Construction Contract

Chua, Condes, Maravilla, Pader, Tilendo

 Construction Contract

• is a mutual or legally binding agreement between the

parties based on policies and conditions recorded in
document form.
• is an important piece of document that outlines the
scope of work, risks, duties, and legal rights of both the
contractor and the owner.
 Types of Contract
• Lump sum contract • Cost plus fixed fee contract
• Commercial contract • Cost plus percentage of cost
• Domestic building contract contract

• Percentage rate contract • Subcontract agreement

• Item rate contract or Unit price • Special contracts
contract
• Lump sum and scheduled contract
 Lump sum contract

• Under a lump sum contract, a single ‘lump

sum’ price for all the works is agreed before
the works begin.
• These are contracts that have a fixed price
agreed upon the contractor.
 Commercial contract

an agreement containing all the work that

should be performed for the construction
of a commercial building or non-
residential building.
 Domestic building contract

an agreement containing all the work that

should be performed for the construction of a
commercial or residential building existing or
occurring inside a particular country; not
foreign or international.
 Percentage rate contract

• It consists of bill of quantities consists of the description

of items as per sanctioned estimate with their quantities,
rate, unit, and amount.
• The contractor is asked to quote only with the rates
shown in the estimates.
 Item rate contract or Unit price contract
• Type of contract which is undertaken on per piece or
item basis.
• This contract is based on units put in place rather than a
single price.
• Payment for the work done is made on the basis of
the quantities of work actually executed, measured
and materials supplied
 Lump sum and scheduled contract

• In lump sum contract the complete work as per

plan and specifications is carried out by contractor
for certain fixed amount as per agreement.
• The owner provides required information and
contractor charges certain amount.
 Cost plus fixed fee contract
• The owner pays the contractor an agreed amount over and above the
documented cost of work.
• This is a negotiated type of contract where actual and direct costs are paid
for and additional fee is given for overhead and profit is normally negotiated
among parties.
• The owner is in more control of the project; however, the risks are
transferred to the owner.
 Cost plus percentage of cost contract

• The owner pays greater than 100 percent of the

documented cost, usually requiring detailed expense
accounting.
• Contractor is paid the actual cost of work plus certain
percentage as profit.
 Subcontract agreement

A contract primarily between a builder or a

principal contractor and subcontractor. It
outlines the perimeters of specialist work to be
done for the construction project.
 Special contracts
Five types of special contracts:
• Turn key contract – is one under which the contractor is
responsible for both the design and the construction of the
facility.
• Negotiated contract - Contract awarded on the basis of a direct
agreement with a contractor, without going through the
competitive bidding process.
• Package contract or fixed rate contract - means the construction company
and client agree to a set price for contracted services at the onset of a
project.
• Continuing contract - a contract calling for periodic performances. Under
such a contract, performance is in several units over a period of time.
• Running contract - are used for contract extending over a period of time for
an estimated or variable quantity of services
Contract Content
 The Work

1.1.Essential
Essential Time of Commencement &
Elements
Elementsof of Completion
Contract
Contract

Contract Amount & Basis

 The Work

• Generally describes the

specified scope of work of
the contractor in details
 Time of
Commencement &
Completion
• Fixed date or number of calendar
days, working days to complete or
substantially complete the job or
project.
 Contract Amount
Unit price set forth on the bid schedule as the basis for the contract price
 Full Name, Address, and Signatures of Both
Parties
• Though this may sound obvious, this commonly
overlooked element of construction contracts is
required to make the contract legally binding.
Without the proper information or appropriate
signatures on all required documents, it will be
difficult to get the contract to hold up in court.
 • The conditions of contract define the terms, under which
the work is to be undertaken, the relationship between the
2. Conditions client, architect and contractor, the duties of the architect
and contractors, and the terms of payment. (Seeley and
of Contract Winfield, 2005)
 3. Contract Drawings/Specifications

