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Relational contracting is a construction contracting model for projects where uncertainty, interdependence and a long relationship make a rigid, price-led deal unsafe. The parties agree a legally enforceable framework around shared objectives, behavioural principles and joint governance, then manage changing scope, risks and priorities inside that framework.
It does not mean abandoning price, specifications or legal remedies. It means putting continuing alignment, good faith and fair procedures alongside those transaction terms. Used carefully, the approach gives an owner, contractor and key suppliers a practical way to adapt without turning every change into a dispute.
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What relational contracting means
Frydlinger, Vitasek, Bergman and Cummins define a formal relational contract as “A legally enforceable written contract establishing a commercial partnership within a flexible contractual framework based on social norms and jointly defined objectives, prioritizing a relationship with the continuous alignment of interests before the commercial transactions.” That definition has two parts that are easy to confuse.
Relational contracting as a process
Relational contracting can describe the way parties work together before and after signature. They establish a commercial relationship around a shared vision, agreed values and collaborative ways of working. Those commitments may be recorded in the contract, in a charter or in operating procedures, but the process can exist even where the document is not itself a formal relational contract.
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A formal relational contract
A formal model places the relationship framework in an enforceable written agreement. The agreement states the purpose of the partnership, the principles that govern conduct, the decision structure and the mechanisms for handling change. Individual deal details—such as a work package, sequence or price—can be adjusted under that framework rather than renegotiated from scratch each time conditions move.
Relational does not mean informal. The relationship framework, authority limits, records, payment obligations, safety duties and dispute rights still need precise drafting.
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Construction work combines design development, ground conditions, interfaces, approvals, labour availability, supply-chain exposure and changing user requirements. On a short, repeatable job, a conventional contract can allocate those risks adequately. On a major programme, however, each party’s actions affect the others and the original assumptions may become obsolete before completion.
Relational models are intended for relationships that are:
- Complex: several disciplines, packages or organisations must coordinate decisions.
- Interdependent: one party cannot protect its outcome without information or performance from the others.
- Risky and uncertain: important conditions cannot be described completely at award.
- Long-term: the parties expect repeated work, operation, maintenance or future phases.
- Difficult to switch: replacing a participant would lose knowledge, delay the programme or create safety and interface risks.
In these circumstances, a purely adversarial interpretation of every clause can produce “shading”: people do only what they can defend literally, withhold useful information or optimise their own position at the expense of the project. A relational framework aims to make early disclosure, joint problem-solving and proportionate risk responses safer than tactical silence.
Relational and transactional contracts compared
The distinction is best understood across five dimensions identified in Contracting in the New Economy by Vitasek, Frydlinger, Bergman and Cummins.
| Dimension | Transactional emphasis | Relational emphasis |
|---|---|---|
| Focus | Defined exchanges: scope, price, time and specified remedies. | Continuing alignment of interests, with transactions managed inside a wider partnership purpose. |
| Relationship | Arm’s-length parties protect themselves through detailed obligations and controls. | Parties acknowledge mutual dependence and establish duties for collaboration and information sharing. |
| Social norms | Written rights and market leverage dominate; behaviour outside the text may receive little weight. | Agreed norms such as respect, transparency, no-blame escalation and fair dealing guide decisions where the text is incomplete. |
| Risk mitigation | Allocate identifiable risks in advance, often through contingencies, warranties, insurance and damages. | Combine those protections with joint risk identification, shared mitigation and a process for reallocating responses as facts change. |
| Planning | Plan is fixed at award; changes follow formal variation and claims routes. | Objectives and guardrails remain stable while work plans, priorities and commercial details can be updated through agreed governance. |
Neither column is automatically superior. A conventional lump-sum contract may be the right instrument for a well-defined, competitive package with limited interfaces. A relational arrangement becomes more defensible when the cost of inflexibility and conflict is greater than the cost of maintaining the partnership.
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When to choose a relational model
Signals that it may fit
- The owner needs an outcome—such as operational capacity or whole-life performance—rather than a fully known list of deliverables.
