Contract Options

The two standard form contracts that are being analysed are the stipulated
price contract and cost plus contract. There are benefits to each contract
depending on the situation and type of project. The better suited contract
would be the stipulated price contract for a turnkey project.
A turnkey contract is a design-build contract. Turnkey contract makes a
single contractor responsible for the quality design and completion of the
project and deliver to the owner a fully realized, fully functional and
commissioned facility. This allows the owner to also not have to worry about
the pressure of making design decisions and can leave the project under the
control of the contractor to get the job done and this minimizes the client's
ability to control project details.
Stipulated price contract also known as a lump sum contract is when the
contractor agrees to the specified amount before starting the project and
performs the scope. The contractor has to take responsibility for all the risks
of cost escalation in materials and labour, poor estimates and inefficient
means and methods of carrying out the work. The contract should agree to
lump sum contract if there is a well-defined scope or construction
projects where the risk of different site conditions is minimal. Then if the
design is buildable and followed, the contractor will get paid the agreed upon
amount, which is subject to extras.
The reason a stipulated contract is better suited for a turnkey project is also
because the contract is easy to manage. Payments to the contractor are
based on the percentage of completed work. So the owner is making sure
the progress of the work is being completed up to standard and for the
agreed budget. Usually, the payment schedule is created by the contractor
and reviewed by the owner and architect during the course of construction.
This is to ensure that the contractor is being paid for the work done and not
being over or undercompensated.
Under GC 5.3.1 Progress Payments in the stipulated contract:
“ After receipt by the Consultant of an application for payment submitted by
the Contractor in accordance with GC 5.2 - APPLICATIONS FOR PROGRESS
PAYMENT: .1 the Consultant will promptly inform the Owner of the date of
receipt of the Contractor’s application for payment, .2 the Consultant will
issue to the Owner and copy to the Contractor, no later than 10 calendar

If the Consultant amends the application.3 .2.days after the receipt of the application for payment. or . a certificate for payment in the amount applied for. in the stipulated contract: .4.PAYMENT no later than 5 days after the date of a certificate for payment issued by the Consultant.2 The Owner shall make payment to the Contractor on account as provided in Article A-7 of the Agreement .1 Change Order. Use of a CCDC 3 document not containing a CCDC 3 copyright seal constitutes an infringement of copyright. additions or modifications are set forth in supplementary conditions. The owner has less flexibility to make changes and gives the contractor the most control over the design and completion of the project which is beneficial if the owner knows what he wants and not looking to pay for any surprises.” While under the same GC 5. or in such other amount as the Consultant determines to be properly due.1 Progress Payments in the cost plus contract: “The Consultant will issue to the Owner. The required deadlines and payment periods are different.receipt by the Consultant of the application for payment.APPLICATIONS FOR PROGRESS PAYMENT. If the Consultant amends the application.3 the Owner shall make payment to the Contractor on account as provided in Article A-5 of the Agreement . The owner can prevent some of the issues that may arise like making changes to the already agreed upon project. Under 6. This puts the responsibility on the contractor. Only sign this contract if the document cover page bears a CCDC 3 copyright seal to demonstrate that it is intended by the parties to be an accurate and unamend version of CCDC 3 – 1998 except to the extent that any alterations.the last day of the monthly payment period for which the application for payment is made. the Consultant will promptly notify the Contractor in writing giving reasons for the amendment. There are also disadvantages for a stipulated contract that are less likely to occur with a turnkey project. who should be responsible for any cost overruns that occur.” There are fundamental differences in the progress payments between both contracts. no later than 10 days after the receipt of an application for payment from the Contractor submitted in accordance with GC 5. the Consultant will promptly advise the Contractor in writing giving reasons for the amendment.PAYMENT on or before 20 calendar days after the later of: . a certificate for payment in the amount applied for or in such other amount as the Consultant determines to be properly due. CCDC 3 – 1998 19 Note: This contract is protected by copyright. . 5.3.

rather the contractor may opt for the cheapest suitable grade materials. and if the owner makes changes there is no guarantee the contractor will use specified material that owner requests. a method of adjustment or an amount of adjustment for the Guaranteed Maximum Price. the Consultant will provide the Contractor with a written description of the proposed change in the Work. Also. for the proposed change in the Work. The Contractor shall present. in the cost plus contract: “When a change in the Work is proposed or required. In a cost-plus contract. On the other hand the cost plus contract is tailored for a more experienced owner who has a good idea of the ins and outs of the construction industry. the adjustments will be made to the guaranteed maximum price which may already account for changes to occur over the course of the project. since the project has been agreed upon according to a certain plan.” While under the same 6. Before the project starts. if any. the changes may incur adjustments to the contract price which is already laid out before the start of the project. if any. a method of adjustment or an amount of adjustment for the Contract Price.1 Change Order. in a form acceptable to the Consultant. a method of adjustment or an amount of adjustment for the Contractor’s Fee.” Therefore under the stipulated contract. for the proposed change in the Work. and the adjustment in the Contract Time. the owner must specify the materials that the contractor is required to use during construction. This is why it is important for an owner to protect himself. he must work closely with the design team during the planning stages of the project to ensure that everything he wants is documented in the final plans. in a form acceptable to the Consultant.2. This will get the owner a bigger role in the design and construction process of the project. the owner and contractor decide on a fee – depending on the payment schedule can set for recurring dates or a fee based on a percentage of the cost of the work that the contractor will keep . While in the cost plus contract. if any. the Consultant shall provide a notice describing the proposed change in the Work to the Contractor.“When a change in the Work is proposed or required. The contractor doesn’t make a profit on any phase of the construction and the project is open book. and the adjustment in the Contract Time. The Contractor shall promptly present. if any. The contractor may demand a higher fee than expected for a change since he is not obligated to fulfill the changes if they are not in the agreed upon contract. the contractor is compensated by the owner for the actual cost of performing the work.

Cost-Plus (NYLJ. the owner and contractor would specify early on in the contract what is a reimbursable expense to the contractor and what is considered a cost to the owner. Retrieved 26 September 2016. from http://pnlawyers. It is important to have a well laid out contract as this will help prevent many problems in the future as the project is being completed. Pardalis &AMP. To avoid disagreements. as this type of contract can be used by a fraudulent contractor to take advantage of the owner. The owner can benefit from the cost plus contract if the owner is aware there will be changes to the plan and is keen on having a bigger role in the process of the project while also keeping aware of all expenses during each phase of the project. So the owner is paying for the actual ticket price of the cost of the project and an additional set fee for the contractor’s profit. I have yet to work in the construction industry. One of the contractors chosen to complete the work ended up claiming 150 “rain days” out of the 200 work days for the project. The disadvantage of a cost plus contract is that costs can rise quickly and the owner must verify many claimed costs. This will persuade the contractor to be as economical as possible and give an incentive to the contractor to stay at the schedule deadline. (2016). Since the contractor claimed 150 “rain days” under the contract. highways and other transportation infrastructures. when in fact.com/the-construction-contractlump-sum-vs-cost-plus-nylj-com/ . the contractor gets paid the same if it is a “rain day” as the regular work day but it takes into account that less amount of work is done due to rain. it only rained a few days out of the 200 work days.for profit and overhead. however a friend who graduated with me last year in civil engineering now works for a transportation engineering firm.com) | Pardalis and Nohavicka Attorneys. My friend’s boss vowed to never use the contractor again. Nohavicka Attorneys. and to warn all other firms and companies against the contractors’ practices. Reference: The Construction Contract: Lump Sum vs. The firm gets contracts from the government to design roads.