3.0 Common Types of Construction Contracts & Standard Conditions of Contract Est1 Sem2 '09
- 1. CONS5Q25 Assignment 3 Praveen Premkumar as at 25th August 2009 Student ID: 1213020 2.0Common Types of Construction Contracts and Standard Conditions of Contract The common type of procurement option of construction contract in the building industry is mainly lump sum contracts. It is described that procurement is a generic term used to “getting” building. (C. Prigg, personal communication, July 28, 2009) The common types of construction contracts are as follows: i) Lump sum contract ii) Cost plus contract iii) Re-measured contracts based on schedule of quantities iv) Management contracts v) Negotiated contracts vi) Selective tendering vii) Serial tendering viii) Design and Build Contract The following standard Conditions of Contract used in a medium sized construction project are: i) New Zealand Standard (NZS) 3910: 1987 Conditions of Contract for Building and Civil Engineering Construction (for contractors and engineers) ii) NZS 3915:2005 Conditions of Contract for Building and Civil Engineering Construction (Where No Person is Appointed to Act as Engineer to the Contract) iii) FIDIC Conditions of Contract for Construction, Multilateral Development Bank (MDB) Harmonised E (duties of the engineer, the role of the architect and the engineer) iv) The Joints Contract Tribunal (JCT) Conditions of Contract for Building Works, used in UK v) New Zealand Institute of Architects (NZIA) General Conditions of Contract vi) Registered Master Builders’ Federation General Conditions of Contract In 1st April 2003 the Construction Contracts Act 2002 legislative requirements came into effect “construction work’ allows i.e. process to be followed that ensures owners pay main contractors on time and main contractors pay subcontractors on time and subcontractors pay sub subcontractors (identify the contractual chain) relationship with whom it is dealt and so on. Est1 Assignment Pt.3 2-2009.xls C: UNITEC Institute of Technology 13/10/2009 4
- 2. CONS5Q25 Assignment 3 Praveen Premkumar as at 25th August 2009 Student ID: 1213020 All theses types of contracts are based on particular conditions of contract. In NZ, the standard conditions of contract is mainly we use NZS and SCC SF 2007 4th edition produced by architects. The contract document comprises of the drawings, schedule of quantities (if available), specifications and conditions of contract. In practice, as contractors we need a building consent and the design team when putting out a tender will need to occupy a building consent. It is believed without a building consent a company can be fined or even shutdown. NZS 3910 is a document issued by New Zealand standards especially designed for contract administration. This document is comprised with schedules, conditions of tendering and conditions that assist the main contractors, subcontractors, architect (the engineer) and the client. By listing a set of conditions that shows the responsibilities and the contractual obligations of parties involved in the construction, is beneficial for the proper construction, completion and maintenance of the project because it is clear for everyone to identify their scope and commitment to the project. As the proposed building is situated in downtown Auckland, the construction methodology and the excess restriction become a challenge for the parties involved. As a result of this challenge, there maybe disputes arising among the parties involved. On such occurrence, the ‘Conditions of Contract’ illustrate various options to overcome the problem. In the building industry, most of the construction works are being awarded to contractors by the process of tendering to obtain a competitive price. In order, to make it fair and reasonable to all those bidding for a particular tender, there are conditions listed in the document NZS 3910, enabling them to understand the procedures in submitting a tender. This is where there are ambiguities in the tender documents, the architect issues explanatory notices to the bidders. In the absence of such clarifications, the bidders may not be able to price the document. These issues are addressed under ‘Conditions of Tendering’ for mutual benefits. Submission of a tender is an offer for client’s acceptance, which will form a legal contract. The procedure for submission, acceptation and notification are listed in the document for the beneficial of all parties. In the building industry, in a design and build contract the client enters into a contract with a contractor in which the contractor undertakes the activity to both design and build a building, within the parameter of the initial design proposed. The contract normally includes sketch plans and outline specification. However, it can include the brief (performance based contract). The following steps should be undertaken: • Feasibility study • Selection of Design & Build Contractor • Sketch Plan • Developed design upon agreement on price Est1 Assignment Pt.3 2-2009.xls C: UNITEC Institute of Technology 13/10/2009 5
- 3. CONS5Q25 Assignment 3 Praveen Premkumar as at 25th August 2009 Student ID: 1213020 • Construction drawings • Construction phase In relation to the above, the client also assembles team of advisors such as hiring project manager to conduct process and brief, quantity surveyor for establishment of budget and lawyer to propose contractual arrangements. Also thus it is important to call for proposals by sending to short list capable design and build contractors. The responses should include for statement of capability, sketch plan and pricing structure. The typical process also mainly depends on the selection of preferred contractor, negotiations regarding design and price, design and price finalised and contract signed and construction drawings and construction take place i.e. certification of progress payments by project manager or QS; certification variations and time extension in accordance with contract by project manager; certification of practical completion etc. by project manager. For cost plus job, the contractor gets to prepare and put price on what he prefers. However, there is an uncertainty, which is a disqualification for this type of contract as the anticipated final account may be unknown. The lists of parties involved in a project are: • Client • Design team • Builder • Subcontractor • Suppliers of goods and services, etc • These people will be required in various contracts to interact information between each other prior to the project progressing. The background information of people is important to us in the construction industry. The functional requirements between designer and client have been identified. Moreover the above types of contract and the Conditions of Contract suit the type of construction, which will be more desirable and appropriate for the selection of construction. Nevertheless, in tradition it is the advisor to the client who will propose the contract type and the conditions more relevant to the type of construction. Est1 Assignment Pt.3 2-2009.xls C: UNITEC Institute of Technology 13/10/2009 6