Relational contract in construction industry in Malaysia

Abstract

For many years, the construction industry has relied on formal contracts to define and enforce the obligations and rights of contracting parties. Nonetheless, existing formal contracts are subject to some disadvantages hence and alternative is required to address the issue. The objectives of this study are to study the current practice of construction contract, to analyze problems associated with the application of traditional contract in Malaysia and to appraise the knowledge and the application of Relational Contract in Malaysia. The data used in this study was collected through literature study and questionnaire survey from Class A contractor in Johor Bahru. Data was analyzed using Statistical Package for Social Sciences Software (SPSS) and the results analyses were presented in frequency and average index value. The finding shows that traditional contract has been identified to be the most frequently used contract in Malaysia due to its familiarity to works with but there are problem associated to the traditional contract. Potential barrier such as lack of client knowledge also being identified in this study and lack of client knowledge is found to be the most critical reason in adopting relational contract. The traditional contract can be improved through the incorporation of Relational contract’s element such as clearly defined scope, integrated project team, alignment of goals and open honest communication. It can be concluded that relational contract is still new in Malaysia. Many of the practitioners in the industry are not aware of this approach. However, they agree that some of the elements in relational contract can be adopted in order to overcome the weaknesses in traditional contract.