The chapter discusses various construction contract types including lump sum, unit price, and cost plus contracts. Lump sum contracts provide a fixed total price based on the design documents while unit price contracts establish rates for different work units. The chapter also covers project delivery methods like design-build, turnkey projects, and construction management that allocate design and construction responsibilities differently between parties.

1. CHAPTER 5
CONSTRUCTION CONTRTACT
1

2. Construction Contracting Method
(delivery methods)
Traditional Approach (D-B-B):
The most common delivery system is called “the
traditional or standard approach” or “design-bid-
build”, in which the employer assigns the design and
construction phases to two different firms
(consultant/designer and contractor).
Constructing
Designing
Appointing
Consultant
Appointing Main
Contractor
2

3. Traditional Approach (D-B-B):
 For many years, DBB has been the most common method of
project delivery for public projects, and for many private projects
as well.
 Design Bid-Build is effective on projects
 where the owner needs both professional design services and
construction services
 where the designer does not require detailed knowledge of the
means and methods of construction.
 DBB provides the owner with a high degree of control. That’s why
it is the preferred project delivery system for owners who:
3

4. Traditional Approach (D-B-B):
 The owner defines project goals and objectives, secures the financing,
and specifies the standards and contract terms.
 The owner may perform planning, conceptual design and full design,
or may engage an outside design professional (designer) for some or
all of these tasks.
 During this planning and preliminary stage, owner and designer work
as a team to obtain required permits and conduct necessary site
investigations.
 The designer prepares the construction bid documents to reflect the
owner’s project goals and objectives, the project’s site conditions, and
sound engineering practices.
 Prospective contractors prepare their bids from these complete and
specific bid documents.
 The bidders submit their proposals to the owner, who determines the
most responsive (typically the lowest) bid meeting project
requirements.
 In certain circumstances, owner may be justified in selecting a
contractor outright and negotiating contract terms directly. 4

5. Advantages of D-B-B Approach
 Applicable to a wide range of projects.
 Well established and easily understood.
 Clearly defined roles for all parties.
 Provides the lowest initial price that competitive
bidders can offer.
 Extensive litigation has resulted in well established
legal precedents.
 Insurance and bonding are well defined.
5

6. Disadvantages of D-B-B Approach
 Least-cost approach requires higher level of inspection.
 Initial low bid might not result in ultimate lowest cost or
final best value.
 Designers may have limited knowledge of the true cost
and scheduling implication of design decisions.
6

7. Design-Build Approach
Design-build approach is a project delivery system involving a
single contract between the project employer and a
design-build contractor covering both the design and
construction of a project.
The design-builder performs design, construction engineering,
and construction according to design parameters,
performance criteria and other requirements
established by the employer or his representative.
Constructing
Designing
Appointing design & construction
contractor
Tendering
7

8. Design-Build Approach
 The owner contracts with a single entity to provide the design
and to construct the project according to that design.
 The contract might be negotiated with a single design-builder
or result from competitive proposals.
 The selection can be based on low price or on a set of value
criteria (experience, staff, bonding capacity, etc.).
 Design-build provides the owner with a single point of contact
for project responsibilities, eliminating the need to assist in
resolving designer-contractor disputes.
 With the contractor playing a major role in design, costs are
typically defined and maintained to a greater degree, and the
coordination of fast-track management to achieve early
completion is greatly simplified.
 The design-builder makes many decisions that owner would
make under DBB, due to delegation of greatly increased
authority. 8

9. Design-Build Approach
 For many owners, delegation of responsibilities leads to
satisfactory projects. However, if the parties are
inexperienced and do not cooperate, the transfer of control
and risk can be disappointing.
 The owner may need to restructure his/her internal
procedures to accommodate design-build approach.
 Compared to DBB, this involves a significantly different set
of requirements and expectations for process, timelines and
communications.
 A clear understanding and documentation of design-build
processes enhances the quality of design-build projects
9

10. Advantage of Design-Build Approach
Innovation and quality improvements through:
- Alternative designs and construction methods
suited to the contractor’s capabilities
- Flexibility in the selection of design, materials, and
construction methods.
• Earlier schedule and cost certainty
10

