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3. Definition of a Contract
• “A contract is an agreement that can be
enforced in court.”
• A contract may be formed when two or more
parties each promise to perform or to refrain
from performing some act now or in the future.
•
• In a civil engineering “construction contract”
is an agreement signed between the owner
and the contractor which ensures the
completion of the job within the scheduled
time. “enforced by Law”
4. A Contract -
• Agreement that can be enforced in court.
• Formed by two or more parties.
• Failure to perform results in breach and
damages
• A valid, enforceable contract includes:
– Agreement.
– Consideration.
– Capacity.
– Legality.
Contract – is an agreement between two or
more persons (individuals, businesses,
organizations or government agencies) to
do, or to refrain from doing, a particular
thing in exchange for something of value.
5. Types of construction contracts
1) Fixed-price contracts
- Lump-sum contract
- Unit price contract
2) Cost plus contracts
- Percentage of costs
- Fixed fee
- Fixed fee with maximum cost
- Incentive fee
3) Design and build contracts (all-in
contract or turnkey contract)
4) Construction management contracts
- Cost-plus fee
- Guaranted maximum price
6. Lump-sum contracts Unit-price contracts
Fixed-price contracts
Lump-sum contract – in this type of contract, engineer or
contractor agrees to do the described and specified project
according to the drawings and specifications for a fixed price
Unit-price contract – specify the amount to be paid for each
unit of the work, but not the total amount. It is used when
quantity of the work cannot be accurately estimated in
advance.
7. Traditional method
Also called Fixed Price contract / Drawings and
Specifications Contract.
The contractor agrees to perform a stipulated job of
work for a fixed lump sum amount show in drawings and
described by specifications.
In this contract the contractor is responsible for
completing the project within the agreed fixed cost stated
in the contract
Most suitable for simple and small projects, where the
project is already well defined, and changes are unlikely
Lump sum contract:
8. Also called Item rate contract / BOQ contract.
In this the contractor executes the work on the item rate basis.
The cost per unit item is given by the contractor and the
estimated quantities of items are given by the owner .
The contractor is required to quote rate for individual item of
work on the basis of bill of quantities (BOQ)
•The total cost of work can only be calculated only after the
completion of the work because measurement is made on the
basis of work actually done.
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.
Unit price contract:
9. Cost-plus contracts
Percentage of costs Fixed fee Fixed fee – max.cost Incentive fee
A contract where the contractor is paid for all of its allowed expenses,
PLUS additional payment to allow for a profit
a) Cost-plus percentage contract – contractor is paid a fee that is a
percentage of the cost
b) Cost-plus Fixed fee contract – contractor is paid a fixed sum which
is independent of the final cost
c) Cost-plus Fixed fee with guaranteed max. cost contract - the
contractor guarantees the max. Total cost for the project
d) Cost-plus Incentive fee contract – contractor is paid a fee which is
dependent of the final cost
A contract where the purchaser agrees to pay the cost of all materials
and labour, contractor plus some profit.
It is opposite of fixed price contract
We can divide them into:
10. Also called as Turn key contract/ EPC contract ( Engineering
procurement and construction).
In this contract the contractor is responsible for both design
and execution.
The owner has to provide functional requirements and
approves design and drawings.
The contractor will provide the works ready at fixed date and
an agreed rate.
Advantage - In conventional type of contract, incase of damage/failure of
structure, it is often difficult to determine whether such damage/failure is due
to design fault or construction (quality) fault; which arises disputes between
owner and contractor Such situation is reduced in design/build contract as
both responsibility is of contract.
Disadvantage - The client has less control and influence over design
matters due to which quality may be impaired
Design and build Contract:
11. Time and materials contracts. A time and materials contract means the
buyer pays for the time spent by the builder and his subcontractors and
must pay for the actual costs of construction materials. There is
uncertainty involved for the buyer here as well, since the buyer has to pay
for extra costs or time overruns. Many time and materials contracts will
contain maximum price clauses as well
Supply contracts ❖There are parties in the construction industry who are
involved in supplying materials only, and do not participate in any actual
construction ❖For such contracts, the liability of the contractor is limited to
supplying materials that meet the specifications
Build-operate-transfer (BOT) contracts ❖A BOT contract usually happens for
public infrastructure works ❖In a BOT contract, the private company builds, and
operates a concession on the infrastructure built for an agreed period of time before
transferring the infrastructure to the Government ❖Ideally, a BOT contract would be
a good mechanism for the private sector to fund infrastructure projects.
PPP- Public Private Partnership
Term contract ❖For maintenance, term contracts would be a common practice,
whereby a contractor is required to maintain a certain facility for a pre-agreed term
at a pre-agreed price
Other Types Of Contracts
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15. End Note
“If your actions inspire others to dream more,
learn more , do more and become more , you are
a leader ”– John Quincy Adams
16. • Contracts, Contract, Agreement,
Contracts and their types, Types of
Engineering contracts, Construction
Contracts, Fixed price contract, Lump
sum contract, Design and build
contracts, unit price contracts,
difference between contract and
agreement
