Ques 1. What are contracts?

Name different types of contracts and their advantages and

disadvantages.

Ans 1. A construction contract provides a legal binding agreement, for both the owner and the
builder, that the executed job will receive the specific amount of compensation or how the
compensation will be distributed. There are several types of construction contracts used in the
industry, but there are certain types of construction contracts preferred by construction
professionals.

Construction contract types are usually defined by the way, the disbursement is going to be made
and details other specific terms, like duration, quality, specifications, and several other items. These
major contract types can have many variations and can be customized to meet the specific needs of
the product or the project.

Use of contract

• Describe scope of work

• Establish time frame
• Establish cost and payment provisions
• Set fourth obligations and relationships
• Minimize dispute
• Improve economic return of investment

Factor affecting the choice of type of contract

• The appropriateness for providing an adequate incentive for efficient work

• Performance by the contractor
• Ability to introduce changes
• Allocation of risks
• Start and completion date of the project

Type of contract – two broad categories

• Price given in advance contract (price-based contracts)

• Cost reimbursement contract (cost-based contracts)
 1. Lump Sum or Fixed Price Contract Type

This type of contract involves a total fixed priced for all construction-related activities. Lump sum
contracts can include incentives or benefits for early termination, or can also have penalties, called
liquidated damages, for a late termination. Lump Sum contracts are preferred when a clear scope
and a defined schedule has been reviewed and agreed upon.

Advantages

• Low risk on the owner, high risk to the contractor

• Cost known at outset
• Contractor will assign best personnel
• Contractor selection is easy

Disadvantage

• Changes are difficult and costly

• Contractor is free to use the lowest cost of material, equipment and methods
• The contractor carries mush of the risk. The tendered price may include high risk
contingency.
• Competent contractors may decide not to bid to avoid a high risk lump-sum contract.

2. Cost Plus Contracts

This type of contract involves payment of the actual costs, purchases or other expenses generated
directly from the construction activity. Cost Plus contracts must contain specific information about
a certain pre-negotiated amount (some percentage of the material and labor cost)
covering contractor’s overhead and profit. Costs must be detailed and should be classified as direct
or indirect costs. There are multiple variations of Cost Plus contracts and the most common are:

• Cost Plus Fixed Percentage

• Cost Plus Fixed Fee
• Cost Plus with Guaranteed Maximum Price Contract
• Cost Plus with Guaranteed Maximum Price and Bonus Contract

Advantages

• Cost-plus contracts are flexible. Cost-plus contracts allow owners to make design changes
along the way, and contractors know they’ll be paid for the extra time or materials those
changes incur.

• Miscalculations aren’t devastating. Since cost-plus contracts are flexible by nature,

inaccuracies in the initial bid aren’t as detrimental as they are with lump sum contracts.

Disadvantages

• Justifying some costs can be difficult. Cost-plus contracts require contractors to justify the
costs on a given project. Sometimes those costs can be hard to account for, and owners can
be resistant to reimbursing indirect costs like administrative expenses and mileage.
 • Fronting the cost of materials can put contractors in a bind. Since cost-plus contracts
operate through reimbursement, paying more than you expected for materials could mean
you’re spread thin for the remainder of the project.

3. Unit Pricing Contracts

Unit pricing contracts is probably another type of contract commonly used by builders and in federal
agencies. Unit prices can also be set during the bidding process as the owner requests specific
quantities and pricing for a pre-determined amount of unitized items.

By providing unit prices, the owner can easily verify that he's being charged with un-inflated prices
for goods or services being acquired. Unit price can easily be adjusted up and/or down during scope
changes, making it easier for the owner and the builder to reach into agreements during change
orders.

Advantages

• Unit price contracts simplify invoicing. Unit price contracts allow for increased transparency.
Owners can easily understand each cost that goes into the final price of the contract
because the price of each unit is predetermined. This helps avoid disputes and arguments
when it’s time to pay up.

