ECM578

CONTRACT
ADMINISTRATION
CHAPTER 3: TYPES OF
CONSTRUCTION CONTRACT
WEEK 3 & 4
LEARNING OUTCOMES (CO1-PO2)

• Understand the Building Construction Contracts Type

• Understand the Common Contract Procurement Methods
• Identify the Construction Project/ Contract Participants
• Understand the Standard Forms of Contract
• Identify the Factors in Considering Type of Contract

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3.1
UNDERSTAND THE BUILDING
CONSTRUCTION CONTRACTS TYPE
 There are three main types of construction
contract, identified according to the mechanism
for calculating the sum due to be paid by the
client:
1. lump sum contracts
2. measurement contracts
3. cost-reimbursement contracts

BUILDING The different types vary primarily with regard

to:
CONSTRUCTION 4. who takes the risks involved
5. which party has to pay for the cost over
CONTRACT TYPES runs
6. which party can keep the savings if the
project costs are less than the estimated
costs.
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LUMP SUM
A)LUMP SUM WITH PLAN AND SPECIFICATION
B)LUMP SUM WITH BILLS OF QUANTITIES
a)Lump sum with plan and
• the price to be paid is fixed
specification
• scope of work indicated on drawings
• quality of material and workmanship
described in a specification
• no bill of quantities is provided
• total cost of the project is fixed
• no additional variation or omission

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 In lump sum contracts based on bill of quantities,
the contractor undertakes to carry out the work in
accordance with the drawings, specification and
as described in the bill of quantities for a lump
sum.
b)Lump sum with bills of This type of contract is suitable for the following
quantities
circumstances:-
1. The nature of this form of contract requires a
full comprehensive design from the Engineer
and requires the variations and additional
information be kept to a minimum.
2. In cases where early start of work is desired or
where the extent of work is uncertain or
substantial variations are expected, the use of
bills of quantities is restricted.
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LUMP-SUM Lorem ipsum dolor sit amet, consectetuer adipiscing elit.
CONTRACT Maecenas porttitor congue massa. Fusce posuere, magna
sed pulvinar ultricies, purus lectus malesuada libero, sit
BOQ
LUMP-SUM CONTRACT/
FIXED PRICE CONTRACT

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MEASUREMENT CONTRACTS
A) BILL OF QUANTITIES CONTRACT
B) SCHEDULE OF RATE CONTRACT
 The contract is helpful for several tasks that
quantities cannot determine in the initial stage as
we mentioned in the lump sum contracts, the
procurement process to perform the work mainly
based on the client’s requirements.

Such requirements may consist of the budget,

quality, and time frame.

MEASUREMENT
Measurable contracts are necessary;
CONTRACT 1. The client does not have a tight budget.
2. The client wants to improve and change the
design and the finishes at a later stage.
3. The client wants to start works immediately
based on competitive unit rates.
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 Therefore, based on the above requirement, the
project management team (consultants) should
prepare a preliminary design and approximate
BOQ to start work immediately.

The team will choose the appropriate contractor

after comparing the unit rates of each contractor.

MEASUREMENT
CONTRACT

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 • bill of quantities is provided
• contractor enter a unit rate against
each item of work
• total cost of the project is uncertainty
• consider additional variation or
omission
a) Bill of quantities contract • most commonly used in civil
engineering work
• bill of quantities is to be read in
conjunction with drawing
• quality of material and workmanship
described in a specification

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ITEM-RATE
& UNIT
PRICE
CONTRACT
BOQ
 • client cannot determine his requirements in
advance
• client may supply a schedule of unit rates
covering each item of work
• contractor may ask to state a percentage of the
given rate for each item of work
b) Schedule of rate contract • contractor may be requested to insert prices
against each item of work
• sometime approximate quantities are included
to assist contractor in pricing
• suitable for maintenance because impossible to
give a realistic and accurate quantities
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PERCENTAG Lorem ipsum dolor sit amet, consectetuer adipiscing elit.
E RATE Maecenas porttitor congue massa. Fusce posuere, magna
sed pulvinar ultricies, purus lectus malesuada libero, sit
CONTRACT
COST REIMBURSEMENT CONTRACTS
A) COST PLUS FIXED FEE
B) COST PLUS PERCENTAGE
C) COST PLUS FLUCTUATING FEE
D) TARGET COST
 A cost reimbursement contract is an
agreement between parties in a
construction project that guarantees the
client reimburses the contractor for
costs incurred while they work on the
project.