11. Disadvantage of Design-Build Approach
 Reduced opportunities for smaller, local construction firms.
 Fewer competitors and increased risk may result in higher
initial costs.
 Elimination of traditional checks and balances. Quality may
be subordinated by cost or schedule considerations.
 Less Engineer control over final design.
 Higher procurement costs.
 Traditional funding may not support fast-tracking
construction or may require accelerated cash flow.
 Accelerated construction can potentially overextend the
workforce.
11

12. Others
 Turnkey
 Turnkey Variations
 Direct Labor Approach.
 Construction management
12

13. Turnkey
 Turnkey adds to the design-builder’s
responsibilities the operation and/or maintenance
of the completed project.
 Turnkey delivery has the potential for bringing a
new project on line more quickly.
 Three forms of turnkey project delivery:
 Design-build-operate-transfer
 Design-build-operate-maintain
 Design-build-own-operate-transfer
13

14. Turnkey Variation
 Variations on turnkey add financing as a key
component. While financing arrangements are
unique for each project, developer financed
projects generally resemble one of the turnkey
delivery methods:
 FDBT (Finance, design, build, transfer)
 FDBOT (Finance, design, build, operate, transfer)
 FDBOOT (Finance, design, build ,own, operate, transfer)
 In each case, the transfer of the project occurs
only after the developer’s interests and financial
obligations have been satisfied.
14

15. Assignment (3)
 Describe the turnkey methods, turnkey
variation methods, direct labor approach,
and construction management method,
highlighting on advantage and
disadvantage of each one.
15

16. The contract, and contract types,
overview of the construction
documents.
16

17. Contract Definition
 Agreement of at least two parties with purpose of
creating legal obligation between the parties
and capable of being enforced by the court of
law.
 Contract = offer + Acceptance + Consideration
17

18. Introduction to contracts
Why Use contract in construction:
 Describe scope of work
 Establish time frame
 Establish cost and payment provision
 Set fourth obligations and relationship
 Minimize disputes
 Improve economic return of investment
18

19. Content of the contract
o Identify the parties
o Promises‫ت‬and responsibilities
o Scope of work
o Price and payment terms
o Commercial terms and conditions
o Project execution plan.
19

20. Major Contract Types
20

21. Lump Sum Contract
 One price for the whole contract
 Lump sum includes costs plus overheads and profits
 Higher risk to contractor
 Price quoted is a guaranteed price as per contract
documents.
 Payment based on a scheduled percentage scheme
(monthly progress claims)
 The contractor is free to use means and methods to
complete the work and responsible for proper performance
 Work must be well defined at bid time.
 Fully developed plans and specifications
21

22. Lump Sum Contract/ advantage
 Low risk on the owner, Higher risk to
the contractor
 Cost known at outset
 Contractor will assign best personnel
 Contractor selection is easy.
22

23. Lump Sum Contract/disadvantage
 Changes is difficult and costly.
 Contractor is free to use the lowest cost of
material equipment, methods.
23

24. Unit Price
 Quote Rates / Prices by units
 No total final price
 Re-negotiate for rates if the quantity or work
considerably exceeds the initial target
 Payment to contractor is based on the measure.
 Unbalanced bids
 Higher risk to owner
 Ideal for work where quantities can not be
accurately established before construction starts.
24

25. Unit Price contract
 Require sufficient design definition to estimate
quantities of units
 Contractors bid based on units of works
 Time & cost risk (shared)
 Owner : at risk for total quantities
 Contractor : at risk for fixed unit price.
 Large quantities changes (>15-25%) can lead to
increase or decrease of unit price.
25

26. Unit Price / Requirement
 Adequate breakdown and definition of work units
 Good quantity surveying and reporting system.
 Adequate drawings.
 Experience in developing BOQ
 Payment based on the measurement of the finished
works.
 Quantity sensitive analysis of unit prices to evaluate
total bid price for potential quantity variation.
26

27. Unit Price / advantages
 Suitable for competitive bid
 Easy for contract selection
 Early start is possible
 Flexibility : quantities and scope can be easily
adjusted
27

