Different Types of Contracts

Different Types of Building Contracts Used for Construction Projects

The types of building contracts that are commonly used are listed below:

Traditional Tender System

Contract Tenders on a common basis (drawings, specifications, schedule of quantities) are called from Contractors on a “selected basis” (restricted in number usually 4 or 6) or “open” basis (unrestricted in number). This may take the form of Competitive Public Bid or tender.Generally used for government projects or heavily regulated industries, such as utilities. Careful coordination with the client’s tender call and receipt procedures is required. Bids are solicited from all qualified general contractors. Public tender requires very careful planning and documentation and should never be used on an accelerated project. Documentation will not only require drawings but a full schedule of works prepared by a quantity surveyor acting on the clients behalf. With Public money everything is open to public scrutiny and audit. Therefore the most accurate of records must be maintained of the scope of work cost and release of moneys.

Competitive Bid – Preselected General Contractors

Frequently used by private industry clients in a competitive market. General contractors are preselected by the client or in conjunction with the company based on ability to perform the work and properly staff the job. Depending on the size of the project (in the writers opinion always over $1000,000) the use of a quantity surveyor to prepare a schedule to be priced upon is a useful tool and safeguard for the moneys of the contract.

Schedule of Rates Contract

Tenders are called on a known basis (drawings, specifications and schedule of rates) from one or more contractors. After a contract is let and the exact extent of work is confirmed final quantities of the work are confirmed and valued using the schedule of rates.

Negotiated Contact – Selected Basis

Tenders on a common basis (drawing and specifications) are called from Contractors on a “selected basis” (restricted in number usually 4 or 6) for stated portions of work, usually:-
a. Preliminaries and General, percentage or Lump Sum.
b. Margins, percentage or Lump Sum.
c. Labor charge and rates per hour.
d. Margin percentage on materials at cost.
e. Margin percentage on subcontractors at cost.

Negotiated Contract

A tender on a known basis (drawings, specifications and schedule of quantities) is called from one selected contractor for stated portions of the work, usually:-
a. Preliminaries and General, percentage or Lump Sum.
b. Margins, percentage or Lump Sum.
c. Labor charge and rates per hour.
d. Margin percentage on materials at cost.e. Margin percentage on subcontractors at cost.

Design and Build Contract

A contractor is selected and invited to submit an offer on an extent of work approved by the Owner and confirmed by drawings and specifications normally at the cost of the Contractor including designers fees, engineers fees, quantity surveyors fees etc.

Lump Sum Contract

This is when the contractor carries out the work described in the contract documents and fulfill the obligations outlined within the documents. The documents may and usually do include a set of working drawings, a specification, finishes schedules and in the case of larger contracts, a schedule of quantities.

Management Contract

Tenders are called by a Project Manager from contractors, subcontractors and material suppliers for trades and elements for the work on a known basis (drawings, specifications and schedule of quantities).

Cost Reimbursement Contract

A tender on a known basis (drawings and specifications) is called from one selected contractor for the following:-
a. Fixed fee plus labor, materials and subcontractors at cost.
b. Fixed percentage on labor, materials and subcontractors at cost.

Gross Maximum Price Contract

This is when the general scope of work is defined with as much accuracy as is practical (usually because of time constraints). The main contractor gives a gross maximum price and then the construction is started with finishing details delivered as the project proceeds. The contractors are to present their costs with the agreed margin alongside the agreed budget or gross maximum price. If the cost is greater than the budget then it is identified and agreed by the principal or if the cost is less than the agreed budget then the saving is passed on to the principal.
We use different types of contracts for either personal reasons such as the relationship that the owner may already have (or not have) with the contractor and the market conditions.

Note that in all contracts and design services it is paramount that professional indemnity insurance is obtained. The majority of all litigation directed at designers and architects is to do with money and cost overruns. Using  a quantity surveyors services to control cost is easily incorporated into the overall fee established at the outset of the project. If the client doesn’t wish to use a quantity surveyor then it is appropriate that he signs a disclaimer, to be prepared by your lawyer or solicitor, indemnifying you and your company against claims to do with cost overruns unless you specifically have qualifications and experience in this area of expertise to provide those services and have professional indemnity insurance to specifically cover this field. You must take legal advice on this and professional advice from your insurance broker.

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