CONTRACT

TYPE OF CONTRACTS

BY MADAM NUR HAZLINA LAMLI

 TYPES OF CONTRACT

LUMP SUM CONTRACT

TURNKEY CONTRACT

COST REIMBURSEMENT CONTRACT

MEASURE AND VALUE CONTRACT

DESIGN & BUILD CONTRACT

PUBLIC AND PARTNERSHIP CONTRACT

 LUMP SUM CONTRACT
Based on Drawings & Specifications.

Based on Drawings & BQ

Based on Drawings & Schedule of Rates

 LUMP SUM CONTRACT
• A contract that means a subcontractor has agreed to a lump sum price to
carry out specified works.
• In a lump sum contract, the owner has essentially assigned all the risk to
the contractor, who in turn can be expected to ask for a higher mark-up in
order to take care of unforeseen contingencies.
• A supplier being contracted under a lump sum contract will be responsible
for the proper job execution and will provide its own means and methods
to complete the work.
• This types of contract usually is developed by estimating labour cost,
material costs, and adding a specific amount that will cover contractor’s
overhead and profit margin.
 When to use it?
• Used if the requested work is well-defined and construction drawings are completed.
• The lump sum agreement will reduce owner risks, and the contractor has greater control over
profit expectations.
• It is also a preferred choice when stable soil conditions, complete pre-construction studies and
assessments are completed and the contractor has analysed those documents.
• The stipulated sum contract might contain, when agreed-upon parties, certain unit prices for
items with indefinite quantities and allowance to cover any unexpected condition.
• The time to award this type of contract is also longer; however, it will minimize change orders
during construction.
ADVANTAGES OF LUMP SUM CONTRACT
‘Fixed’ construction cost

Minimized change order

Accepted widely as contracting method

Low risk to owner

Owner Supervision is reduces

Building analysis and selection process is relatively easy

Contractor will maximize its production & performance

DISADVANTAGES OF LUMP SUM
CONTRACT
Higher risk to contractor

Changes are difficult to quantify

Owner might reject change order requests

Project need to be design completely

Construction progress could take longer

Higher contract prices that could cover unforeseen

conditions
 COST REIMBURSEMENT CONTRACT
• A cost reimbursement contract (sometimes called a cost plus contract), is one which the contractor is reimbursed
the actual costs they incur in carrying out the works, plus additional fee.

• Might be use where the nature or scope of the work to be carried out cannot be properly defined at the outset.

• Also use where the risk associated with the works are high such as, emergency work (for example urgent alteration
or repair work, or if there has been a building failure or a fire requiring immediate reconstruction or replacement of
a building so that the client can continue to operate their business). Tendering may proceed based on an outline
specification, any drawings and an estimate of cost.

• This is a high risk form of contracting for the client as the final cost is not known when the contract is entered into
(ie there is no contract sum).
 REIMBURSEMENT CONTRACT
• Also known as Cost Plus Contract.
• Can be divided into three parts:
 Prime cost money + fixed fee
 Prime cost money + percentage fee
 Prime cost money + targeted fee

The fees involved are the profit estimation and management overheads.

While the Prime Cost Money are the following costs:

1. Materials cost
2. Labour cost
3. Equipment or machinery and miscellaneous cost.

• Usually the management overheads and profit margin have been agreed on additional percentage upon
material, labour, and equipment cost.
• This type of management are suitable for undisclosed, complex, and shorter construction time projects.
 REIMBURSEMENT CONTRACT
• Experts consultant and contractor are required so the project can be completed
on time with the upmost construction quality and minimum cost.
• Targeted fees is an additional payment that has been agreed between the
contractor and Quantity Surveyor before any contract agreement being signed.
• Additional payment usually given to the contractor if the contractor can
completed the project earlier with the upmost quality.
• With this, client or owner hopes that the contractor will perform and completed
the job earlier or on time.
 Factors of Additional Payment
• Before any additional payment were agreed between both parties,
there are factors to be taken into consideration:
1. Value or estimated price
2. Bonus or penalty that need to be paid if the overhead are more or
less than the estimated value.
3. Workmanship quality for the sake of quality criteria for client
and contractor that emphasize on cost realization rather that
estimated price.
 MEASURE and VALUE CONTRACT
• This types of contract usually used for a large building and a building
with a secret location away from public knowledge.
Prisons

