Contracts and their types

Contracts and their types
Types of Construction contracts
Types of Engineering contracts

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2. Contract and its types

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 Fixed-price contracts Lump-sum contract Unit price contract Cost plus contracts Percentage of costs Fixed fee Fixed fee with maximum cost Incentive fee Design and build contracts (all-in contract or turnkey contract) 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 Cost-plus percentage contract – contractor is paid a fee that is a percentage of the cost Cost-plus Fixed fee contract – contractor is paid a fixed sum which is independent of the final cost Cost-plus Fixed fee with guaranteed max. cost contract - the contractor guarantees the max. Total cost for the project 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

12. End Note “ If your actions inspire others to dream more, learn more , do more and become more , you are a leader ”– John Quincy Adams

13. 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