CONS 1011 – Construction

Methods and Equipment 1-

Lecture 4D- Types of
Construction Contracts
Presented by Farzan Mohammed
Types of Construction Contract Documents
At the early stages of any construction project, the owner
with his engineer or consultant prepares necessary
documents for the tender process, which will be included in
the contract. These documents are called contract
documents.
Types of Documents in A Construction Contract
 The different types of documents in a construction contract are
as follows-
1. General conditions
2. Special conditions
3. Drawings and specifications
4. B.O.Q (bill of quantity)
5. Letter of acceptance
6. Contractor bid
Conditions of a Construction Contract
The conditions of contract are terms that rule the relationships between the
owner and the contractor, define each party's rights and obligations, specify
the method of payment and determine actions required when existing any
disputes between the owner and the contractor.
1. General conditions of contract
2. Special conditions of contract
General Conditions of Contract
They are standard terms that suit the majority of projects; they include:

1. Definition of the project

2. Contract components
3. Rights and responsibilities for the owner and the contractor
4. Project schedule
5. Payment method
6. Warranty and delay penalty
Special Condition of Contract
They are the modifications required to suit the uniqueness of the
project, make the contract flexible for the nature of the project, and
achieve project objectives.
Selection of Type of Construction Contracts
One of the characteristics of construction projects is uniqueness. Every
project has its particular circumstances, so it's crucial to select the
contract type which suits the project. The owner develops the process
of selecting the type of contract.
Factors affecting the selection of construction
contract
1. Project objectives
The type of contract should meet with the project objectives.
2. Project constraints
There isn't any construction project without constraints. Thus, project
constraints should be considered while selecting the type of construction
contracts.
3. Project delivery method
The project delivery method determines the relationships between parties
getting involved in the project and how they interact with each other, from
project initiation to project closure.
Types of Construction Contracts
There are many types of contracts used in construction. Each type has its
advantages and disadvantages concerning the owner and the contractor.
They are categorized into two major groups as per the method of payment
to the contractor. The following are the types of construction contracts
generally used in construction projects:

1. Lump-sum contract
2. Unit price contract
3. Cost-plus contract
4. Target cost contract
Price Based Construction Contracts
1. Lump-Sum Construction Contract
In this type, the contractor bids a single fixed price for overall activities in
the project scope. The contractor is responsible for estimating project costs
from drawings then adds overhead and his profit to determine the value of
the project.
All risks are assigned to the contractor, and there isn't any risk carried by the
owner. The contractor has an incentive in this contract as he is rewarded for
an early finish, and there is a penalty for a late finish.
This contract is ideal when the project scope is well defined at the design
stage because there is limited flexibility for modifying the design during the
construction period.
Unit Price Construction Contract
The total price of the project in the unit price contract is based on the price
of each item's unit. The contractor is paid as per the rates of items specified
in the bill of quantity.

The risk is shared with the contractor and the owner. This type of contract
has more flexibility for design changes than the lump sum contract.

