Types of Contracts
Types of Contracts
Types of Contracts
Contract Definitions
A.
B. According to FIDIC :
Contracts)
Cost Reimbursement Contracts (Cost-based Contracts)
Factors Influencing the Choice of the Type of Contract
The appropriateness for providing an adequate
contractor
Cost known at outset
Contractor will assign best personnel
Contractor selection is easy.
Unit Price
No total final price
Quote Rates / Prices by units
Re-negotiate for rates if the quantity or work
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 contractors 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)
Cost Plus
Actual cost plus a negotiated reimbursement
to cover overheads and profit.
2. Different methods of reimbursement :
1.
Cost
+ percentage
Cost + fixed fee
Cost + fixed fee + profit-sharing clause.
5.
Advantages
Disadvantages
profitable for
the contractor
No incentive
to finish job
quickly
$500.000,Fee =
2%)
Owner does
not know total
price
Larger the
cost of the
job, the
higher the fee
the owner
pays
completed.
2. If the contractor is efficient in the
utilization of resources then the cost to the
client should represent a fair price for the
work undertaken.
administrative costs
Advantages
Disadvantages
Fee amount is
fixed regardless
of price
fluctuation
Expensive
materials and
construction
techniques may
be used to
expedite
construction
Provides
incentive to
complete
the project
quickly
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
Advantag
es
Disadvantages
Provides
incentive
to the
contracto
r to save
money
Contractor
must absorb
any
amount over
the GMP
Plans & specs.
need to
detailed
Advantages
Greater price certainty for clients as the contractor normally
Disadvantages
The client might pay too much as the contractor takes on