The Private Developer's Opportunity to Generate Value Applying AB18

Frederik Terp Knutzen

Student thesis: Master thesis

Abstract

This thesis investigates the principle of loyalty and collaboration in private construction contracts as a mean to create value through compatible incentives between developer and contractor. Danish construction law is in many ways defined by the parties’ freedom of contract since no legislation defines rules specifically related to construction contracts. Due to this fact, various stakeholders within the industry have agreed on a set of general conditions which was lastly updated the 1 st of January 2019, known as AB18. This agreed document is the subject matter of the thesis. Through an interpretation of the loyalty and collaboration clause in AB18 it is revealed that it is very general in its nature, and that several relevant obligations throughout the Danish law of obligations and the agreed document, AB18, exist. Especially the duty of disclosure and the duty to report is deemed most relevant to the research question of this thesis, and they are both shown to ensure the grounds for a successful collaboration resulting in added value for the parties. Moreover, it is common for construction contracts to stipulate clauses regarding outcome-based incentives. Therefore, is is shown that implementing a clause related to Value Engineering Change Proposals (VECP) can be highly beneficial for the contracting parties, when used to create incentives for the contractor to propose changes that increases the value of the project through cost reductions. In fact, the analysis reveals that a correctly implemented clause that creates the right incentives for the contractor has the potential to generate supernormal profit created through joint idiosyncratic contributions of the specific alliance partners, known as relational rent. Last of all, it is proven that private construction projects, where timely and adequate completion is highly valued, benefit from using outcome-based incentives in situations where the contractor can affect the time of delivery, when the actions of the contractor are difficult to condition in the contract and when specific actions of the contractor are non-observable to the developer.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages87
SupervisorsKim Østergaard & Bent Petersen