Contractual

Arrangements
by

AHMAD ARZLEE HASSAN

Contents
 Procurement in Construction

 Procuring a Contract

 Types of Contractual Arrangements

 Fixed Prices

 Cost Reimbursement
Procuring Contract
Quotation

Tendering

Negotiation

Schedule of Rates
Procurement in Construction
Classification of Contractual
Arrangements
Also Known
as
Procurement
Methods
 • Overheads
• Material
• Attendances
• Labour
• Profits
• Plant &
• Other
Machineries
Preliminaries
• Work Related
Contractual Arrangement:
Fixed Price
Lump Sum
Bill of Quantities
 Based on Bills Document
 Bills prevail as main
document and reference
 Advantages? Disadvantages?
 Examples?
Dwg & Specs
 Based on Drawings and
Specs Document
 Main documents are D&S
 Advantages? Disadvantages?
 Examples?
Contract Based on Approximate
Bills of Quantities
Quantities are approximate by the time of tendering

Remeasurement upon completion

Example: NEC 3 Forms

Even design are not final by the time of tender

Suitable for overlapping of construction and design

procurement.
Advantages? Disadvantages?

Examples
Contract Based on Schedule of
Rates
Contractor insert prices againts the item scheduled

An estimate is produced, with percentage adjustment (a

plus or minus) to the rates
Contractor only paid actual amount of work carried out at
the rates contained in the schedule
Total cost of project is not known until the entire work is
completed
Common in engineering, maintenance and repair works

Advantages? Disadvantages?
 Principle of Cost Plus

PRIME
COST
(PC)

• Consists of Work • Covers Overheads and

related expenses Management Costs/Fees
• Material, Plant, • Includes Profits for Main
Machineries and Contractor
Labour
• Excluding all • Becomes the Contract Price
overheads and • Maybe Final Contract Price or
Main Contractor’s Estimated/ Approximate depending
profits
on Type of Arrangements
Types of Cost Reimbursement
Plan
 PLUS ITEM
CONTRACT % OR FIXED FEES
AMOUNT

COST
COST PLUS
C+ a fixed fees C+ a percentage
 Actual Cost Incurred +  Actual Cost Incurred + % of
Fixed Lump Sum Fees the Actual Cost

 Fees constant even when  Profits relative to increase

cost vary or decrease of cost

 Incentive for the contractor  No incentive for the

to finish quickly and contractor to make good
decrease cost, to gain progress but provide better
higher profit margin security and lower risk.
Cost Plus a Fluctuating Fees
Actual Cost + Fees (+/- sliding scale ; % or sum)

Similar to fixed fee. An estimate is made of the total

cost
Amount of fee received by the contractor varies
inversely to the costs actually achieved through a sliding
scale
Target Cost Contract
Offer incentives for the contractor to complete within
or below cost & time
Preliminary target is estimated and set.

Upon completion, if there is any savings (difference

between actual prime cost and target), will be shared
between the client and contractor through an agreed
arrangement
Exceeding the target cost will result to the contractor
burdening the extra expenses.
C+ with Guaranteed Maximum
Price (GMP)
Protects clients against any exceeding of budget, while
encouraging contractor for saving, fast completion and
acceptable quality, to gain better profit margin
No extra claims (VO, Loss and expense for Extension of
Time, etc. additional contingencies expenses)
Contractor will borne all extra expenses if cost goes
beyond budgeted amount
Common in Design and build arrangement and fast track
contracts