Contract and claim prevention in major projects: a study on petrochemical projects in Iran

The construction industry is notorious all over the world for disputes and claims. In large scale projects these claims are often more frequent and more expensive. The contract is the legal frame work of the project and forms project culture, therefore is a logical starting point for any attempt in reducing project claims. This research initially intended to study the possibility of drafting a robust contract which can prevent claims in major projects, and the main characteristics of such contract. However a review of contract related theories (transaction cost economics, agent theory and relational contracting) revealed that there is no such thing as perfect contract; and that contracts are invariably incomplete and prone to formation of claims. Traditional management theory considers disputes in project as pathological and tries to prevent them. The development and use of standard forms of contract was an attempt to tackle the problem of claim in the construction project, yet today more than 50 standard forms are in use in the UK alone and the rate of claims is at its highest ever. Much of the literature introduces partnering as a panacea for the current plague of disputes and claims. However this idea is seriously challenged by some scholars. Complexity science maintains that projects are complex systems and conflict occurs naturally. Conflicts are neither good nor bad by themselves; however the system needs re-adjustment after such conflicts. Flexibility of contracts or error controlled regulation can enhance such readjustment measures in the system. To get first hand information about the nature of claims from practitioners in major projects different methods of data gathering have been used. Three case studies, a set of interviews and a questionnaire survey have been conducted. Using a grounded theory like approach some repeating patterns of forming claims in the oil, gas and petrochemical projects are identified. Considering that all data have been gathered from Iranian projects, Iranian national culture has also been studied. The research concludes that contracts cannot prevent claims no matter how well they are drafted; nevertheless a poorly drafted contract can cause dispute. Some areas for improvement have been identified in the Iranian oil, gas and petrochemical sectors. By analysing the data and studying standard contracts some suggestions are made. In practice, stake holders try to preserve flexibility and rearrange relationships to keep continuity of contract and complete their projects.