the project and construction of the project. Gain share / Pain share Profit and loss is an important aspect for relationship contracting and alignment of gains takes place through various incentive schemes (Young et al. 2016). Facilitators They are the consultants who build up a team and help to stay in alignment with their objective. It helps the project leaders to understand their shortcomings and problems. Legal Advisers The lawyers play a role in drafting the contract and agreement. Their main role is to protect the interest of their client. Third party advisers They contribute to the outcome of the project. Their role is to review and report about the progress about the project (Ibrahim et al.2016). Types of relationship contracting The relationship can be of two types Projects based collaborating: In this type of partnership contract, it is generally based for a particular project and end with that project (Jefferies, Marcus and Steve Rowlinson. 2016). Time Based Partnering: In this type of partnership, it is based on the time. A particular period is mentioned and the contract prevails for the particular time (Jefferies et al. 2014). In the current scenario, the client or the owner wants to work in close conformity with the people so that everyone has the idea about the objective of the project and to proceed. Relationship contract helps in building teamwork, gone those days where liability was upon one shoulder. Now-a-days liabilities are being transferred so that it could be minimized and so that everyone stays on their toes (Ling et al. 2014). Unlike traditional contracting, where there was no involvement by parties such as the supplier, and the contractor and client the burden was always on one person and risk involved was much greater in nature. With the help of relationship, marketing the risk and liability can be divided upon so that it can be a teamwork rather than one-man show. In the current scenario where the construction industry is very efficient in nature, the cost of carrying out business at the cost of the customer has become a very old practice. In the modern era, there should be strict contract between the construction company and the contractors that will define the exact remuneration and any delays that may happen in case of work. If there is any kind of delay, in that case the limitation of liabilities should be mentioned in the contract, which further helps in escalation of problems (Lloyd-walker et al. 2014). Conventional contract A conventional contract is something, which was practiced, had many flaws. For example X is the owner of a construction company, which is making high rising building for residential purpose. X has outsourced its work to Y, who is the owner of a company which is acting as a contractor for Xs company (Mollaoglu et al. 2015). The contract between X and Y is a conventional contract, where Y will get the payment in accordance with the number of days that X has used his services. Here we can see that the following scenario can caused total contradictory interest. As X is the owner of the construction company and paying contractor Y according to the number of days service provided by his company, in that case he would want to finish the work as fast as possible. On the other hand, Y is getting payment on daily basis and would want to extend the work as far as possible as it will increase the payment. Therefore, in this example we can see that how conventional contract can bring in contradictory relation amongst the construction company and its contractors (Rahmani et al. 2017). On the other hand, relationship contract creates a mutual benefit for both the parties. For example: X being the owner of the construction company and Y being the contractor, they went into an agreement that they will end the construction project on a specific time upon a specific amount of money. The quality standards should also be specified and if these standards are not met, there will be a deduction in payment (Walker et al. 2015). In this kind of scenario, both the parties have mutual interest in finishing the work as fast as possible. As there is mutual interest for both the parties in the same direction and they are not contradicting to each other, in such a scenario both the parties will work for similar interest and this will help in no further escalation of problems. References Bourne, Lynda. 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