COST a) Cost plus fixed fee

REIMBURSEMENT b) Cost plus percentage
c) Cost plus fluctuating fee
CONTRACT d) Target Cost

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A) COST PLUS FIXED FEE
• The sum paid to the contractor will be the actual cost incurred in the
execution of the work plus a fixed lump sum which has been previously
agreed.
• No incentive to the contractor if the work can be completed early.

Project Cost Fixed Fee Total Paid

2,000,000.00 200,000.00 2,200,000.00
5,000,000.00 200,000.00 5,200,000.00

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B) COST PLUS PERCENTAGE
• The contractor is paid the actual cost of the work plus an agreed percentage
to cover overhead, profit etc.
• Useful in an emergency work because insufficient time to prepare a detailed
document tender or drawing before work is commenced.
• No incentive for the contractor if the can be completed early.

Project Cost % of cost (say 10%) Total Paid

2,000,000.00 200,000.00 2,200,000.00
5,000,000.00 500,000.00 5,500,000.00
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C) COST PLUS FLUCTUATING FEE
• The contractor is paid by the owner the actual cost of construction plus an
amount of fee according to the increase or the decrease of the estimated
cost agreed by both parties.

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D) TARGET COST
• To encourage the contractor to execute the work as cheaply as possible.
• A basic fee is quoted as a percentage of an agreed target estimate obtained
from a priced bill of quantities.
• The target estimate may be adjusted for variation in quantity and design and
fluctuations in the cost of labor and material, etc.
• The actual fee paid to the contractor is arrive by increasing or reducing the
basic fee by an agreed percentage of the saving or excess between the actual
cost and the adjustment target estimate.
• In some cases, a bonus or penalty based on the time of completion may be
applied.

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COST + TARGET COST
Cost + Target Contract Example 1 Example 2
Agreed Target Estimate 5,000,000.00 5,000,000.00
Actual Cost 4,500,000.00 5,500,000.00
Saving 500,000.00
Excess 500,000.00
Sharing ratio (50:50) 250,000.00 250,000.00
Payable to the Contractor 4,750,000.00 5,250,000.00
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3.2
COMMON CONTRACT PROCUREMENT
METHODS
TRADITIONAL PROCUREMENT
TRADITIONAL PROCUREMENT
OWNER

RM
Completed project
design fee

Contract $
documents Bid price

DESIGNER CONTRACTOR

$ Completed
Consultant fees trade work

INFORMAL RELATIONSHIP
Design $
documents Sub-bid price

DESIGN SUBCONTRACTORS
CONSULTANT & SUPPLIERS

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 • In this arrangement, the owner first hires
a design professional, who then prepares
a design, including complete contract
documents.

Traditional /Design-Bid-Build • With a complete set of documents

system available, the owner either conducts a
competitive bid opening to obtain the
lowest price from contractors to do the
work or negotiates with a specific
contractor.

• The contractor is then responsible for

delivering the completed project in
accordance to the contract documents.
The contractor may choose to
subcontract much of the work or may
have the forces in house to accomplish
27 the task.
 • Involves three roles in the project
delivery process – owner, consultant
(architect, engineers, QS etc) and builder
(contractor) in traditionally separate
Traditional /Design-Bid-Build system contracts
• Traditional involves competitive bid,
lump sum construction contracts that are
based on complete and prescriptive
contract documents prepared by architect
and engineers

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 • The owner contracts with an architect for design;
uses the design documents produced by the
architect to secure competitive bid, contracts with
Traditional /Design-Bid-Build system a contractor for construction of the building

• Competitive bidding among general contractors,

performance bonds and employment of various
other statutory requirements to protect the owner

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 Traditional method:
• Procedures and contractual rules of conduct
have been worked out and are well
understood and reduces their level of risk.