• If more work is required, the profit margin stays the same. Any extra work that’s needed is
simply added on as another pre-priced unit, making it easier to manage change orders and
other alterations to the scope of work.

Disadvantages

• Predicting the final value of the contract can be difficult. Usually, the amount of units
needed to complete a project isn’t known immediately. This means owners may pay more
than they expected.

• Remeasurement can delay payment. Remeasurement, or the owner’s ability to compare the
price of each unit with the total cost of the project, can slow down payment. Although
transparency is something we should all strive towards, this may be something you want to
consider.

4. Time and Materials Contracts

As opposed to lump sum contracts, time and materials (T&M) contracts work best for projects in
which the scope of work is not well-defined. Time and materials contracts reimburse contractors for
the cost of materials and establish an hourly or daily pay rate.

Advantages

• Time and materials contracts are agile. Since the customer reimburses the contractor for the
cost of materials and pays an hourly wage, unexpected delays, roadblocks, and other
changes to the scope of work are covered.
 • Time and materials contracts allow for simple negotiations. Setting rules for what materials
will be covered and what the hourly wage will be is simple with time and materials
contracts.

Disadvantages

• Tracking time and materials is time consuming. Logging each and every material cost on a
project is no small task, and failure to provide an accurate number upon completion means
lower profit margins. Doing a thorough job here means you spend more time crunching
numbers and less time doing the work.

• Efficiency isn’t rewarded. Since time and materials contracts pay by the hour or day, there’s
no real incentive to finish a project early. However, it’s common practice to stipulate a
bonus for finishing ahead of schedule.

5. GMP Contracts
Guaranteed maximum price (GMP) contracts establish a cap on the contract price. With this type of
construction contract, the property owner won’t exceed the contract price. Any material or labor
costs above that price should be covered by the contractor. Sometimes, another type of
construction contract may also include a GMP provision. For example, a cost-plus contract could
include a clause that limits total costs to a guaranteed maximum price.

Advantages

• GMP contracts make for quicker projects. Having a final contract price accelerates the
bidding process, and it makes financing projects easier because lenders know the maximum
amount a given project will cost early on.

• GMP contracts incentivize savings. Having a fixed price overhead incentivizes contractors to
reduce costs and finish ahead of schedule. Owners usually agree to share cost savings with
their contractors.
Disadvantages

• GMP contracts place risk on contractors. Unfortunately, GMP contracts force the party doing
the work to absorb cost overages in the event the contract price maximum is exceeded.

• GMP contracts can take longer to review and negotiate. In order to protect themselves from
exceeding the price cap, contractors may try to increase the maximum price of the contract.
When this happens, the negotiation process is elongated and the project takes longer to
start.
Ques 2. What is BOQ? What are the guidelines to follow to guarantee a detailed BOQ and
how are rates adopted? Give 2 examples.

Ans 2. Bill of Quantities also referred to as BOQ, is a document formulated in the construction
industry to specify materials, labors, and their cost. It serves as a communication tool between
client, consultant & the contractor. It is usually prepared by a cost consultant or a surveyor. Primarily
there are two types of BOQs

• Bill of Materials
• Bill of Labour

The main sections included in the bill of quantities are Form of Tender, Information, Requirements,
Pricing schedule, Provisional sums, and Day works. For the preparation of BOQ, 5 main components
are to be considered which are as follows:

1. Item Description
2. Unit
3. Quantity
4. Rate per unit
5. Total Amount

Advantages of Billing of Quantities

I. Anticipation of Difficulties & Challenges
As we write down the brief description of each work to be completed in a particular project,
we can simultaneously assess the issues and obstacles tagging along with it. These obstacles
can be tackled beforehand and thus saving time, energy and resources. Companies
often outsource estimating companies to prepare BOQ for massive project as second layer
of review to validate in-house estimates.