The construction of the project can be started before finishing the designs,
so the total cost of the project will be uncertain at the early stages of the
project.
Cost Based Construction Contracts
3. Cost Plus Construction Contract
The contractor is paid based on the actual cost of the project, including direct
and indirect costs, plus a specific fee. This fee could be a fixed fee or percentage
of costs.
All risks are assigned to the owner, and he gets involved with the contractor in
the management of the project. The contractor has no risk in case of increasing
the cost of the project; also, there isn't any incentive for an early finish.
This type of contract is ideal when the project scope is uncertain in the early
stages of the project. The contractor can start the execution of the project before
finishing the design. It is impossible to estimate the cost of the project before the
construction has been completed.
Cost Based Construction Contracts
4. Target Cost Construction Contract
Target cost contract has common features of the lump sum and cost-plus
contracts. The contractor is paid based on the actual costs plus a certain
fee either fixed or percentage of total cost in case of the cost of the
project doesn't exceed certain target cost specified by the owner.
There is a risk carried by the contractor in case of an increase in the cost of
construction projects. The contractor is also rewarded a percentage of any
savings between target and actual cost.
Comparison Between Different Types of Construction Contracts
FAQ Sheets
 1. What are the documents required in a construction contract?The different types of
documents required in a construction contract are as follows-
1. General conditions
2. Special conditions
3. Drawings and specifications
4. B.O.Q (bill of quantity)
5. Letter of acceptance
6. Contractor bid
FAQ Sheets
2. What are the common conditions of majority of projects?The standard conditions that
suit the majority of projects includes the following-
1. Definition of the project
2. Contract components
3. Rights and responsibilities for the owner and the contractor
4. Project schedule
5. Payment method
6. Warranty and delay penalty
FAQ Sheets
3. What is the role of Special Conditions of Contract ?They are the modifications required
to suit the uniqueness of the project, make the contract flexible for the nature of the
project, and achieve project objectives.
FAQ Sheets
4. What are the types of construction contracts used in construction projects?The
following are the types of construction contracts generally used in construction projects-
1. Lump-sum contract
2. Unit price contract
3. Cost-plus contract
4. Target cost contract
Construction Contract Documents
The required contract documents for any building work as per the National Building Code
(2006) are -
1. Contract drawings and specifications
2. Priced bill of quantities
3. Construction programme
4. Project quality management plan
5. Project health and safety plan
6. Conditions of contract
7. Risk insurance
Construction Drawings and Specifications
The contract drawings include the 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.
Specifications simply amplif the information given in the contract drawings and bill
of quantities. It describes in details the work to be executed under the contract
and the nature and quality of materials, components, and workmanship.
Priced Bill of Quantities
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
of a schedule of items of work to be carried out under the contract with
quantities entered against each item, prepared in accordance with the
Standard Method of Measurement of Building Works (Seeley and Winfield,
2005)
Construction Programme
This is a document that is prepared in order to provide the project participants a
thorough appreciation of the work involved, to allow the site production team to
sort out its main constituent and decide how, in what order and at what time to do
them, and to ensure adequate coordination of the labor, materials and machinery
requirements (Bamisile, 2004).
Project Quality Management Plan
The Project Quality Management Plan defines the various quality related
activities and procedures which will be implemented on the project. It sets
down requirements, gives guidelines, provides information and indicates to
appropriate personnel, the procedures to be followed with respect to the
Project Quality Management Plan. A sample outline of the Project Quality
Management Plan is referred to in the appendix.
Project Health and Safety Plan
The Project Health and Safety Plan is a document developed to secure the
health, safety and welfare of persons who will work or visit the site. It was
also developed to control the emission of toxic substances into the
atmosphere and control the keeping and use of substances that might be
hazardous to health. An outline of the Project Health and Safety Plan is
delineated in the appendix.
Conditions Of Contract
The conditions of contract define the terms, under which the work is to
be undertaken, the relationship between the client, architect and
contractor, the duties of the architect and contractors, and the terms of
payment. (Seeley and Winfield, 2005)
Risk Insurances
This is a contract document which shows that all the personnel and
equipment associated with a construction project have been
insured against loss or damage. By insurance, all the risks associated
with personnel and equipment in a construction project is
transferred to a third party.
Forms of Fidic Contract
FIDIC Stands for Fédération Internationale Des Ingénieurs-Conseils (International Federation of
Consulting Engineers) which has about 102 countries as members. The FIDIC forms of contract
have conditions suitable for use in all types of construction, electrical, mechanical and
domestic contracts.

In 1999, FIDIC published four new editions of forms of contracts :

1. Conditions of contract for construction
2. Conditions of contract for plant and design-build
3. Conditions of contract for EPC and Turnkey projects
4. Short form of Contract
Conditions of Contract for Construction
1. Conditions of Contract for Construction
The Contract for construction includes a set of conditions
recommended for building or engineering works where the owner
provides most of the design. However, the contract work may also
include some contractor-designed civil, mechanical or electrical
works.
These days many contractors design a significant portion of the
work on their own, so the conditions of contract for construction
includes more provisions which are applicable under such cases.
Conditions of Contract for Plant and Design-Build
2. Conditions of Contract for Plant and Design-Build
These contracts include a set of conditions suitable for the
provisions of electrical and/or mechanical plant and for design and
construction of buildings or engineering works. Under this contract,
the contractor designs and provides the plants and other works
which may include any combination of civil, mechanical, electrical
and/or construction works, as per the requirement of the employer.
This type of FIDIC contract is also suitable for design and
construction of building and engineering works. This contract
requires the appointment of an engineer to administer the contract.
3. Conditions of Contract for EPC or Turnkey Projects
EPC stands for engineering, procurement and construction. This contract is suitable
for turnkey projects such as power plants, process factory, infrastructure projects or
any developmental works. The projects under this type of contract have a higher
degree of certainty on project cost and time of completion.
The contractor has the responsibility of design and execution of the project
including the guarantees of the performance. The contractor carries out the
engineering, procurement and construction providing a fully equipped facility ready
for operation.
In this contract, the contractor has greater freedom to satisfy the requirements of
the end-user as specified in the conditions of the contract. This type of contract
seems more profitable to the contractor than the traditional form of contracts, and
thus, they are ready to accept the greater degree of risks.
Short Form of Contract
4. Short Form of Contract
Short form of contract is suitable for small construction works (i.e. small
capital value projects) of short duration or of relatively simple and
repetitive works. This contract is suitable for any type of engineering and
construction projects irrespective of who provides the engineering.
Depending on the type of work and circumstances, this type of contract
may also be suitable for contracts of higher values.
The contractor has to carry out the construction works as per the design
provided by the owner. This contract may also include contractor-
designed civil, mechanical, electrical and/or construction works.
References
1. www.theconstructor.org

2. Fidic Suite of Contracts