• Contractual protection for the owner.

Contractors take the responsibilities.

• Owner is insulated from many of the risks of

ADVANTAGES cost overruns, such as labour inefficiencies,
nonperforming subs, inflation, and other
vagaries.

• Open market competition.

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 Traditional Procurement :

• Construction professional does not enter

process until the design is complete. Not
usually reviewed for constructability.

• Difficult to reduce the time required to do

DISADVANTAGES
both design and construction.

• All parties work as an individual. Provides

little opportunity for interaction and team
building among the participants.

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DESIGN & BUILD METHOD
DESIGN & BUILD METHOD
OWNER

$ Completed
Project cost project

DESIGN & BUILD

FIRM
$ Completed
Consultation fees trade work

Design
documents

$
Bid price
Design Subcon. &
consultant suppliers
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 • Design & build method provides a single point of
contact and responsibility throughout the life of
the project (see figure above). The firm hired by
the owner will perform both design and
construction.

Design & Build Method • Entities offering this service may be design &
build firms with in-house employees or joint-
venture firms that come together contractually to
perform a single project.

• In either case, the design/build entity can hire

subcontractors who perform the actual
construction in the field.

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 Design & Build Procurement :
• Good communication that can
occur between the design team
and the construction team.

• Collaboration allows the project to

be easily fast tracked, cutting
down on overall schedule for the
project.

ADVANTAGES • Allows easier incorporation of

changes due to scope or
unforeseen conditions.

• Owner is less heavily involved.

• Full responsibility on the

design/build team.
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 Design & Build Method:

• Price can’t be given before

project begins.

• The firm is hired before the

design has started, any real
DISADVANTAGES pricing is not possible.
Conceptual budget.

• Lack of checks and balances

because the designer works for
the same company as the builder.

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CONSTRUCTION MANAGEMENT
CONSTRUCTION MANAGEMENT

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 • Involve a construction manager who takes on the
risk of building a project and the architect,
engineers etc are hired under a separate contract

• The construction manager oversees project

management and building technology issues, in
which he/she has the particular background and
expertise
Construction Management

• Construction management services may include

advice on the time and cost consequences of
design and construction decisions, scheduling, cost
control, coordination of construction contract
negotiations and awards, timely purchasing of
critical materials and long-lead-time item and
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coordination of construction activities
 Construction Management:

• As design for each work package is

completed, work can begin

• Quality can be assured by the high level

of supervision by the project manager
ADVANTAGES • Suits complex projects where the design
can be developed in stages

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 Construction Management:

• No commitment on price uncertainty

• Total cost of project is not usually known
until the project is well under way
• The client takes all risk

DISADVANTAGES

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 • Build, operate & transfer (BOT)
Other type of procurement methods • Fast tracking
• Partnering (PFI)
• Etc.

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 • A form of project delivery method

• Usually for large-scale

infrastructure projects

• Wherein a private entity receives

a concession from the public
BUILD-OPERATE- sector to finance, design,
construct, own, and operate a
TRANSFER (BOT) facility stated in the concession
contract

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 • Fast-track construction is a scheduling technique
that can be used to reduce the overall duration of
projects

• It is done by overlapping tasks that on a

traditional contract would not be commenced
until the previous task was completed.

• The greatest time saving is often achieved by

overlapping the design and construction phases.
FAST TRACKING• Fast-track construction is typically suited to
standard building types with repetitive elements
and straight-forward construction processes.

