TYPES OF CONTRACT.......................

TYPES OF CONTRACT

1.5 TYPES OF CONTRACT The client will usually take advice as to what type of contract should be adopted for each project, and although the Bill of Quantities measurement contract is probably the mist frequently used in Civil Engineering, a number of other types exist: i) Lump sum contract ii) Measurement contract a) Bill of Quantities b) Schedule of rates iii) Cost-Reimbursement contract a) Cost + percentage fee b) Cost + fixed fee c) Target cost iv) Management contract v) All-in contract

LUMP SUM CONTRACT

1.5.1 Lump sum contract Here the contractor undertakes to carry out all the work shown on the drawings and specification for a lump sum. The contractor is responsible for taking off his own quantities and properly assessing the amount of work involved as specified by the documents. Provided the original requirements are not altered, no detailed accounting or measuring is necessary as the contractors payment is already decided. This method is most useful when: the project is not too large the work required can be precisely described few alterations occur during construction Although the designer is not required to measure the work, all tenderers will clearly have to do in order to prepare their bids, and where a number of contractors are tendering, a good deal of duplication of effort occurs. For a large project, this would increase costs considerably. However, note that for all in contracts (later) lump sum may be the only sensible method.

MEASUREMENT CONTRACT

1.5.2 Measurement Contracts a) Bill of Quantities Bill of Quantities is based on a detailed bill of approximate quantities, which is used for comparison of tenders and also for evaluation of the amounts due to the contractor as construction proceeds. As all contractors tender on the same basis, a fair comparison is possible, and the rates quoted in the winning tender may be used in pricing varied work. These rates are also often used in estimating the likely cost of later contracts. However, for a contract, which must be priced before the detailed design is complete and for which drawings are only at a preliminary draft stage, it will be impossible to prepare adequate quantities. In such a situation the use of BOQ type contract would not be recommended. b) Schedule of Rates Typically a compressive list of items of work covering the operations which a promoter may want done. Quantities are either not inserted or round figure provisional quantities are used. These contracts are therefore most useful when a price is required and a start needs to be made on a contract where only preliminary drawings are available used also for repair and maintenance work. This method enables a start to be made on the project whilst detailed drawings and BOQ are being prepared for the remainder of the work. These may be priced on the basis of the schedule of rates originally submitted or competitive tenders obtained possibly leading to another contractor being brought in. Uncertainly in the quantity and type of work expected of the contractor on a schedule of rates contract may well result in higher costs, and the ability of the client to forecast his final costs will be impaired.

COST-REIMBURSEMENT CONTRACTS

1.5.3 Cost-Reimbursement Contracts General-Payment is based on the actual incurred carrying out construction works, plus a fee to cover overheads, profit and any specified management or design services provided by the contractor. It is useful for maintenance and emergency work. Important points: Low likelihood of contractual claims-client takes most of the risks Discounts obtained by the contractor are passed on to the client Cost due to contractor's negligence should be specifically covered in the conditions of contract adopted as not payable by the client. Contractor's accounts must be open to scrutiny. a) Cost+percentage fee. An inherent defect is that it gives a contractor no financial incentive to control his costs. In fact minimum efficiency leads to maximum profit. However, in some circumstances (emergency works) it may be the most suitable method. b) Cost + fixed fee. Designed to reward the most efficient contractor, who, in keeping his own overheads down will maximise his profit. Should the scope of the work be altered, it will be necessary to adjust the fee, which can lead to difficult negotiations between contractor and engineer/client. c) Target + cost. An agreement is reached with the selected contractor on a target cost for the contract and a fee to cover the contractor's overheads, management cost and profit. A procedure is then agreed for sharing the savings or cost overruns if the actual cost lower or higher than the target made. The contractors may be selected by bidding competitively on target cost and fee, but many clients prefer to negotiate with one reputable and trusted contractor.

MANAGEMENT CONTRACTS

1.5.4 Management Contracts The management contractor is usually a construction company and paid predetermined fees and expenses to : a) participate in the project from the outset b) contribute construction expertise to the design c) manage the construction The management contractor does not normally undertake any of the construction work, but lets specific packages of work to other contractors, usually by competitive tender, and supervises their work. Advantages • Contractors expertise available to design team • Construction can commerce before design is complete, as work is let in packages. • Useful where complex contracts require many designs groups and contractors-management of the whole process is controlled by the management contractor. • Time targets more easily met as later packages of the work can be adjusted. Disadvantages • Final cost of project not known at outset as design overlaps with construction • If management contractor does not have the required expertise he may not be able to contribute to the design.

ALL IN CONTRACTS

1.5.5 All in Contracts (Package deal/Turnkey contracts) The client either directly or through his engineer states his requirements in general terms and invites contractors to submit proposals and terms of payment for design, construction and possibly commissioning, operation and maintenance of .the project for a limited period. The system has been in use for a number of years in the chemical and oil industries and more recently for nuclear power stations. The client will usually retain a consultant to advise on design and to supervise construction.