II. Comprehensive Planning of the Project

Once the initial project budget is laid down after taking into consideration the drawing &
specifications, the planning of the project becomes much simpler. It will furnish a complete
& comprehensive picture of the equipment and material necessary and helps the engineers
involved in the project to quote for the work suitably.

III. BOQ Eliminates Guesswork

BOQ simply eliminates any scope of guesswork in the entire process of project construction.
In the paucity of BOQ, the quotes of each work needs be worked out separately and
independently only on the basis of guesswork. It withholds everything transparent, hence
there is zero chance for corrupt practices by the tenderers or the contractors.

IV. Saves Time & Cost of Construction

If the materials are available on time according to the specifications mentioned in the BOQ,
the time of construction can be minimized effectively. It also gives fair amount of time to
compare the prices of all the materials and choose the best rate. Thus saving the cost of
construction.

Limitations of Bill of Quantities

Bill of Quantities should be prepared according to a standard methodology. Otherwise, chances of

errors substantially increases. The errors that could possibly occur during the BOQ process are
incorrect measurement of the quantities, arithmetic errors, errors due to various changes made
during the project, incorrect assumptions, counting the same item twice or omitting an item, and
ignoring the change in currencies or units.

BOQ Guidelines

In India, BOQ documents commonly include these details:

• Your engineer/consultant/company name, address, contact number and/or invoice unique number
• Your customer/client’s name and address
• Proper descriptions of the materials, parts, and labour to be used
• Itemised quantities of the number, length, area, volume, weight or time used
• Your company’s GST and/or PAN number
• Net amount to be paid by customer or client

These details are laid out in a tabular form that includes the item serial number, description of spec-
in contents, unit, quantity, rates and rupee amounts in different columns.

Writing BOQ descriptions

This part of the BOQ is the key element of the document as it provides detailed information about
individual items. To omit any data in the descriptions can affect the entire BOQ document, that’s
why it is crucial to write watertight descriptions.

BOQ descriptions for each module can consist of the following:

• Short description of the billable action
• Names of products, materials and their chemical make-up, if any
• Exclusions (e.g. actions that are not in the scope of work)
• Dimensions of the materials/items required (e.g. length, width, weight, diameter, percentages,
ratios, etc.)
• Volume/area of size covered in the billable action
• Any additional tasks or tools required to complete billable action
• Regulations and/or standards required of your billable actions/materials
• Disposal, handling and/or maintenance information
• Limitations to scope of work
• Warranty periods, if any

Depending on your organisation’s tendering conventions, your BOQ document will end off with the
total sum of charges required in numbers and words. Terms and conditions, legal contracts, clauses,
and signature lines and stakeholder designations may also form the end of your BOQ.
Ques 3. Explain with examples, the methods of measurements using long wall, short wall
and centre line method.

Ans 3. The quantities like earth work, foundation concrete, brickwork in plinth and super structure
etc, can be workout by any following two methods:

i. Long wall – short wall method

ii. Centre line method

In this method each wall of the building is estimated separately. The long walls are considered out-
to-out and the short walls are considered in-to-in. in this method the wall along the length of the
room is considered to be long wall while wall perpendicular to long wall is said to be short wall.

Different quantities are calculated by multiplying the length by breadth and height of the wall. The
same rule applied to the excavation in foundation, to concrete bed in foundation, DPC, masonry in
foundation and super structure etc.

For symmetrical footing, the centre line remains same for the super structure, foundation and plinth,
so, the simple method is to find out the centre-to-centre lengths of long walls and short walls from
the plan.

Long wall length out-to-out =

Out-to-Out length + horizontal projection on one side (HP) + horizontal projection on other side (HP)

Short wall length in-to-in =

In-to-In length – horizontal projection on the side (HP) – horizontal projection on the other side (HP)

Estimate the quantities of the following items of a 1 room flat from the given plan and section:

• Earthwork in excavation
• Lean concrete in foundation
• Brickwork in foundation
• DPC
• Brick work in super structure