• Most commonly associated with management

contracting and construction management forms
of contacting
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 • A private finance initiative is a way for the public sector to
finance big public works projects through the private
sector.
• PFIs take the burden off governments and taxpayers in
terms of raising capital for the projects.
• Governments repay private firms over the long term, and
the payments include interest.
• PFIs are used primarily in the United Kingdom and in
Australia. In the United States, PFIs are also called public-
private partnerships.
PARTNERING/• Examples of the project are:
1. infrastructure projects that benefit the public sector
PRIVATE FINANCE
2. these include highways and roadways, transport projects
INITIATIVE (PFI)such as railroads, airports, bridges, and tunnels
3. private sector firms may also be contracted to construct
water and wastewater facilities, prisons, public schools,
arenas, and sports facilities
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3.3
CONSTRUCTION PROJECT/ CONTRACT
PARTICIPANTS
 - Public Sector
- Private sector - Project Management Consultant
- Partner
CONSTRUCTION PROJECT/ - Architect
- Engineers: Civil, Structure, M&E
CLIENT / OWNER - Quantity Surveyor
CONTRACT PARTICIPANTS - Federal
- Land Surveyor
- Interior Designer
- State - Landscape Architect
- Local - Other Specialist

AUTHORITIES CONSULTANT

FINANCIER

- Bank
- Financial Company
- Credit Corporation
- Leasing Company

SUPPLIER CONTRACTOR

- Nominated Supplier - Main Contractor

- Manufacturer - Nominated Sub-contractor
- Importer
- Distributor

MANPOWER

- Technologist
- Technician
- Skilled Worker
47 - Semi Skilled Worker
- Unskilled Worker
 The Owners within the construction industry
could be from public sector as well as private
organizations and may include:
1. Federal government.
2. Provincial, cities, and municipalities
government departments.
3. Nationalized departments (autonomous
bodies) like airports, hospitals, large
industries, etc.
CLIENT/ 4. Private sector: it includes all those
EMPLOYER organizations that are not directly funded
by some form of government money
supply. The owner of a private sector may
be a house owner, a builder, or
multinational company.
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 1. Identify needs.
2. Set out the parameters that define the project.
3. Establish reasonable goals for the project.
4. Arrange adequate funds.
5. Select appropriate consultants and appoint authorized
representatives.
6. Develop and understand reasonable expectations for the
Main responsibilities project, its goals, and the parties involved in design and
construction.
of Client 7. Negotiate the procurement package.
8. Arrange timely possession of site to the General Contractor.
9. Develop the understanding of responsibilities of the parties and
their risks and providing authority to manage them.
10. Provide timely responses to the Consultant’s submissions.
11. Provide timely responses to the Contractor’s submittals, request
for information, proposed changes, and claims forwarded by
Consultant.
12. Issue timely progress payments.
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 • The Consultant in the context of a
construction project means a
consulting firm, the Consultant’s
authorized representative.
• The Consultant may be an
architectural firm or an
engineering firm or a sole
CONSULTANT proprietorship firm that is
legally engaged/licensed in
rendering professional services.

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 Services provided by the Consultant as part of the
preconstruction phase include:
1. Determining the feasibility of constructing a
project.
2. Preparing preliminary budget and cost estimates.
3. Undertake conceptual, preliminary, and detailed
design including site investigations.
Main responsibilities of Consultant 4. Developing and evaluating alternatives with
(preconstruction)
respect to design, location, and types of
construction.
5. Preparing an environmental assessment and
impact studies.
6. Assisting in obtaining approvals of authorities
having jurisdiction over the project.
7. Preparation of Contract Documents.
8. Preparation of bid documents and contract
formation.
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 The services under this role of construction phases :
1. Direct and manage project execution.
2. Responding, advising, and consulting with the Owner
during construction.
3. To ensure Contractor submits required insurance policies
and performance bond prior to start work.
4. To issue information and instructions to the Contractor as
Main responsibilities of Consultant the work proceeds.
(construction)
5. To ensure that the work carried out conforms to the
drawings and specifications, meeting with the required
quality standards.
6. To watch for faulty workmanship or material incorporated
in the work and issue instructions for remedial measures.
7. To monitor Contractor cost, schedule, and technical
performance.
8. To ensure that the Contractor complies with all applicable
safety regulations.
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 The services under this role of construction and preconstruction
phases :
9. To liaise between Contractors and other authorities and
organizations for the smooth completion of the project.
10. To verify the measurements of the work done by the
Contractor and evaluate and certify contractor’s applications
for payment.
Main responsibilities of Consultant 11. To review and approve Contractor’s submittals such as
work programs, shop drawings, product data and samples,
etc.
12. Arrange monthly meetings to keep the owner well informed
about the construction matters and to resolve Contractor’s
issues and other related site and work progress problems.
13. To prepare notices of change and change orders.
14. To review and evaluate Contractor’s claims with respect to
changes in contract sum or contract time and recommend to
Owner.
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 The services under this role of construction and preconstruction
phases :
15. To act as a channel for all claims and disputes between the
Owner and Contractor and provide record and facts relevant
Main responsibilities of Consultant
to that.
16. To ensure that all records like files, tender drawings,
construction drawings, and any superseded drawings are
maintained properly.
17. To review of an application for substantial performance of
work noting defects and deficiencies observed in the work.

