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Contract

A contract is a voluntary and legally binding agreement between two or more parties. There are several types of construction contracts, each with their own advantages and disadvantages: 1) Measurement contracts pay the contractor based on actual quantities measured. This reduces design costs but delays payments and increases client risk. 2) Lump-sum contracts set a fixed total price upfront but provide little flexibility for design changes without additional costs. 3) Cost-plus contracts reimburse expenses with an additional fixed fee, lowering costs but providing less incentive for efficiency. 4) Turnkey contracts make the contractor responsible for both design and construction, reducing timelines but at a higher overall cost due to increased risk. 5) BO

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92 views11 pages

Contract

A contract is a voluntary and legally binding agreement between two or more parties. There are several types of construction contracts, each with their own advantages and disadvantages: 1) Measurement contracts pay the contractor based on actual quantities measured. This reduces design costs but delays payments and increases client risk. 2) Lump-sum contracts set a fixed total price upfront but provide little flexibility for design changes without additional costs. 3) Cost-plus contracts reimburse expenses with an additional fixed fee, lowering costs but providing less incentive for efficiency. 4) Turnkey contracts make the contractor responsible for both design and construction, reducing timelines but at a higher overall cost due to increased risk. 5) BO

Uploaded by

riyq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CONTRACT

• A contract is a voluntary arrangement between two or more parties that is enforceable by


law as a binding legal agreement.
• Contract is a branch of the law of obligations in jurisdictions of the civil law tradition.

• Contract shall be executed and signed on a stamp paper of appropriate value.

• In case of dispute unstamped contract papers cannot be admitted before an arbitrator or a


court of law.
• Contract should follow INDIAN CONTRACT ACT 1872 to regulate the agreements or
undertakings in business.
AIM OF CONTRACT
• To complete work given to construction company
- without any complication
- within specified time
- within specified cost
- conforming to specified quality
- without loss of harmony between key participants.
• Owner desires
- Best value for money spent
• Contractor wants
- Maximum rate of return on investment
• Common objective
- Completion of Work
MEASUREMENT CONTRACT

1. Measurement Contract
• Item rate
- Owner quotes quantity and unit
- Tenderer- rate for each item
- Payment based on actual measurement
• Percentage contract
- The client’s department draws up the schedule of items according to the
description
- Items sanctioned in the estimate with
quantities
- Rates, units and amounts shown therein.
Advantages Disadvantages

• Works can start after finalizing the • Can not predict the final value of the
initial design and BOQ. project.
• Can reduce the design cost. • Delays in contractor’s payments
• High possibility to do value engineering. (assessment of the measurements takes
time)
• Client’s risk is comparatively high
• Prices (unit rates) will be competitive
• Controlling and reporting will be a
• Contractor’s risk is comparatively low
difficult task
• A high number of consultant team may
require for handling the project (Ex: for
remeasuring)
LUMP – SUM CONTRACT
2. Lump – sum contract
- A lump sum contract may be entered into for
procuring a construction work such as ground
water pipeline installation, the quantities of
which are difficult to measure or a construction
work such as superstructure of a bridge, the
quantities of which can be measured.
- cost of entire work quoted based on scope of work, planning,
designing, working drawings all drawings, specifications
frozen before inviting tender—
- owners knows total cost of work in beginning,
- no change in scope can be made,
- if made additional payment made
Advantages Disadvantages

- The final price is known, by the owner, - Changes in drawings and


before the work commences. specifications can be very
expensive and source of trouble.
- The contractor has more incentive to - In other words the contract has very
reduce his cost to increase the profit. Limited flexibility for design changes.
- The contractor hopes to complete - The contractor carries much of the risk
the job as quickly as possible, to the tendered price may include high risk
minimize overhead, to maximize profit and to contingency.
move to the next Job.
COST PLUS FEE CONTRACT

- It is a specific type of contract  where in the


contractor paid for the normal expenses for a,
project plus an additional fixed fee for their
services.
- Allow the contractor to collect a profit
on the project, and they encourage
economic production in various industries. 
 - The expenses in a cost-plus fixed fee
are calculated according to market values.
- Cost-plus fee contracts are sometimes
referred to as CPFF contracts, cost-plus contracts,
cost-reimbursement contracts, and cost + fixed fee
contracts.
Advantages Disadvantages
- The final cost may be lower than in a - The final, overall cost may not be very clear
normal contract, as the contractor usually the beginning of negotiations
will not “inflate” prices to cover risks

- The contractor also has less incentive to - May require additional


control the project costs  administration or oversight of the
project to ensure that the contractor
is factoring in  the various cost
factors
- They can often ensure higher-quality - May be less incentive to complete
output than normal contracts the project in an efficient manner,
compared with fixed-price contracts
TURNKEY CONTRACT

- A design and build contract may be entered for


procuring the design and build of any construction from
the same entrepreneur.
- In a design/build contract, the owner enters into a
single agreement by which the design and build
contractor agrees to perform both the design and
construction of the project.
- The work set forth in this contract shall commence only
after the public entity has through its technician or
group of technicians examined and approved the design
of construction work.
- As well as being responsible for faulty workmanship in
construction, the contractor is also liable for any
deficiencies in design under this arrangement.
Advantages Disadvantages

- Reduced total time during the contractual - A higher cost is assumed due to the higher
process by having just one process instead of risk that comes with total responsibility,
two separate ones. This does not necessarily there is less information to prepare
imply less construction time. proposals and therefore bidders assume
more risks.
- A seemingly “lower cost” when integrating - The typical way to counter the increased
“all” the elements under one provider. risk is by increasing the price.

- The peace of mind the owner gets when it


hands over full responsibility of the project
to “only one contractor”, it is much easier
for the owner to manage and communicate
with one provider, which means “one neck
to choke”.
BOOT CONTRACT

A private-public partnership (P3) project model


where private organizations conduct large
development projects under contract to public
sector partners such as governmental agencies.

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