Financial institute
Data centre for defence, bank, government, etc.
• The problem with this type of contract is determining the exact price or
real cost especially during the preliminaries stage.
• Safety are the main factor to be taken care of because this is supposed to
be undisclosed from public.
 MEASURE and VALUE CONTRACT
• Construction were done accurately where as there will be no preparation of
drawings and material lists for the purpose of execution.
• Project offer was temporary or provisional.
• Payment were made only when the work has commence based on the
measurement and completed works.
• Sometimes there will be variation on contract;
Drawing, work determination and item rate schedule (payment made based
on the approved schedules)
Drawing, cost analysis and work determination (payment made based on the
other projects that have similar form and function.)
 TURNKEY HISTORY
Establishedand started to be widely used during 1983 with the establishment of
‘Turnkey Unit’.
This type of contract, are very different compared to the previous types ; item
rate, and lump sum.
InTurnkey Contract, client or owner give full responsibility to the contractor for
completing the project.
Usually used in big major project such as

Hospital Given to a consultant or contractor to be manage, design, and

Bridge conducting the project until completion on time, on budget, and
Dam meets the project and client requirement.
Eg: Penang Bridge, Teluk Intan General Hospital, Antah-Biwater
Highways
Turnkey factors:
TURNKEY CONCEPT
Employers are giving full
responsibility of completing the
contract to contractor.
The contractor is
entrusted to design,
construct, Here the whole risk is borne by the
commission, & contractor.
handover the
project to employer.
The employer will
make the lump-sum
payment to the
contractor at the
different stages of
work as per
agreement.
This type of
contract is useful Owner payment is then made at the
then the work has to completion (when the contractor turn
be completed at a over the “key”).
very short period.
ADVANTAGES DISADVANTAGES

Owner-trusting someone
Simplifies management else to deliver a quality
project

Client transact with single supplier Needs a lot of time,

for both design & execution of the
project materials

Less risk for owner Higher risk to contractorTURNK

EY
Easier for contractor to provide the
client with performance guarantee on
CONCE
completing the project and expected
performance PT
 DESIGN and BUILD CONTRACT
• Also referred as “package deal”
• Contractual arrangement whereby the Contractor offer to design & build the project for a sum
inclusive design and construction.
• Can be in a form of fixed price or cost reimbursement basis, competitive or nego, and incorporated
of management contracting system.
• The term design and build is defined as one contracting organisation takes sole responsibility,
normally on a lump sum fixed price basis, for bespoke design and construction of a client’s project.
• The contractor accepts responsibility for designing and building any type of building to meet the
client requirements.
• Under the design and build method, the main contractor contracts with the client to undertake
design and construction for a lump sum price and is usually subjected to a penalty/bonus clause for
the late/early delivery of the completed project.
DESIGN and BUILD CONTRACT
 ADVANTAGES

One contract that may include know-how

Minimum owner involvement

Used for fast-track projects in order to reduce time

Coordination between design and construction and easier in

implementing the changes
 DISADVANTAGES

Cost may not be known until end of the

construction

High risk to contractor and more cost to owner

Design-build company may reduce quality to

save cost
PUBLIC & PARTNERSHIP CONTRACT
ADVANTAGES OF PPP
Ensure the necessary investments into public sector and more effective public resources management

Ensure higher quality and timely provision of public services,

Mostly investment projects are implemented in due terms and do not impose unforeseen public sectors extra
expenditures.

A private entity is granted the opportunity to obtain a long-term remuneration.

Private sector expertise and experience are utilized in PPP projects implementation.

Appropriate PPP project risk allocation enables to reduce the risk management expenditure.

In many cases assets design under PPP agreements could be classified off the public sector balance sheet.
DISADVANTAGES OF PPP
 Infrastructure or services delivered could be more expensive
 PPP project public sector payments obligations postponed for the later periods can
negatively reflect future public sector fiscal indicators
 PPP service procurement procedure is longer and more costly in comparison with
traditional public procurement.
 PPP project agreements are long-term, complicated and comparatively inflexible
because of impossibility to envisage and evaluate all particular events that could
influence the future activity.