Convertible Contracts

^Abstract

Commonly, projects start out with broadly defined information and this gets refined as the project progresses. This suggests that a prudent approach would be to tailor the contract between the project owner and the project contractor to the respective project stage, with conversions along the way. Information asymmetry between owner and contractor also suggests the need to tailor a contract to a project’s situation. In line with this, the chapter explores the role and viability of changing contract terms as a project progresses, utilising the book’s original approach to convertibility . Discussion is given on owner and contractor risk, the common law issues associated with implementing such conversions, any compensation that the owner might need to pay, the timing of the conversion, and associated practical implementation issues. The chapter, for definiteness, concentrates on construction contracts with conversion between payment types, but the chapter’s approach applies to all contracts and all terms within contracts. Having convertibility within a contract can be shown to offer benefits to both contracting parties. The idea of having flexible contracts is not new, but heretofore a rational method of analysing their value has been missing. Current literature does not deal directly with the matter addressed in the chapter.