• architectural drawings, the structural/geotechnical engineering drawings,

and the building services engineering drawings. These drawings provide
information regarding the arrangement of spaces, structural
components, electrical, mechanical and plumbing installations etc.
 • A priced Bill of quantities is a required
document of contract that has its rate
and amount column filled by a
contractor. A bill of quantities consists
4. Priced Bill of of a schedule of items of work to be
Quantities carried out under the contract with
quantities entered against each item,
prepared in accordance with the Standard
Method of Measurement of Building
Works
 Includes all the
documents/statement
5. Bid form s contained in the
Bidder’s bidding
envelope
 6. Eligibility Requirements
Includes:
• Bid Security
• DTI business name registration or SEC Registration Certificate
• Valid and current Mayor’s permit/municipal license
• Statement of ongoing Government & private construction
contracts
• Valid PCAB license and registration for the type and cost of
contract
• Audited financial statements
• Duly signed List of Contractor’s equipment (owned and leased or
under purchase agreement)
 • Written confirmation of award of
contract by a customer to a
7. Notice of Award
successful bidder, stating the amount
of Contract of the award, award date, and when
the contract will be signed.
 Construction Contract Template

• PROPOSAL TEMPLATE FORM

Remodeling contract form
• AIA FORM • ROOFING CERTIFICATE OF
- A documents produced by The COMPLETION FORM
American Institute of Architects
(AIA) are the most widely used
standard form contracts in the
construction industry.
Roofing Certificate of completion
SUBCONTRACTOR AGREEMENT FORM
 General Conditions
• 1. Construction Documents
• 2. Architect
• 3. Owner
• 4. Contractors
• 5. Subcontractors
• 6. Work By Owner Or By Separate Contractors
 General Conditions
• 7. Miscellaneous Provisions
• 8. Time
• 9. Payments And Completion
• 10. Protection Of Persons And Property
• 11. Insurance
• 12. Changes In The Work/Substitutions
• 13. Uncovering And Correction Of Work
• 14. Termination Of The Contract
 Architect
• The Architect will be the Owner’s representative during construction and
until final payment is due.
• The Architect shall at all times have access to the Work wherever it is in
preparation and progress.
• JOB MEETINGS SHALL BE COORDINATED AND SCHEDULED BY THE ARCHITECT AT
LEAST WEEKLY. THE ARCHITECT SHALL RECORD AND DISTRIBUTE MINUTES OF
EACH MEETING.
 Owner
• The Owner shall furnish all surveys describing the physical characteristics,
legal limitations and utility locations for the site of the Project, and a legal
description of the site
• Owners right to stop the work when the contractor fails to carry out the
contractors document.
• Owners right to carry out the work.
• Owners right to audit contractor’s record.
 Contractor
• The Contractor shall supervise and direct the Work, using his best skill and attention.
• LABOR AND MATERIALS
• WARRANTY
• TAXES
• PERMITS, FEES AND NOTICES
• ALLOWANCES
• The Contractor shall employ a competent superintendent and necessary assistants
who shall be in attendance at the Project site at all times during the progress of the
Work
 Contractor
• PROGRESS SCHEDULE
• DOCUMENTS AND SAMPLES AT THE SITE
• SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
• The Contractor shall confine operations at the site to areas permitted by law,
ordinances, permits and the Contract Documents and shall not unreasonably
encumber the site with any materials or equipment or interfere with Owner’s
activities on properties adjacent to the site
• The Contractor shall be responsible for all cutting, fitting or patching that may be
required to complete the Work or to make its several parts fit together properly.
 Contractor
• CLEANING UP
• THE CONTRACTOR SHALL FORWARD ALL COMMUNICATIONS TO THE OWNER
THROUGH THE ARCHITECT.

