Model for legal principles of compensation for errors in bills of quantities: A law and economic analysis
Journal
Construction Research Congress 2010: Innovation for Reshaping Construction Practice - Proceedings of the 2010 Construction Research Congress
Pages
949-959
Date Issued
2010
Author(s)
Abstract
Due to their complexity, construction contracts frequently encounter contract modification disputes, especially, the compensation claims for errors in the bills of quantities under lump sum contracts. The prevailing standard contract forms such as Joint Contracts Tribunal's Standard Building Contract with Quantities (JCT SBC/Q) often contain provisions for the adjustment of the lump sum price if there are errors in the bills. However, undesirable outcomes are often observed under current practice. By developing a game theory model, this paper investigates the contracting parties' strategic interactions and analyzes the differential efficacy of alternative legal principles of compensation for errors. Based on this model, we derive the legal principles that may reduce opportunism incentives and minimize transaction costs. The principles suggest that claims for error compensation should pass the test that the errors are not obvious ex ante to the eyes of professionals. Prevalent standard forms under which the compensation is granted regardless of the nature of errors violate the derived principles and deserve further investigation.
SDGs
Type
conference paper