28. Unit Price / disadvantages
Final cost not known from the beginning (BOQ
only is estimated)
Staff needed to measure the finished quantities
and report on the units not completed.
Unit price sometime tend to draw unbalanced bid.
(For Unit-Price Contracts, a balanced bid is one in which each bid
is priced to carry its share of the cost of the work and also its
share of the contractor’s profit.
Contractors raise prices on certain items and make corresponding
reductions of the prices on other items ,without changing the total
amount of the bid)
28

29. Cost Plus
1. Actual cost plus a negotiated reimbursement to
cover overheads and profit.
2. different methods of reimbursement :
Cost + percentage
Cost + fixed fee
Cost + fixed fee + profit-sharing clause.
3. Higher risk to owner
4. Compromise : guaranteed maximum price
(GMP) reduces risk to owner while maintain
advantage of cost plus contract.
5. By using this type of contract the contractor can start
work without a clearly defined project scope, since all
costs will be reimbursed and a profit guaranteed.
29

30. Cost + Percent of Cost
Fee = percentage of the
total project cost
(Cost = $500.000,Fee =
2%)
Advantages Disadvantages
profitable for the
contractor
No incentive to
finish job
quickly
Owner does not
know total
price
Larger the cost
of the job, the
higher the fee
the owner pays
30

31. Cost + Fixed Fee
 Fee = percentage of the
original estimated total figure
 Utilized on large multi-
year jobs
 Ex: WW treatment plant
Facility (Cost = $20
million, Fee = 1%)
 $20 Million 1% fee =
$200,000 Million
Advantages Disadvantages
Fee amount is
fixed
regardless
of price
fluctuation
‫االسعار‬ ‫تذبذب‬ ‫إهمال‬
Expensive
materials and
construction
techniques may
be used to
expedite
construction
Provides
incentive to
complete
the project
quickly
31

32. Cost Plus Fixed Fee
 Most common form of negotiated contracts
 COST = expenses incurred by the contractor
for the construction of the facility
 Includes: Labor, equipment, materials, and
administrative costs
 FEE = compensation for expertise
 Includes: profit
32

33. Cost + Fixed Fee +
Profit-Sharing Clause
 Rewards contractors
who minimize cost
 Percentage of cost
under GMP is
considered profit
and shared with the
contractor
 Guaranteed Maximum
Price (GMP)
 % of profit sharing is
specified in contract
Advantages Disadvantages
Provides
incentive to
the
contractor to
save money
Contractor must
absorb any
amount over the GMP
Plans & specs. need
to detailed
33

34. Cost + Fixed Fee +
Profit-Sharing Clause
variation of this type of contract is called a guaranteed
maximum price (GMP).
 In this type of contract the contractor is reimbursed at cost
with an agreed-upon fee up to the GMP, which is essentially
a cap; beyond this point the contractor is responsible for
covering any additional costs within the original project
scope
 An incentive clause, which specifies that the contractor
will receive additional profit for bringing the project in
under the GMP.
34

35. 1. Define construction contract ? And What are the main three
elements of the construction contract ?
2. What are the main steps of the project life cycle ?
3. Write four methods of construction contracting methods ?
4. Explain the meaning of the following words:
A. FDBT contract.
B. FDOBT contract.
C. FDBOOT contract.
D.DBOT contract.
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36. Construction Documents
36

37. Construction Documents
 Bidding requirements
 Notice to Bidders
 Instruction to Bidders
 Proposal Form
 Contract Documents
 Contract Forms
 Conditions of the Contract
 Specifications
 Drawings
 Addenda
 Change Orders
 Agreement.
37

38. Construction Documents
 Construction Documents are defined as the written and graphic documents
prepared or assembled by the A/E for communicating the design of the
project and administering the contract for its construction.
 2 major groups
1.Bidding Requirements
Used to attract bidders & explains bidding process
2.Contract Documents
Legally enforceable requirements that become part of the contract
Include all construction documents except bidding forms
38

