Based on the article’s title, I’m sure you think I’ve totally lost my mind and that my attorney has disavowed any knowledge of my existence. But I am serious at least from one perspective.

Everyone recognizes that we need contracts, because they serve several important purposes. The problem is too often contracts attempt to accomplish the wrong things, which is why I’m suggesting that you “Throwing Away Your ‘Existing’ Contracts!” Or at least remove the offending language.

In Engineering News-Record’s March 18, 2002 “Viewpoint” column, John Butler, the director of the construction division of the Georgia State Financing and Investment Commission wrote: “General contractors are not performing their duty to provide quality construction.” Why not, Mr. Butler? Why not just write it into your contract that contractors must provide quality! Oh, I see you already have that in your contract. Then I don’t understand, why don’t you just enforce your contract? But that’s the problem.

The issue is that contracts are a poor enforcement tool. A simplified definition of a contract is a formal agreement where two or more parties agree to an exchange of values. It should be assumed the values are equal or why would both parties agree? Instead, contracts tend to attempt to control the other party because of a lack of trust in that party. The problem is it doesn’t work.

However, the problem is not with the contract, but with its intended use. Contracts do a poor job of controlling the other party. Why do we need this control? The answer is simple—contractors are too often selected with too much emphasis on price and not enough on performance. Of course, cost is critical. But total cost should be what’s important—not just the construction cost. Edwards Deming started saying over 50 years ago that suboptimization—trying to minimize the cost of each item—doesn’t create the lowest total cost.

When contractors are selected solely based upon price, the buyers of those services feel they must protect themselves by attempting to write very stringent contracts. This doesn’t work and quality still suffers; litigation becomes rampant; and in the end, the buyer ends up paying more.

The solution is a selection process that includes a performance aspect. If you purchase a Mercedes-Benz or a Rolex watch, are you concerned about the quality of the item? When you work with a contractor with a known and reliable track record for quality, your concern over quality should also be reduced. In reality, you have a better contract with this contractor without mentioning quality, than you probably did with a “low bidder” and 50 pages in the contract on quality.

Why? A quality contractor cares about its reputation and therefore delivers quality. In fact, the buyer is probably in a stronger position, because its trump card is the ability to remove the contractor from the preferred bid list if it doesn’t perform. Even if this contractor doesn’t perform to your quality expectations, you are probably no worse off than before.

The real issue is that for contracts to work they must be fair to both parties. If they aren’t fair, then they don’t work, because the unhappy party will try to level the playing field. Of course, we all know some people will attempt to take advantage of the other party. The best protection against this is not a tough contract, but doing your homework and not doing business with them in the first place. A buyer of construction services is entitled to a quality performance at a fair price for the quality received—obviously there is a price difference between a high-quality Chevy and a high-quality Mercedes—and the provider is entitled to a fair payment for the services and products delivered.

In other words, I’m suggesting that both contractors and buyers work only with those firms they trust and respect. We need to work more on win-win solutions, instead of trying to protect ourselves from nonperformance. Because when someone attempts to create a win-lose situation in their favor, they usually only succeed in creating a lose-lose situation.

For you general contractors out there who are saying, “Right on!” –this message applies to you too! You need to treat all your subcontractors with this same win-win philosophy. Every time you beat a subcontractor’s price down below a fair price you risk causing harm to both you and your customer—not to mention the subcontractor.

To eliminate buyer’s complaints of poor quality and contractor’s complaints of too little profit margins, we need a shift in attitude to a win-win philosophy by all parties. When the selection process includes a performance aspect you will obtain quotes like, “…In each of the cases, we have had the contractors finish on time, on budget, and exceeding the quality expectations…” –Richard Byfield, Executive Director, Department of Administration, State of Utah.

If you still think I’ve lost it, then consider the fact that my attorney, who is a leading U.S. construction attorney, agrees with me.