• The Contractor shall pay all royalties and license fees

 Subcontractors
• A Subcontractor is a person or entity who has a direct Contract with the Contractor to
perform any of the Work including supply of equipment or materials.
• AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF
THE WORK
• SUBCONTRACTUAL RELATIONS
 Work By Owner Or By Separate Contractors

• OWNER’S RIGHT TO PERFORM WORK AND TO AWARD SEPARATE

CONTRACTS
• MUTUAL RESPONSIBILITY
• OWNER’S RIGHT TO CLEAN UP
 Miscellaneous Provisions
• GOVERNING LAW
• SUCCESSORS AND ASSIGNS
• WRITTEN NOTICE
• CLAIMS FOR DAMAGES
• PERFORMANCE BOND AND LABOR AND MATERIAL PAYMENT BOND
• RIGHTS AND REMEDIES
• TESTS
• INTEREST
• DISPUTE RESOLUTION
• WAIVER OF REMEDIES
Time 08

CONTRACT TIME – period of time allotted in the Contract

DEFINITION

Documents for Substantial Completion of the Work

DATE OF COMMENCEMENT OF THE WORK - date established in a

notice to proceed
 Time 08

The Contractor shall begin the work on the date of commencement. He shall carry
C OMPLE TION
PROGRESS &

the Work forward expeditiously with adequate forces and shall achieve Substantial
Completion within the Contract Time.

In no case shall the Contractor delay the progress of the work.

 Time 08

If the Contractor is delayed at any time in the progress of the Work by any act or neglect of
EX TENS IONS
DELAY &

the Owner or the Architect, or any other reasons, the Contract Time shall be extended by
Change Order for the length of the delay actually and directly caused by such occurrences.

Any claim for extension of time shall be made in writing to the Architect not more than ten
days after the commencement of the delay; otherwise it shall be waived.

Extension of time provided for the completion of the Work shall be the Contractor’s sole
remedy for delay.

The Owner may seek recovery for actual damages suffered due to delays of the Contractor;
Contract Sum 09

The Contract Sum is stated in the Owner-Contractor Agreement

C ompl etion
Payments &
and, including authorized adjustments thereto, is the total amount
payable by the Owner to the Contractor for the performance of
the Work under the Contract Documents.
Schedule of Values 09

At least 30 days before the first Application for Payment, the

C ompl etion
Payments &
Contractor shall submit to the Owner and the Architect for
approval a schedule of values which in the aggregate equals the
total Contract Sum, divided so as to facilitate payments to
Subcontractors. This schedule, when approved by the Architect
and Owner, shall be used to monitor the progress of the Work and
to compute the amounts of the various payments requisitioned on
the Certificates For Payment.
Applications for Payment 09

At least twenty-five (25) days before the date for each progress

C ompl etion
Payments &
payment established in the Owner-Contractor Agreement, the
Contractor shall submit to the Architect an itemized Application
for Payment. Applications for payment must include (add and/or
deduct) adjustments to the Lump Sum of the Contract resulting
from work performed under approved Change Orders and shall
be shown separately on the application for previous and current
periods.
Certificates for Payment 09

The Architect will, within seven days, after the receipt of the

C ompl etion
Payments &
Contractor’s Application for Payment, either issue a Certificate for
Payment to the Owner, with a copy to the Contractor, for such
amount as the Architect determines is properly due, or notify the
Contractor in writing his reasons for withholding a Certificate.
Progress Payments 09

After the architect has issued a Certificate for Payment, the Owner

C ompl etion
Payments &
shall make payment in the manner and within the time provided in
the Contract Documents. The Owner shall make payments on
account of the Contract provided therein, as follows:
(a) On or about the twenty-eight (28th) day of each month 90% of the value of
each line item incorporated in the Work up to the first day of that month;
(b) Thirty (30) days after final completion of the Work, a final payment of the entire
balance due the Contractor.
Payments Withheld 09

The Architect may decline to certify payment and may withhold his Certificate in

C ompl etion
Payments &
whole or in part, to the extent necessary reasonably to protect the Owner, if in his
opinion he is unable to make representations to the Owner. If the Architect is
unable to make representations to the Owner, he will notify the Contractor. If the
Contractor and the Architect cannot agree on a revised amount, the Architect will
promptly issue a Certificate for Payment for the amount for which he is able to
make such representations to the Owner.
 Payments Withheld 09

1 defective Work not remedied

C ompl etion
Payments &
2 third party claims filed or reasonable evidence indicating probable filing of such claims
3 failure of the Contractor to make payments properly to Subcontractors or for labor,
materials or equipment
4 reasonable evidence that the Work cannot be completed for the unpaid balance of the
Contract sum
5 damage to the Owner or another Contractor
6 reasonable evidence that the Work will not be completed within the Contract Time
7 failure to carry out the Work in accordance with the Contract Documents
Substantial Completion 09

