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Emerging cost contract

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Document 1

Emerging cost contract

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Sarkertsarker

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Definition:

What is Emerging cost

contract?
An Emerging Cost Contract is a type of contract commonly
used in construction projects where the final cost of the
project is not known at the outset
Definition:
Emerging cost contracts are
essentially cost reimbursable management
contracts for a programme of works and services,
where the management contractor is paid direct
costs identified in an Estimate of project
costs.

An emerging cost contract is a type of

agreement between a client and a contractor
where the final cost of the project is not
predetermined at the outset.

Emerging Cost contracts (Time

and Materials (T&M)) are most
commonly used for
Rail Infrastructure Projects
Where It is applicable?
Emerging cost contract

• Where there is a need to provide for sophisticated management services along with
sub-contracting the construction of the works.

• This can be useful where setting an overall target cost would restrict the client’s
ability to vary the scope of works

• Where there is a need to provide for value engineering and for the right to terminate if the cost
estimate reaches an agreed percentage above the original estimate.

https://www.designingbuildings.co.uk/wiki/Emerging_cost_contract
Purpose:
Purpose of the Emerging cost contract:
The purpose of an Emerging Cost Contract is to provide flexibility and manage uncertainty in construction
projects where the final scope and costs are not fully known at the outset. Here are some key purposes of
using an Emerging Cost Contract:

Flexibility: Emerging Cost Contracts allow for adjustments to

the contract price as the project progresses, providing flexibility to
accommodate changes in scope, design, or other project
requirements.

Risk Management: By shifting the risk of cost uncertainty

from the client to the contractor, Emerging Cost Contracts help
manage the risk associated with unforeseen conditions, changes
in regulations, or other factors that could impact project costs.
Purpose:
Purpose of the Emerging cost contract:

Transparency: These contracts typically require detailed

documentation of costs, providing transparency to both the
client and the contractor regarding how project funds are
being allocated.

Incentivizing Efficiency: Contractors under Emerging

Cost Contracts have an incentive to control costs and
maximize efficiency since they are reimbursed for actual
costs incurred plus a fee or percentage for overhead and
profit.

Adaptability: Emerging Cost Contracts allow for

adjustments to the project as it progresses, enabling the
parties involved to adapt to changing circumstances or new
information that may affect project requirements or costs.
Procedural Steps:
Initiation | Client identifies project need

Negotiation | Client and contractor negotiate terms

Contract Signing | Client and contractor sign the contract

Planning | Contractor develops project plan

Execution | Contractor starts work on the project

Monitoring | Client and contractor monitor project costs

Reimbursement | Contractor submits invoices for reimbursement

Markup & Profit | Contractor adds markup to costs

Completion | Contractor finishes the project

Final Payment | Client reviews and approves final costs

Contract Closure | Client and contractor close the contract

Evaluation | Client assesses project success

Characteristics:

Risk Sharing: These contracts often involve a shared risk approach between the
owner and the contractor, with both parties bearing a portion of the project risks, such as
material price fluctuations, labor shortages, or regulatory changes.

Performance-Based Incentives: Some emerging cost contracts incorporate

performance-based incentives or penalties tied to project milestones, quality standards, or
budget adherence, incentivizing efficient project delivery and cost control.

Progressive Payment Structure: Emerging cost contracts often feature progressive

payment structures based on project milestones or completed work, providing contractors
with regular cash flow while allowing owners to monitor project progress and cost
expenditures.