Strategic Contracting in Danish Construction Contracts: An Interdisciplinary Analysis of the New Danish General Conditions

Stephanie Alexandra Lintrup, Mark Norstrøm Skou & Poul Nikolaj Dose

Student thesis: Master thesis

Abstract

In 2018 the Danish general conditions governing construction contracts (GC’s) called Almindelige betingelser for bygge- og anlægsbranchen (AB), went through a major revision. The GC’s were last amended in 1992, and therefore the change was long overdue. The construction industry had evolved a lot between 1992 and 2018, and therefore the main reason for the change of the GC’s was to make sure that the rules matched industry needs. Furthermore, the GC’s were changed so that they would mitigate or prevent disputes between developers and construction contractors. The thesis presents a comparative analysis of the prior and the current GC’s, AB92 and AB18. The analysis aims to evaluate the changes that have been made, to not only prevent disputes, but changes that may encourage cooperation, and even promote the use of strategic contracting in the agreement, instead of turning the contract into a declaration of war. The thesis found that a lot of changes have been made to the GC’s which encourage cooperation, e.g. the developer now needs to specify the timeline for the project in the tender documents. This makes it easier for the contractor to make sure, that when he bids on the assignment, he can manage the job. This ensures that the parties are aligned from the outset. The GC’s are then analysed in order to discover whether they actually meet the expectations “in real life. It was found that the GC’s in their own accord are a useful tool not only for cooperation, but also for strategic contracting, but the level of knowledge and understanding of the new rules is not adequate. Therefore, it is concluded that the GC’s in AB18 only partially fulfil their purpose. The economic analysis found, that the new AB18 rules seem to be inspired by the economic theories of strategic contracting, whereas AB92 was based on conventional contracting. This is due to the fact if the parties cooperate e.g. in mediation instead of arbitration, they can lower their transaction cost. The optional APP Incentives in particular promote cooperation and strategic contracting between the parties. If the parties use strategic contracting, they can enhance the relation and therefore gain relational rents, which in long term will be a gain for the parties and prevent costs ex post. The thesis subsequently found, that the AB18 rules can be improved, if the APP Incentives are incorporated properly into the GC’s instead of being in an appendix, resulting in higher profits for both contractor and developer. The thesis then finds, that the contractors and developers choose not to use the rules, because they seem cumbersome and everlasting. This will affect the parties, so that when they have already chosen to use the plethora of rules in the general AB provision, the thought of additional rules might deter them from using the APP Incentives at all. The thesis then found, that the rules may be used even more, if the benefits they offer were well known in the industry. Consequently, it is suggested that the Danish Transports, Construction and Housing Authority issues instructions on how to use and what the new rules are capable of. At the same time, it is suggested that the industry makes a standardised scale for graduating contract complexity. In this way, there would be industry-wide understanding of the complexity of a contract classified as a grade “A”, and therefore make sure that the parties are aligned even before the contract is entered. At the same time, it should be added to the AB rules in § 4 that the developer should state in the tender documents which type from the scale, he sees the project as.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages170
SupervisorsMarie-Louise Holle