Upon Substantial Completion of the work or designated portion thereof and upon

C ompl etion
Payments &
application by the Contractor and certification by the Architect, the Owner shall
make payment, reflecting adjustment in retainage, if any, for such Work or portion
thereof, as provided in the Contract Documents. The Owner, when all the Work is
substantially complete, shall pay to the Contractor the balance due the
Contractor pursuant to the Contract.
Final Completion & Payment 09

Upon receipt and approval of written notice that the Work is ready for final

C ompl etion
Payments &
inspection and acceptance and upon receipt of a final Application for Payment,
the Architect will promptly make such inspection and, when he finds the Work
acceptable under the Contract Documents and the Contract fully performed, he
will promptly issue a final Certificate for Payment stating that to the best of his
knowledge, information and belief, and on the basis of his observations and
inspections, the Work has been completed in accordance with the terms and
conditions of the Contract Documents and that the entire balance found to be
due the Contractor, and noted in said final Certificate, is due and payable.
As Built Drawings 09

The Contractor shall red mark blue line prints of the project

C ompl etion
Payments &
indicating all changes to the drawings and submit them to the
architect or engineer prior to submitting final request for
payment. Where coordination drawings have been prepared
in CAD format, the Contractor shall also submit these CAD
files.
Operating & Maintenance
09
Manuals
Prior to invoicing for final payment, the Contractor shall submit

C ompl etion
Payments &
to the Owner Operating & Maintenance manuals and copies
of all approved submittals in the following formats: three hard-
copy sets of O&Ms and submittals in binders and electronic
copies of all O&Ms in a format acceptable to the Owner.
 10 The Contractor shall be he Contractor shall take all
responsible for initiating, necessary precautions for
maintaining and supervising the safety of, and shall
Protection of Persons

all safety precautions and provide all necessary

programs in connection with protection to prevent
the Work. damage, injury or loss
and Property

In the event Contractor

Contractor shall erect and encounters on the site
maintain all necessary Hazardous Materials,
safeguards for safety and Contractor shall immediately
protection. stop work in the area
affected.
Insurance 11

The Contractor shall, at its own expense, maintain insurance

as outlined below with minimum limits as referenced.

1 COMMERCIAL GENERAL LIABILITY

2 AUTO LIABILITY

3 UMBRELLA FORM EXCESS LIABILITY

4 WORKERS’ COMPENSATION & EMPLOYER’S LIABILITY

5 ENVIRONMENTAL LIABILITY
Insurance 11

If at any time any of the above required insurance policies

should be canceled, terminated or modified so that the

required insurance is not in effect, the owner may require the

contractor to suspend performance of the work. No

extension of time shall be allowed to Contractor in the event

of any such suspension.

Insurance 11

Certificates from the insurance carrier shall be filed in

triplicate with Owner before operations are begun.

If the initial insurance expires prior to completion of the Work,

renewal certificates shall be furnished by the date of

expiration.
Insurance 11

SUBCONTRACTOR INSURANCE
Contractor shall require each of Contractor’s Subcontractors
to procure and maintain, until the completion of that
Subcontractor’s Work. It shall be the responsibility of Contractor
to ensure that all his Subcontractors comply with all of the
insurance requirements contained herein relating to such
subcontractors.
Insurance 11

BUILDERS RISK INSURANCE

- The owner shall self insure or carry all-risk Builders Risk Insurance
including extended coverage, vandalism, malicious mischief to the
full replacement value of all the Work and all materials, equipment
and supplies on or near the site of the Work.
- The contractor shall be responsible for the first $500,000 per
occurrence with respect to Builders Risk.
- The owner shall have the option of requesting the Contractor to
carry Builders Risk Insurance
Insurance 11

MISCELLANEOUS PROVISIONS
- Neither the procurement nor the maintenance of any
insurance by Owner or Contractor shall in any way be
construed or deemed to limit, discharge, waive or release
Contractor from any obligation under the Contract, nor to limit
the liability of Contractor for any act or omission.
- Owner and Contractor waive all rights against each other for
damages caused by fire or other perils to the extent covered
by insurance provided
Changes in the Work/Substitutions 12