39. CONSTRUCTION DOCUMENTS
39

40. CONSTRUCTION DOCUMENTS
BIDDING REQUIREMENTS
BIDDING REQUIREMENTS
Bidding Requirements are used to attract bidders and explain the
procedures to be followed in preparing and submitting bids .
Bidding requirements help bidders follow established procedures and
submit bids that will not be disqualified because of technicalities. They
do not become part of the contract documents
Bidding documents
All of the construction documents issued to bidders before the signing of
an owner-contractor agreement.
40

41. Bid Package
Documents available to the contractor and on which he must make a decision to bid
or not
A set of plans and technical specifications, Proposal form, general conditions,
special conditions,
Description of the project to be constructed
Bid Package is prepared by:
41

42.  It describe the scope of the bid, source of
fund (if it is financed from other agency),
fraudulent and fraud practices, eligible
bidders, Eligible Materials, Equipment and
Services, Clarification of Bidding
Document, Site Visit, Pre-Bid Meeting,
Amendment of Bidding Document
Instruction to bidders
42

43. Instruction to bidders (cont’d)
43

44. Bid Data Sheet (BDS)
 Definitions, Engineer’s Authority to Issue Variations, Performance
Security, Inspection of Site, Program to Be Submitted, Cash Flow
Estimate
 Bid Security, Minimum Amount of Third Party Insurance
 Time for Issue of the Notice to Commence, Time for Completion
 Amount of Liquidated Damages, Limit of Liquidated Damages
 Amount of Bonus for Early Completion, Limit of Bonus
 Defects Liability Period, Amount of Interim Payment Certificates
 Percentage of Retention, Limit of Retention Money, Amount of
Advance Payment
 Start Repayment of Advance Payment, Monthly Recovery of Advance
Payment
 Number of Copies of Statement of Completion and Final Statement
 Procedure for Settlement of Disputes
 Notice to Employer and Engineer
 Origin of Materials and Plant 44

45. Evaluation and qualification
 This section contains all the criteria that the Employer shall
use to evaluate bids and qualify Bidders if the bidding was
not preceded by a prequalification exercise and post
qualification is applied.
 In accordance with items specified in ITB, no other
methods, criteria and factors shall be used. The Bidder shall
provide all the information requested in the forms included
in (Bidding Forms) section..
45

46.  1- evaluation : describe the Adequacy of Technical
Proposal, in case of Multiple Contracts, the conditions
governs, Completion Time,
 2- Qualification : describe the Eligibility, financial situation,
staff, experience , equipments.
Evaluation and qualification (con’d)
46

47. Bidding forms
 letter of bid (bid form)
 Form of bid security
 Technical proposal forms (personnel, equipment)
 Bidders qualification forms as bidders data, JV information,
Historical Contract Non-Performance, Current Contract
Commitments , Historical Financial Performance, Average
Annual Turnover, General and specific Experience,
47

48. Contract documents (graphic and written) describe the proposed construction (the
‘Work’) that results from performing services, furnishing labor, and supplying and
incorporating materials and equipment into the construction
A. Contract Forms
B. Conditions of the Contract
C. Specifications & BOQ
D. Drawings
E. Addenda
F. Change Orders
CONSTRUCTION DOCUMENTS
48

49. A. CONTRACT FORMS
 CONTRACT FORMS
Agreement
Performance Bond
Payment Bond
Certificates
49

50. B.CONDITIONS OF CONTRACT
CONDITIONS OF CONTRACT
Define basic rights, responsibilities, and relationships of the parties involved in the
construction project.
2 types: General Conditions and Supplementary Conditions
GENERAL CONDITIONS
General clauses that establish how the project is to be administered.
Contain basic expressions of rights, duties, and limitations of the entities involved.
Usually in the form of published standard documents that include principles common
to most construction Contracts.
SUPPLEMENTARY CONDITIONS
Modify or supplement general conditions as need to provide for requirements specific
to a project. They are not standardized documents and are prepared for specific project
needs. 50

51. A.1 Agreement
The written document signed by the owner and the
contractor that is the legal instrument binding the parties to
the contract.
Defines the relationship and obligations between owner
and contractor.
 The agreement is quite brief and appears to consist mostly
of statements of fact, whereas the general conditions
section deals primarily with matters that pertain generally
to be construction work and the persons involved.
 In other words, the agreement appears to consist of
statements and the general conditions appear to be terms,
or conditions.
51