- Design, construction, commissioning and operation overlap, so decisions in one phase change another.
- Several organisations must make rapid trade-offs that no single contract administrator can resolve alone.
- There is a realistic prospect of repeat phases, extensions or long-term asset support.
- Early supplier or contractor knowledge could materially improve safety, buildability, resilience or innovation.
Signals to retain a transactional structure
- Scope and quantities are stable, interfaces are few and substitution is straightforward.
- The relationship is a one-off purchase where the parties do not need continuing joint decisions.
- The client cannot commit senior time to governance, open-book information or collaborative issue resolution.
- Procurement rules require a tightly specified competition and do not permit the proposed flexibility.
A hybrid is often practical: use a standard form for payment, title, insurance, defects and statutory compliance, then add a relationship charter, shared objectives, governance schedule and change process for the uncertain parts.
How to create a formal relational contract
The five-step sequence described by the authors starts with the relationship and ends with clauses and governance that keep the relationship usable after signature.
- Build a shared understanding. Identify why the parties are working together, the outcome that defines success, the constraints each party faces and the dependencies that make cooperation necessary. Include the people who will operate the contract, not only the negotiators.
- Agree guiding principles. Translate the shared purpose into observable behaviours: timely disclosure, no surprises, respectful challenge, evidence-based decisions, proportionate responses and a commitment to solve problems at the lowest effective level. Decide what each principle means in a real site or design meeting.
- Define the relationship framework. Set the roles, authority, information rights, decision forums, meeting rhythm, records, escalation ladder and approach to incentives or gainshare if used. Keep strategic objectives and guardrails stable while allowing operational details to move.
- Translate commitments into contract language. Integrate the framework with the chosen standard form. State which provisions are binding, how the charter interacts with the main agreement, how changes are authorised and what happens if a principle conflicts with an express obligation.
- Operate and refresh the arrangement. Review performance, risks, behaviours and objectives at agreed intervals. Record decisions, test whether governance still matches the project and amend schedules through the specified authority rather than relying on informal promises.
What belongs in a relational contracting charter
A short charter makes the relationship visible to the whole project team. The Royal Australian Navy’s FFG Enterprise with BAE Systems and Thales is described as using a one-page charter and nine relational tenets; the work was associated with an IACCM Innovation award in 2016. A construction charter can be concise while the contract schedules provide detail.
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Purpose and success measures
State the project outcome in plain language, such as safe delivery, reliable commissioning, whole-life value or uninterrupted operations. Add measures that the parties can actually influence and review together. Avoid a slogan that cannot guide a decision.
Principles and behaviours
List the behaviours expected when the contract is silent or pressure is high. Examples include sharing material facts promptly, raising bad news without retaliation, treating people with respect, avoiding blame while investigating causes and considering the other party’s legitimate interests before taking a step that affects them.
Governance and authority
Name the joint leadership group, workstream forums and site-level decision owners. Specify meeting frequency, quorum, required information, minutes, delegated financial limits and the route for an urgent safety or programme decision.
Escalation and issue resolution
Define a ladder: first discussion by the people closest to the issue, then functional leads, then the senior joint board, followed by mediation, adjudication, arbitration or court where the agreement provides. Include response times and a rule for continuing unaffected work while an issue is reviewed.
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Commercial adjustment
Explain how scope, price, risk allowances, incentives and priorities can change. Require a common record of assumptions, evidence and effects. Open-book information can support trust, but the contract should state confidentiality, audit rights and treatment of commercially sensitive material.
Good faith and fairness in construction
Tony Bingham wrote in Building on 22 May 2020 that “Good faith is becoming a central tenet of construction law, as highlighted in two recent publications.” Good faith is not a universal licence to ignore an express term. Its legal effect depends on the governing law, the wording of the agreement and the facts.
