WEEK 3- COMMON TYPE OF

CONTRACT USED IN
CONSTRUCTION INDUSTRY

LEARNING OUTCOMES (CO1-PO4)

• Understand the type of contract used in Malaysia

• Understand the advantages of each contract

Types of contract
Lump sum contract

All-in Measurement Contract

contract

Type of Contract

Management
contract Cost-Reimbursement
contract
 the price to
be paid is fixed
scope of work
indicated on drawings
No additional
variation or omission

Lump sum Contract quality of material and

workmanship described
in a specification
total cost of
the project is fixed

no bill of quantities
is provided

This type useful when project work is not too large, can be precisely
described and few alteration occur during construction
LUMP SUM CONTRACT

• The price to be paid is fixed

• No bill of quantities is provided

• The contractor has more incentive to reduce his cost to increase the profit.

• Quality of material and workmanship described in a specification.

• For example, STA Bhd offer the contractor to do bridge painting work and pavement marking.
This project can use lump sump contract because the project is not to large and can be
described.

• 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 construction period.
a. Bill of quantities contract
• Bill of quantities is based on a detailed
bill of approximate quantities.
• Contractor enter a unit rate against
each item of work.
• Used for comparison of tenders and
also for evaluation of the amount due to
the contractor as construction
proceeds.
• 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
This type useful when detailed drawings and estimation
are prepared for reminder of the project work
b. Schedules of rates
Divided by two • client cannot determine his
types 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
and to insert prices against
for each item of work.
Measurement • sometime approximate
Contract quantities are included to
assist contractor in pricing.
• suitable for maintenance
because impossible to give a
realistic and accurate
quantities,
MEASUREMENT CONTRACT
• Used when the design or type of works can be described in reasonable detail but
not the amount.
• Allow an early start on site, before design is completed and allow changes to be
made.
• Two types: Bill of Quantity(BQ) Contract & Schedule of Rate.
• In BQ contract, contractor only enter a unit rate against each item of work, then
payment will based on the real work on site. For example : excavation work, where
the quantity of excavation is difficult to access until after the work have begun.
• In Schedule of rate, the list of work is already prepared based on client’s demand
but without specified quantities. Usually apply for maintenance or renovation
work of large size project. The construction period usually ranges between 2 to 3
years or as otherwise agreed.
• Risk : risk for client because total cost of work is not known.
 Cost-Reimbursement Contract

Target + cost contract Cost + percentage fee

Divided by three contract
types

Cost + fixed fee contract

This type useful for maintenance and emergency work

Target plus cost contract

• 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 BQ.

• 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.
Cost plus percentage contract

• 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.

Cost plus fixed fee contract

• 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.

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COST REIMBURSEMENT CONTRACT
• Divided into three types: Cost + percentage fee contract, Cost + fixed fee contract, Target + cost contract.
• Allowable and reasonable cost incurred by a contractor in the performance of a contract.
• The final cost will be determined when the contract is completed.
• A total cost estimate will determined before contract work commences to allow them to set budget for the
project.
• Only the actual cost of completing the contract are covered.
• Contractor did not receives any additional fee.
• Time, labor and materials are highly uncertain to perform the contract.
• Useful in emergency work because insufficient time to prepare a detailed document tender or drawing before
work is commenced.
• No incentive for the contractor if the project can be completed early.
• Tendering proceed based on outline specification, any previous drawing, and an estimates cost.
• Example : Interstate 5 Skagit River Bridge collapsed into the river. Several innovations led to the successful
handling of the emergency and the restoration of the Skagit River Bridge
 Advantages of Disadvantages of
management Management Contract management
contract contract

• Contractor expertise
available to design • Final cost of
team. The management contractor is usually a project not
• Construction can construction company and paid known at outset
commerce before predetermining fees and expenses to: as design
design is complete as • Participate in the project from the overlaps with
work let in package. outset construction.
• Useful where complex • Contribute construction expertise to • If management
contract require many design contractor does
design groups and • Manage the construction not have the
contractor- required
management of the The management contractor does not expertise he may
whole process is normally undertake any of the not be able to
controlled by the construction work, but lets specific contribute to the
management packages of work to other contractors design.
contractor/consultant. usually by competitive tender, and
• Time target more supervises their work.
easily met as later
packages of the work
can be adjusted. This type useful for big project which have a lot of works.
MANAGEMENT CONTRACT

• Project management contractor (PMC) is generally appointed by client at early design process as an
principal.

• PMC is paid predetermining fees and expense to participate in the project from the outset, contribute
construction expertise to design & manage the construction.(they control the whole process)

• Does not normally undertake any of the construction work but specific packages of work to other
contractors usually by competitive tender and supervises their work.

• Time target more easily met as later packages of the work can be adjusted but the final cost uncertainly
until the design complete.

• Useful for big project which have a lot of works.

• submit full details of
design , construction and
cost including maintenance
of the works for a limited
period.
• Minor work change
orders
• since performance
specifications are
provided to the owner
at the outset of
construction..
• suitable for turnkey
operation.
This type useful for a limited period project request
by the client through their engineer
• called as design and built
contract
• project scope is well
defined
• an owner may choose to
ask the contractor to
All in Contract take all the risks, both in
terms of actual project
cost and project time
• additional provision
• There may be or may not
• The owner and the be additional provisions to
contractor agree to a share any savings if any in
project cost guaranteed by the contract.
the contractor as
maximum
ALL IN CONTRACT

∙ Main contractor is appointed by client to do the design and construct

∙ The contractor can use their own in-house designers, consultant to complete the design

∙ Client can also choose their own contractor for specific work (Nominated-sub contractor)

∙ This contract is one of favoured by the Government for publicy-funded project

∙ This contract allow a fully integrated team to work together from the beginning.

∙ Example project: Mass Rapid Transit (MRT) & PLUS Expressway- (built operate and transfer)
PAST YEAR QUESTIONS

JUNE 2016

DECEMBER 2016
PAST YEAR QUESTIONS

JULY 2017

JUNE 2018

DECEMBER 2018
PAST YEAR QUESTIONS

JUNE 2019