We advise/assist our clients at all stages of the construction contracts.
Construction contracts comprises of:
a. Mutual Agreement
1. Lump Sum 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 price of the project.
All risks are assigned to the contractor, there isn’t any risk carried by the owner. The contractor has incentive in this contract as he is rewarded for early finish and there is penalty for 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 construction period.
A subcontractor is not a party to a contract between the owner and a contractor in a primary contract. There is no privity between him and the owner. He has privity with the contractor.
Like a subcontractor, a supplier has no privity between him and the owner. He has privity with the primary contractor.
2. Cost-Plus-Fee Contract – This is also called Reimbursable contract or Time and Material contract. The owner pays the contractor all the costs of the work plus a fee to cover the contractor’s operating overhead cost and profit.
Costs of work are classified as direct costs or reimbursable costs and indirect costs or non-reimbursable costs.
Direct costs include the following:
(1) Labor cost,
(2) Material cost,
(3) Tools, plant and equipment cost and
(4) Job overhead cost.
Indirect costs include:
(1) Operating overhead costs and
3. Guaranteed Maximum Cost-Plus-Fee Contract – This is a modification of the Cost-Plus-Fee contract. Under this contract, with the provision of a certain critical amount of design information and with a lump sum fee, bidders estimate a maximum cost for work, material is brought and sold. It is used for engineering construction work done in remote locations. The common unit of measurement is the unit by which the primary
5. Design-Build Contract – In the traditional design first-and-then-build method, many problems arise especially allocating the responsibility between the designer and the contractor. If a defect is noticed in the construction it could be due to a design deficiency or a construction fault. The designer will try to put the blame on the contractor and the contractor will do the same on the designer.
Documents that are applicable for Construction Contracts:
There are two kinds of documents – bidding documents and contract documents.
Bidding documents are as follows:
1. Notice to contractors/Invitation to bidders, Solicitation of bids.
2. Instructions to bidders.
3. Bid form
5. General conditions.
6. Supplementary conditions.
9. Bid bond.
10. Performance bond
11. Payment bond
Contract documents are as follows:
1. Bid form
3. General conditions.
4. Supplementary conditions.
7. Performance bond
8. Payment bond