In practice, a relational contract gives good-faith expectations operational content. A party can be required to provide information on time, participate in a named forum, consider proposals honestly, avoid deliberately frustrating a shared objective and explain a decision that affects the other party. Procedural fairness matters because people are more likely to share risk information and accept an unwelcome outcome when they believe the process was impartial and they were heard.
Fair process in a live project
- Give affected parties notice of a material decision and a reasonable chance to provide evidence.
- Separate fact-finding from blame and record the assumptions used.
- Apply the same escalation and approval rules to both sides.
- Explain why a proposal was accepted, modified or rejected.
- Keep urgent safety action separate from later allocation of cost or responsibility.
Price-only tender tactics can undermine these conditions. A low initial price followed by aggressive claims may be legally arguable yet commercially destructive. Fairness does not require one party to surrender its margin; it requires a transparent, consistently applied method for making and revisiting decisions.
Legal enforceability and drafting limits
There is no single contract law that applies worldwide. Whether a relational agreement is enforceable depends on the jurisdiction, the exact drafting, consideration and certainty requirements, procurement rules, mandatory construction legislation and the way the parties behave. Courts may enforce clear obligations while treating broad aspirations as context rather than standalone promises.
Reduce uncertainty by:
- identifying the governing law and forum;
- stating which charter provisions are contractual obligations and which are guidance;
- defining key terms such as “shared objective,” “material issue” and “timely disclosure”;
- setting objective approval, notice and record-keeping requirements;
- preserving mandatory duties on safety, payment, employment, tax and regulatory compliance;
- specifying precedence between the relational schedule and the main form; and
- using dispute clauses that remain workable if collaboration breaks down.
Have construction counsel in the relevant jurisdiction review the final drafting. A relational label cannot cure an uncertain price mechanism, an unlawful procurement process or a conflict between the charter and the operative clauses.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Examples and what they show
The cited literature describes relational work involving the Royal Australian Navy FFG Enterprise, McDonald’s strategic supplier relationships, Dell and FedEx, the Canadian government and Island Health. These examples span defence, supply, logistics and public services rather than proving a single construction template. Their common lesson is organisational: the parties used an explicit purpose, behavioural principles and governance to coordinate decisions that a series of isolated purchase orders could not handle well.
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The authors report piloting relational-contracting concepts with more than 50 organisations over ten years in Contracting in the New Economy (2021). That is an account of their work, not a universal performance statistic; no independent success rate or return-on-investment percentage is established here.
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Common failure modes and fixes
“Collaboration” is left as a slogan
Symptom: the charter contains values but no owners, records or response times. Fix: convert each value into a behaviour, a forum and an evidence trail.
The commercial model remains adversarial
Symptom: the contract promises partnership but rewards late claims, information withholding or local optimisation. Fix: align incentives, payment rules, audit rights and change procedures with the stated objectives.
Only senior leaders participate
Symptom: executives sign a charter that site, design and commercial teams never use. Fix: train the people making daily decisions and give them delegated authority within clear limits.
Disagreement is suppressed
Symptom: teams avoid recording bad news to preserve the appearance of harmony. Fix: protect early escalation, distinguish issue resolution from blame and retain formal remedies when alignment fails.
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Symptom: every operational adjustment requires a full contract amendment. Fix: reserve formal approval for changes to objectives, risk boundaries and authority; allow routine decisions through documented governance.
A practical decision checklist
Before selecting a relational model, the client and prospective partners should be able to answer “yes” to most of these questions:
- Can we describe a shared outcome beyond simply delivering a bill of quantities?
- Are the parties materially dependent on one another’s information or decisions?
- Will conditions, scope or priorities change during the relationship?
- Can we provide people with time and authority for joint governance?
- Are we willing to share relevant information under defined confidentiality and audit rules?
- Have we chosen a jurisdictionally sound standard form and obtained legal advice on the relational provisions?
- Do the payment, incentive and dispute mechanisms support the behaviours we are asking for?
If the answers are mostly no, a conventional contract with a clear change and dispute process may deliver better certainty. If the answers are yes, relational contracting can provide the structure for fair adaptation without sacrificing enforceability.
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