The importance of construction contracts in projects is the main pillar to ensure that the construction process runs smoothly in accordance with the agreed legal and technical requirements. Through contracts, the roles and responsibilities of each party are defined, as well as the basic clauses that govern the obligations of the contractor, owner, and suppliers, ensuring that the project is executed efficiently without legal disputes or unexpected delays. With the rapid developments in the construction industry, contract management has become a critical factor in the success of projects, through which performance is monitored, costs are controlled, and disputes are resolved in accordance with the principles of construction law and approved standards.

Construction contracts are categorized into multiple types according to the nature of the project, payment mechanism, and mutual responsibilities, and knowledge of these types is essential to determine the most appropriate option for the project. In addition, contracts consist of a set of clauses that specify payment terms, execution periods, quality standards, and legal responsibilities, which helps minimize risks and ensure that the project is executed according to the set expectations.

In this article, we will highlight the types of construction contracts, the most important contract clauses, and the importance of contract management to ensure compliance with the building code and maximize the safety and efficiency of construction projects.

 The importance of construction contracts in construction projects

It is considered Contracts in construction projects Legal documents that regulate the relationship between all contracting parties, clarifying the scope of work, timeline, payment mechanisms, and dispute resolution procedures. Without a clear and comprehensive contract, issues may arise that affect the continuity of the project, such as cost disputes, delays in delivery, or failure to achieve the required quality standards.

Contract management plays a crucial role in monitoring compliance with the terms of the contract, checking contractor performance, quality of work, and adherence to approved specifications. Building code compliance ensures that projects are carried out in accordance with regulatory laws, protecting all parties from legal penalties or fines.

Types of construction contracts

Construction contracts are divided into several main types, and they differ based on payment mechanisms, risk allocation, and the degree of control over project details. Choosing the right type depends on the nature of the project, budget, and risk appetite of the parties.

• Lump sum contract (Lump Sum Contract):

This type of construction contract is known as

 Also known as a "lump sum" contract, where a fixed amount is agreed upon for the entire project. This type minimizes the owner's financial risk, as the contractor is obligated to execute the project at the specified price without unforeseen increases. However, it may expose the contractor to losses if they encounter unexpected cost overruns.

• Cost plus profit contracts (Cost Plus Contracts):

In these contracts, the owner pays all actual costs associated with the project, plus a percentage or lump sum as a bonus to the contractor. These contracts offer greater flexibility, but require strict control over expenses to ensure that costs are not inflated.

• Unit price contract (Unit Price Contract):

Prices are determined based on each unit of work (such as the price per cubic meter of concrete or the price per square meter of finishes). This type of contract is suitable for projects where the quantities of labor are not precisely defined at the beginning of the project.

• Turnkey contract (Turnkey Contract):

In this type of construction contract, the contractor is responsible for all phases of the project, from design to final delivery, and the project is delivered turnkey. It is suitable for larger projects such as factories and commercial buildings, as it minimizes the owner's involvement in technical details.

• Design-Build Contract (Design-Build Contract):

This contract combines the design and implementation phases, where a single entity is contracted to carry out the entire project. It helps reduce the time it takes to complete the project, but may limit the owner's ability to control design details.

Management contracts (Management Contracts):

• This contract combines the design and implementation phases, where a single entity is contracted to carry out the entire project. It helps reduce the time it takes to complete the project, but may limit the owner's ability to control design details.

The most important contract clauses in construction projects

Contract clauses include a set of conditions that define the obligations of the contracting parties, and these clauses are necessary to ensure that the project is carried out efficiently according to the specified schedule and budget.

• Scope of work (Scope of Work):

This clause is one of the most important elements of construction contracts, as it clearly and precisely defines the details of the work to be performed, thus minimizing confusion or misunderstandings between the contracting parties. The scope of work includes a comprehensive description of the project, including the engineering plans, the materials to be used, and the technical requirements that must be adhered to during implementation. It also specifies the standards and specifications that must be in line with the building code to ensure safety and quality. This clause helps guide all parties towards achieving the set goals, and serves as an essential reference when you need to assess the quality of execution or resolve potential disputes.

• Schedule (Project Schedule):

The timetable is an essential element in construction contracts, as it defines the different stages of project implementation, from the planning stage to the completion of all works and the handover of the entire project. This clause includes the start and end dates for each phase of construction, which helps organize the work and ensure that operations proceed according to a clear and specific plan. It also contributes to coordination between the various parties involved in the project, such as contractors, suppliers, and consultants, minimizing the possibility of unexpected delays. In addition, the timeline enables the progress of the work to be monitored, as contract management can identify any deviations from the original plan and take the necessary corrective actions to ensure adherence to the specified time frame, ensuring efficiency and quality as per the requirements of the building code.

• Project cost and payment methods (Payment Terms):

This clause specifies The financial value of the project The payment mechanism between the contracting parties, whether it is advance payments, progress payments according to the progress of the work, or payment after completion. It also explains how to deal with any cost changes during implementation, such as amendments to the scope of work or material price fluctuations. Contract management plays an important role in tracking payments and ensuring they are disbursed according to the contract, which helps avoid financial disputes. This clause should also be in line with the requirements of the building code to ensure compliance with financial and regulatory regulations.

• Terms of change and amendments (Change Orders):

This clause outlines how modifications to the design or materials are handled during project execution, whether due to new requirements or to ensure compliance with building code standards. This includes submitting a formal request, assessing the impact on cost and schedule, and obtaining approvals before implementation. Contract management helps organize these modifications to ensure they are carried out efficiently without affecting the quality of the project or going over budget.