52. Agreement (cont’d)
 The agreement should contain:
 The names of contracting parties
 A brief description of the work
 A list of contract documents, including agreement, general
conditions, drawings, and specifications.
 The contract sum, or amount (lump-sum contract)
 The procedures for payment
 The contract time, or dates for start and completion
 The signatures of contracting parties and witnesses
 International construction documents are also often based
on industry-prepared standard forms.
52

53. AGREEMENT FORM
 A number of organizations prepare recommended standard
general conditions and associated forms. Such as:
 MOAUD (Ministry of works And Urban Development)
 FIDIC (International Federation of Consulting Engineers)
53

54. A.2 .Bonds / Guarantees FORMS
1- PERFORMANCE BOND / security
The Contractor, upon receiving the Letter of Acceptance, shall obtain and provide to the
Employer before signing the Contract, the Performance Guarantee in the value of
ten percent of the Contract Sum, as a guarantee of the proper execution of the
Works in accordance with the Contract. This guarantee shall be issued by a
licensed bank or financial institution acceptable to the Employer. The guarantee
shall be prepared in the form included in part B of these conditions. The obtaining
of such guarantee shall in all respects be at the expense of the Contractor.The
Performance Security shall be provided to the Employer no later than the date
specified in the Letter of Acceptance and shall be issued in an amount specified in
the PCC (particular conditions of contract), by a bank or surety acceptable to the
Employer, and denominated in the types and proportions of the currencies in which
the Contract Price is payable.
The Performance Security shall be valid until a date 28 days from the date of issue of
the Certificate of Completion in the case of a Bank Guarantee, and until one year
from the date of issue of the Completion Certificate in the case of a Performance
Bond.
 In general , it is 10% of contract value
54

55. Advanced payment bond
 Provide a guarantee that subcontractor, material suppliers, and
others providing labor, material goods, and services to the project
will be paid.
 The Employer shall make advance payment to the
Contractor of the amounts stated in the PCC by the date
stated in the PCC, against provision by the Contractor of an
Unconditional Bank Guarantee in a form and by a bank
acceptable to the Employer in amounts and currencies
equal to the advance payment. The Guarantee shall
remain effective until the advance payment has been
repaid, but the amount of the Guarantee shall be
progressively reduced by the amounts repaid by the
Contractor. Interest shall not be charged on the advance
payment.
55

56. Advanced payment bond (cont’d)
 The Contractor is to use the advance payment only to pay
for Equipment, Plant, Materials, and mobilization expenses
required specifically for execution of the Contract. The
Contractor shall demonstrate that advance payment has
been used in this way by supplying copies of invoices or
other documents to the Project Manager.
 The advance payment shall be repaid by deducting
proportionate amounts from payments otherwise due to the
Contractor, following the schedule of completed percentages of
the Works on a payment basis. No account shall be taken of
the advance payment or its repayment in assessing valuations
of work done, Variations, price adjustments, Compensation
Events, Bonuses, or Liquidated Damages.
56

57. Defect liability Security
 After primary taking over, 5% guarantee
is submitted to employer for defect
liability, valid for 365 days or as stipulated
in PCC.
57

58. INSURANCE Certificates
 Insurance for Works and Contractor’s Equipment,
 Insurance against Injury to Persons and Damage to
Property ,
 Insurance for Contractor’s Personnel
58

59. General Conditions of contract
 The conditions are intended to govern and
regulate the obligation of formal contract.
 Although the headings and topics included
within different sets of GCC vary, there is
a certain similarity of subject matter
59

60. Contents of GCC
 Definitions
 Contract documents
 Rights and responsibilities of owner
 Duties and authorities of engineer
 Rights and responsibilities of contractor
 Sub-contractor, Separate contractors
 Time
 Payments and completions
 Changes in the work
 Protection of persons and property
 Insurance and bond
 Disputes
 Termination of contract
 Miscellaneous provisions
60