Contract Models and Compensation Formats in the Design Process

Kine Kristensen1, Ola Lædre2, Fredrik Svalestuen3 & Jardar Lohne4

1M.Sc. student, NTNU, - Norwegian University of Science and Technology, Trondheim, Norway/ Engineer, COWI AS, + 47 951 19 899, kinekris@stud.ntnu.no
2Associate Professor, dr.ing., - Norwegian University of Science and Technology, Trondheim, Norway, + 47 911 89 938, ola.ladre@ntnu.no
3Ph.D. Candidate, NTNU, – Norwegian University of Science and Technology, Trondheim, Norway/Design Manager,Veidekke Entreprenør AS, + 47 986 73 172, fredrik.svalestuen@ntnu.no
4Research Scientist, dr.art., NTNU, - Norwegian University of Science and Technology, Trondheim, Norway, +47 934 44 930, jardar.lohne@ntnu.no

Abstract

This paper presents the most common contract models and compensation formats for the design process, and considers to what extent they give the designers the best opportunity to maximize value for the customer and minimizing waste in the design process. The presented results are based on literature review combined with a study of documentation and interviews with key personnel, into Norwegian projects. Findings show that lump sum and cost reimbursement are the most commonly used compensation formats for design. The most commonly used contract models are Prime Contract and Multi-Party Contract. From the case studies, it emerges that the designers’ challenges do not lie in the contract model itself, but rather in whom they respond to – the client or the contractor. The paper further finds design-bid-build combined with cost reimbursement to be most favourable in the early iterative stages, where the scope is poorly defined and/or characterized by a flow of new information. The design-build contract combined with lump sum is more favourable in later sequential stages, when the scope is well defined. However, if the process is still characterized with constantly new information, cost reimbursement are highly recommended.

Keywords

Contract, contract models, compensation formats, design management, lean design

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Reference

Kristensen, K. , Lædre, O. , Svalestuen, F. & Lohne, J. 2015, 'Contract Models and Compensation Formats in the Design Process' In:, Seppänen, O., González, V.A. & Arroyo, P., 23rd Annual Conference of the International Group for Lean Construction. Perth, Australia, 29-31 Jul 2015. pp 599-608

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