• Quality requirements and construction standards:

This clause requires adherence to specific criteria to ensure build qualitysuch as concrete tests, material strength, and safety standards. It also ensures compliance with building code requirements, including periodic checks to ensure specifications are met. Contract management plays an important role in quality control, minimizing structural defects and enhancing project sustainability.

• Dispute Resolution and Arbitration Mechanism:

This clause specifies the legal procedures to be followed in case a dispute arises between the contracting parties during the implementation of the project, which helps in settling disputes in an organized and fair manner. This includes identifying methods of resolving disputes, such as direct negotiation, mediation, or resorting to arbitration as an alternative to the judiciary to speed up the settlement process. It also clarifies the cases that require resorting to the courts, while determining the legal jurisdiction according to the requirements of the building code. Contract management helps organize these processes by documenting the agreed obligations, which reduces the likelihood of conflict, protects the rights of all parties, and ensures that the project is completed smoothly without disrupting the schedule or exceeding the budget.

Contract management and its importance in construction projects

Contract management is one of the main pillars that ensure the success of construction projects, as it aims to control the contractual processes and ensure that the work proceeds according to the terms agreed upon between the contracting parties. Due to the complexity of construction projects and the multiple parties involved in them, the need for effective contract management increases to ensure that the project is executed on schedule, on budget, and with the required quality. Contract management requires specialized legal and administrative skills to follow up on all stages of the project, from negotiating the terms of the contracts, to following up on implementation, to settling financial dues and resolving potential disputes.

• Monitor the performance of contractors and ensure adherence to the schedule:

Staying on schedule is one of the biggest challenges facing construction projects, as delays can lead to increased costs, operational disruptions, and fines as stipulated in construction contracts. This is why contract management is important in monitoring the performance of contractors and ensuring that each phase of the project is executed on time. This process includes reviewing periodic reports, conducting site visits, and utilizing advanced technologies such as progress tracking systems and drones to accurately monitor project progress. Contract management also requires constant communication with work teams to resolve any issues that may hinder implementation, such as material shortages or engineering obstacles that may affect the schedule.

• Control the budget and follow up on any changes to costs:

Cost control is an essential aspect of contract management, as construction projects need careful budgetary control to ensure there are no overruns that could lead to financial issues or disruptions. This process includes reviewing contractors' invoices, evaluating material costs, and verifying that expenses are in line with the financial estimates set out in the contract. Contract management also requires dealing with any changes to the scope of work, which necessitates reviewing contractual clauses and making appropriate decisions regarding increased costs or reallocation of resources. By applying data analysis techniques and specialized software, financial risks can be predicted and proactive actions can be taken to keep the budget within the planned limits.

• Ensure that quality standards are applied in accordance with the requirements of the building code:

The quality of construction directly affects the safety and sustainability of the project, so contract management plays a crucial role in ensuring that all parties adhere to the technical and engineering standards set out in the contract. This is done by conducting periodic inspections, reviewing material test results, and ensuring that all work is in line with the applicable building code in the region. Strict control strategies are also applied to ensure that no shoddy materials are used or construction work is carried out without adhering to the required standards. In addition, the Contracts Department assists in dealing with any quality issues by enforcing corrective actions and ensuring that they are carried out in accordance with the contractual terms.

• Manage amendments and additional contracts that may arise during implementation:

Modifications and contingencies are common in construction projects, as the project may require design modifications or the addition of new work that was not foreseen at the planning stage. In such cases, contract management is important to handle additional contracts in a way that ensures a balance between the owner's requirements and the contractors' capabilities. This requires accurately documenting modifications, determining their costs and time implications, and ensuring that all parties agree to them before they are implemented. Contract management also helps protect the project from legal disputes by establishing clear mechanisms to deal with any changes without affecting the workflow or exceeding the set budget.

• Follow up on payment mechanisms and ensure that financial dues are settled according to the contract:

Payments are an essential aspect of construction contracts, ensuring that all dues are paid according to the contractual terms, while ensuring that there are no delays in making payments to contractors and suppliers. This requires an accurate system for tracking payments, verifying the completion of the agreed-upon work before any payments are made, and making sure that invoices match the work performed. Contract management also contributes to resolving any financial disputes that may arise between the parties, such as disputes over the valuation of additional work or delayed payment of dues, which protects the project from disruption due to financial issues.

Hammam Al-Orouba's role in construction project contracts

The company plays Hmmm al-Aruba (HAMMCO) plays a prominent role in contract management in construction projects, relying on the latest practices to ensure that contracts are executed to the highest quality standards and comply with the building code. The company provides comprehensive services that include preparing and reviewing construction contracts, negotiating contract clauses to ensure that the rights of all parties are protected, and managing contracts during the different phases of the project to efficiently control budgets and schedules. HIMMCO also relies on advanced control systems to follow up on the implementation of projects according to the contractual terms, minimizing potential risks and ensuring that the set goals are achieved with the best standards. Through these strategies, the company contributes to improving project management, enhancing transparency, and ensuring the success of the different types of contracts it deals with in the construction sector.

Conclusion

Construction contracts are an essential element in the success of construction projects, as they help define responsibilities, organize costs, and ensure compliance with quality standards. The types of contracts vary according to the nature of the project and the payment mechanism, and each has its own advantages and disadvantages. Contract clauses form the legal framework that defines the financial, temporal, and technical obligations of all parties.

By applying contract management best practices and adhering to the Building Code, risks can be minimized, implementation quality can be improved, and projects can be completed to the highest standards, enhancing the efficiency and long-term sustainability of the construction sector.