TYPES OF CONSTRUCTION

CONTRACT
WEEK 2
LEARNING OUTCOMES (CO1-PO4)

• Understand the type of construction contract

• Understand the procurement methods

 Building Construction Contracts
Type
1)Lump Sum
a)Lump sum with plan and specification
• the price to be paid is fixed
• 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

b)Lump sum with bills of quantities

2)Measurement contracts
a) Bill of quantities contract
• 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
• 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

b)Schedule of rate contract

• 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.
• 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.
3)Cost Reimbursement Contracts
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.

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.

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.
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.
 Common Contract Procurement
Methods
1)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
 Traditional /Design-Bid-Build system

• In this arrangement, the owner first hires a design

professional, who then prepares a design, including
complete contract documents.

• With a complete set of documents 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 the task.
• Involves three roles in the project delivery
process – owner, consultant (architect,
engineers, QS etc) and builder (contractor) in
traditionally separate contracts
• Traditional involves competitive bid, lump sum
construction contracts that are based on
complete and prescriptive contract documents
prepared by architect and engineers
• The owner contracts with an architect for design;
uses the design documents produced by the
architect to secure competitive bid, contracts
with 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
Advantages:
• 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 cost

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

• Open market competition.

Disadvantages:
• Construction professional does not enter process until
the design is complete. Not usually reviewed for
constructability.

• Difficult to reduce the time required to do both design

and construction.

• All parties work as an individual. Provides little

opportunity for interaction and team building among the
participants.
 2)Design & Build Method

OWNER

$ Completed
Project cost project

DESIGN & BUILD

FIRM
$ Completed
Consultation fees trade work

Design
documents

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

• 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.
Advantages:
• 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.

• Allows easier incorporation of changes due to scope or

unforeseen conditions.

• Owner is less heavily involved.

• Full responsibility on the design/build team.

Disadvantages:
• Price can’t be given before project begins.

• The firm is hired before the design has started, any real
pricing is not possible. Conceptual budget.

• Lack of checks and balances because the designer

works for the same company as the builder.
 3) Construction Management
• 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 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 coordination of construction activities
• Advantages
1) As design for each work package is
completed, work can begin
2) Quality can be assured by the high level
of supervision by the project manager
3) Suits complex projects where the design
can be developed in stages
• Disadvantages
1) No commitment on price uncertainty
2) Total cost of project is not usually known
until the project is well under way
3) The client takes all risk
Other type of methods
• Build, operate & transfer (BOT)
• Fast tracking
• Partnering (PFI)
• Etc.
 - Public Sector
- Private sector - Project Management Consultant
- Partner
- Architect
- Engineers: Civil, Structure, M&E
CLIENT / OWNER - Quantity Surveyor
- Land Surveyor
- Federal - Interior Designer
- State - Landscape Architect
- Local - Other Specialist

AUTHORITIES CONSULTANT

Construction FINANCIER

Project /Contract - Bank

- Financial Company
- Credit Corporation

Participants
- Leasing Company

SUPPLIER CONTRACTOR

- Nominated Supplier - Main Contractor

- Manufacturer - Nominated Sub-contractor
- Importer
- Distributor

MANPOWER

- Technologist
- Technician
- Skilled Worker
- Semi Skilled Worker
- Unskilled Worker
 Standard Forms of Contract
Government/Public Sector

• JKR/PWD
+ 203 (Rev. 10/83) – without quantities
+ 203A (Rev. 10/83) – with quantities
+ 203N (Rev. 10/83) – for NSC
+ 203P – for NSC (Turnkey)

• Miscellaneous
+ CIDB Forms
+ MHA/LPK etc. Forms
Private Sector
• Building Works
+ PAM 98 – with quantities
+ PAM 98 – without quantities
+ PAM NSC 98
• Civil Engineering Works
+ IEM Conditions (1993)
• M & E Works
+ IEM Conditions (1993)
+ TNB Conditions, etc.
International contracts
• FIDIC conditions
• ICE conditions
• IEEE Conditions
Issues…
 Factors to be considered when
deciding which type of contract to be
used
• Type of project
• Size and complexity of project
• Time constraints
• Finance available
• Employer’s/client requirements
• Likelihood of changes in the employer’s
requirement
• Amount of information available at contract
formation
• Availability of accurate cost estimation
• Availability of supervision
• Facilities available for measurement,
valuation and accounting
• External constraints e.g. labour shortage,
site constraints etc.
• Quality of work required e.g. luxury
apartments or low costs houses etc.