Types of construction contracts pro and cons
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Types of construction contracts
Types of construction contracts pro and cons
- 4. • Lump-sum Contract • Cost Plus Fixed Fee Contract • Cost Plus Bid Fee Contract • Guaranteed Maximum Contract • Negotiated Contract • Unit-price Contract • Design Build • Turn Key Contracts
- 5. Lump-sum Contract • Traditional method of Contract. • The contractor offers to do the whole work for a total stipulated sum of money as given in drawings and described by specification. • It is more suitable for works which contractor have prior construction experience. • This is considered when tender process will tend to be slower and preparing a tender may be more expensive for the contractor.
- 6. Advantages • Owner is aware of the cost of the project before the project construction starts. • Project scope and limits are defined prior to the start of construction. • Contractual relation between all parties, owner and Engineer are clearly defined. • Best price for work obtained through competitive process with cost of work established and agreed upon.
- 7. Disadvantages • The lack of time flexibility in this method may result in delayed project implementation. • Highly skilled Architect or Engineer is needed. • Difficult to implement revisions or change in the work on the later stage of the work.
- 8. Cost Plus fixed fee Contract •All Cost for the work according to the specification is reimbursed by the owner to the contractor. •Contractor is paid a fixed sum which represents the profit •The variation on the lump-sum fee is percentage fee wherein fees is established by percentage of total cost incurred by the contractor. •Usually it is fixed as a sum.
- 9. Cost Plus Bid fee Contract •Owner invites proposal from qualified contractor in terms of past experience, performance , etc. •All Cost for the work according to the specification is reimbursed by the owner to the contractor. •The bid fee is calculated on the basis of project scope.
- 10. Guaranteed Maximum Contract •The contractor agrees to perform work within a price ceiling. This is the maximum guaranteed price. •If the ceiling is exceeded, without change in scope then the excess cost is borne by the contractor. If the work is accomplished under the ceiling then the owner pays no more than the actual cost and the profit is shared between the contractor and the owner. This method gives greater flexibility for the owner
- 11. Negotiated Contract The preselected contractors are invited upon on the basis of Capability of the past experience in the specific area Availability of the personnel to accomplish the work in the specified time frame Bid (Estimate) Price Proposed method for compensation including amount of fee.
- 12. •The owner is then negotiating with the contract including method of payment for the work, Bid, etc. •On the basis of circumstances it can be competitive or non-competitive.
- 13. Unit Price Contract •Based on the estimated quantities of the items involved in the work. •The cost per unit item is given by the contractor and the estimated quantities of items are given by the owner. •The total cost of work can only be calculated only measurement is made after the completion of the work because on the basis of work actually done.
- 14. •The contractor is obliged to perform the work actually required in the field at his quoted price only. •If the estimated quantity is exceeds, then there should be increase in unit price , therefore it is difficult to forecast the project cost.
- 15. Design Build •It is a method to deliver a project in which the design and construction services are contracted by a single entity known as the design–builder or design–build contractor •design–build relies on a single point of responsibility contract and is used to minimize risks for the project owner and to reduce the delivery schedule by overlapping the design phase and construction phase of a project. •Contractor will be responsible for all of the work on the project, regardless of the nature of the fault
- 16. Turn-key contracts •A type of project that is constructed so that it could be sold to any buyer as a completed product. •This is contrasted with build to order,wherethe constructor builds an item to the buyer's exact specifications, or when an incomplete product is sold with the assumption that the buyer would complete it. Earnest Money Deposit (EMD) Security Deposit (SD) Defects Liability Period (DLP) Retention Money/retention amount