A Change Order is a written order to the Contractor signed by the

C H ANGE ORDERS

Owner and the Architect, issued after execution of the Contract,

authorizing a change in the Work or an adjustment in the Contract
Sum or the Contract time. The Contract Sum and the Contract Time
may be changed only by Change Order. A Change Order signed by
the Contractor indicates his agreement therewith, including the
adjustment in the Contract Sum or the Contract Time.
 Changes in the Work/Substitutions 12

If conditions are encountered at the site which are (1) subsurface or

C OND IT IONS
C ONC E ALED

otherwise concealed physical conditions which differ materially from

those indicated in the Contract Documents or (2) unknown physical
conditions of an unusual nature, then notice by the observing party
shall be given to the other party promptly before conditions are
disturbed and in no event later than 10 days after first observance of
the conditions.
 Changes in the Work/Substitutions 12
ADDITIONAL C OST
C LAIMS FOR

If the Contractor wishes to make a claim for an increase in the

Contract Sum, he shall give the Architect written notice thereof within
twenty days after the occurrence of the event giving rise to such
claim. This notice shall be given by the Contractor before proceeding
to execute the work.
 Changes in the Work/Substitutions 12

The Architect following consultation with and approval by the Project

IN TH E WORK
MINOR C H ANGES

Manager, will have authority to order minor changes in the Work not
involving an adjustment in the Contract Sum or an extension of the
Contract Time and not inconsistent with the intent of the Contract
Documents. Such changes shall be effected by written order, and shall
be binding on the owner and the contractor. The contractor shall carry
out such written orders promptly.
Changes in the Work/Substitutions 12

Using the name of a proprietary item or the name of a particular

SUBST IT UT IONS

supplier in the naming of an item is intended to establish the type,

function, and quality required. Materials or equipment of other
suppliers or manufacturers may be accepted by the Architect or
Engineer (A/E) if sufficient information is submitted by the contractor to
allow the A/E to determine that the proposed materials or equipment is
equivalent or equal to that named.
 U n c o v e r i n g o f Wo r k C o r r e c t i o n o f Wo r k
13 If any portion of the Work should be
covered contrary to the request of the
The Contractor shall promptly correct all
Work rejected by the Architect as
Owner or Architect or to requirements
incomplete, defective or as failing to
specifically expressed in the Contract
conform to the Contract Documents
Documents, it must, if required in writing
whether observed before or after
by the Owner or Architect, be uncovered
Correction of Work

Substantial Completion and whether or

for his observation and shall be replaced
not fabricated, installed or completed.
at the Contractor’s expense.
Uncovering &

Acceptance of Defective or
Non-Confi rmi ng Work
f the Owner prefers to accept defective or non-
conforming Work, the Owner may do so instead
of requiring its removal and correction, in which
case a Change Order will be issued to reflect a
reduction in the Contract Sum where
appropriate and equitable.
 Termination of the Contract
14
TERMINATION BY THE CONTRACTOR
1) If the Work is stopped for a period of sixty
days under an order of any court or other
public authority having jurisdiction
2) If the Work should be stopped for a period
of thirty days by the Contractor because the
Architect has not issued a Certificate for
Payment or because the Owner has not
made payment

Then the Contractor may terminate the

Contract and recover from the Owner
payment for all Work executed and for any
proven loss sustained upon any materials,
equipment, tools, construction equipment
and machinery.
 Termination of the Contract
14
TERMINATION BY THE OWNER
1) If Contractor is adjudged a bankrupt, or
makes a general assignment for the benefit
of creditors, or if a receiver is appointed on
account of Contractor’s insolvency
2) If Contractor is placed in reorganization or if
he refuses or fails to supply enough properly
skilled workmen or proper product
3) If Contractor fails to substantially complete
the Work by the date set forth

Then Owner may terminate the employment of

Contractor and take possession of the site and
of all product, tools and machinery owned by
Contractor and may finish the work by whatever
method Owner may deem expedient.