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 • The Contractor, who is responsible for
constructing the entire project, is
referred to as the “main,” “prime,” or
“general” Contractor.
• Contractors may also function as a
subcontractor or specialty Contractor,
in which case will have responsibility
CONTRACTOR for only a limited aspect of the project.
• All contractors will agree to do
awarded work within a stipulated time
period and for an agreed amount of
money.

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 The services under this role of construction and preconstruction
phases :
1. Supply and provide labor, material, and equipment as
necessary to perform the works within the contract period.
Main responsibilities of Contractor 2. Provide competent, experienced management and
supervision for performance of the work.
3. Comply with all statutory laws and regulations during
execution of the works and ensure that all who are
employed on the site abide by these conditions.
4. Select and provide the means, methods, techniques,
sequences, and procedures of construction.

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 The services under this role of construction and preconstruction
phases :
5. Initiate, maintain, and supervise all safety precautions and
programs for all personnel on site and the general public
who may be affected by the works. In this regard, the
Contractor shall ensure that all personnel on site are
Main responsibilities of Contractor
adequately trained and observe safe working procedures.
6. Implementation of quality control systems for aspects of the
works as specified.
7. Schedule and coordinate the work with other groups like
suppliers, subcontractors, etc. working on site.
8. Warrant and guarantee that all work done will be in
accordance with the Contract Documents and will not be
defective.

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3.4
STANDARD FORMS OF CONTRACT
 • JKR/PWD
 203 (Rev. 1/2010) – without quantities
 203A (Rev. 1/2010) – with quantities
 203N (Rev. 1/2010) – for NSC
 203P (Rev. 1/2010) – for Nominated
a) Government/ Public Supplier
Sector  Form DB (Rev. 2010) – Design and
Build Contract

• Miscellaneous
 CIDB Forms for building contracts 2000
Edn
 Modified JKR/PWD Forms, eg:
59 MHA/LPK etc. Forms
 • Building Works
 PAM 2018 – with quantities (4th
edition)
 PAM 2018 – without quantities
 PAM NSC 2018 (PAM Sub-Contract
2018)
b) Private Sector
• Civil Engineering Works
 IEM Conditions (2017) (3rd edition)

• M & E Works
 IEM Conditions (2017) (3rd edition)
 TNB Conditions, etc.

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 • FIDIC Conditions
• ICE Conditions
• IEEE Conditions

c) International Contract

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ISSUES

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3.5
FACTORS IN CONSIDERING TYPE OF
CONTRACT
 a) Type of project
b) Size and complexity of project
c) Time constraints
d) Finance available
e) Employer’s/client requirements
f) Likelihood of changes in the employer’s
requirement
g) Amount of information available at contract
formation
h) Availability of accurate cost estimation
FACTORS IN i) Availability of supervision
j) Facilities available for measurement, valuation
CONSIDERING and accounting
k) External constraints e.g. labour shortage, site
TYPE OF constraints etc.
l) Quality of work required e.g. luxury apartments
CONTRACT or low costs houses etc.

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