types of contracts
- 1. 1
- 2. "An agreement enforceable by law is a contract.” OR For a CONTRACT to be valid, there must be an offer from the owner in the form of tender notice to get some specified work to be executed and there must be an acceptance from the contractor to execute the work, both the offer and the acceptance must be definite and legal. 2
- 3. 1. Lump-sum contract 2. Cost plus percentage contract 3. Cost plus a fixed fee contract 4. Percentage rate contract 5. Item rate contract 6. Turn-key contract 7. Cost plus sliding scale of fees 8. Negotiated contracts 9. Target Contract 10. Labour Contract 11. Joint Venture Contract 3
- 4. 1. Lump-sum contract In this type the general specifications and description of different parts of building with dimensions are included in contract agreement. The quantities or schedule of different items of work are not provided, but the contractor shall have to complete the work as per plan & specifications given within fixed sum, within a fixed time. This type of contract will be useful for the works like sanitary blocks for school building, a compound wall, a small room for watchman, a septic tank and soak- pit, a manhole etc. 4 BACK
- 5. In this type actual cost plus an agreed percentage in addition is added to allow profit This type is adopted when conditions like rates of labor and materials are liable to fluctuate Bill of quantities has to be framed but owner should carefully define the cost and record exactly what is permissible in the cost of work 5
- 6. Advantages Suitable for urgent works It is suitable when work can not be executed by other type of contract & if rates of labour and materials are fluctuating. Disadvantages Close supervision and checking of delivery notes and invoice are required . This is unsuitable where the necessary staff is not available. It is contractors advantage to make cost high by wasting material, employing inefficient workmen, as he takes little risk and his profit is assured. 6 BACK
- 7. In this system a fixed fee is given as contractor’s profit irrespective of the total cost of work. This is to control the tendency of the contractor to increase the cost of the project unnecessarily as in Cost plus % rate. Smaller the completion time more is the profit and hence the contractors hurry to complete the work and the quality of workmanship is not maintained. This system is not generally used. 7
- 8. Advantage Since fixed fee covers all the overhead charges and profit. contractor tries to complete the work speedily to earn fee. Disadvantage • Contractor shall try to complete work quickly by purchasing material with high rate and engage labor at high cost due to which owner will be in loss. 8 BACK
- 9. In this system the contractors are required to quote single percentage either higher or lower at which he wants to execute the job. Here scrutiny of the tenders become easier and as cement and steel is usually supplied by the department, chances of manipulation is less. This is the most commonly adopted system of contract in the different departments of our state. 9
- 10. Owner knows the cost before hand. Detailed measurement of work is not recorded unless there is some addition and alteration. Complete picture of work from detailed drawings and total cost is known before hand, excellent planning efficient management of work can be done. Contractor tries to complete work quickly for the sake of payment. 10
- 11. In this it is essential that the work should be checked accurately and completely shown on the drawings in the specifications and the full information about the site condition should be available other wise it will leads to disputes. Contractor is free to use the lowest cost of material equipment, methods. Difficulty arises in making any intermediate payment. There is uncertainty about the quality ,smooth progress, and completion of work 11 BACK
- 12. Contractor undertakes work on item rate basis Payment is done on the basis of quantities of items done and their respective rates Quantities are calculated by detailed measurements and shown in tender form. Also called as unit price contract Total cost is arrived by summing up of each items rate. 12
- 13. As the contractor gets payment against the actual quantities of item done by him the methods economical because no excess payment can be made As rates are item wise, contractor is not worried about the uncertainty in the plan and specification Work can be started after accepting the tender without waiting for the detailed drawings and specifications 13
- 14. Owner shall be interested in getting the works of such items whose rates are lower but contractor will be interested in works with higher prices. There may be difficulty in classifying the work such as ordinary sol, soil mixed with kankar or loose rock because contractor will charge according to the classification whose price is higher. It becomes difficult to calculate to exactly the final cost of construction resulting in difficulty for arrangement of funds. Work is started before getting the final drawings and specifications which result in demolishing of some work which increases the construction cost. 14 BACK
- 15. It sometimes happens that the owner contemplating a construction project desires to deal with only one party for all services, both engineering and constructions, in connection with the work. This is so called “turn-key or package job” A turnkey contract is a business arrangement in which a project is delivered in a completed state. Rather than contracting with an owner to develop a project in stages, the developer is hired to finish the entire project without owner input. In effect, the developer is finishing the project and “turning the key” over to the new owner. Once the project is completed it is handed over to the owner. The owner has to complete the transaction works and occupy the structure by simply turning the key, ie. opening the door. 15
- 16. In a turnkey contract, the owner is generally left out of the building process entirely,as the developer handles all decisions and problems related to construction. A contract of this kind may also be used in the residential home building industry With a turnkey agreement, a builder or developer completes both the construction and the finishes in the home before turning it over to the homeowner. The homeowner is often offered a chance to select finishes, including curtains, paint colours and carpeting. 16
- 17. A turnkey contract also provides more time for an owner to seek financing and investors before he is required to pay for a completed project builder will construct a retail establishment for an owner, and the builder will receive a percentage of the gross receipts for a specific period of time. construction decisions are based on the long-term needs of the project, rather than just the short-term decisions needed to get the job done. 17 BACK
- 18. In this type of contract the contractor is paid by the owner the actual cost of construction plus an amount of fee inversely variable according to the increase or decrease of the estimated cost agreed first by both parties. thus the higher the actual cost, lower will be the value of fee and vice versa. Advantages: In this case the contractor shall not try to increase the actual cost. The actual cost is lower and lower, so both the owner and the contractor will be benefited. Disadvantages: estimated cost should be accurate. Other wise the contractor get more profit if the actual cost is much higher than the estimated cost. 18 BACK
- 19. When the work is awarded on contract by mutual negotiation between the parties with out call of tenders, it is said to be negotiated contract. In PWD, the contract are negotiated on special conditions like to obtain reasonable rates and also helpful in case of emergency. Basic advantage by this system is that it brings economy in expenditure, parties will be reliable and less chance of disputes 19 BACK
- 20. 20 9. Target contract The contractor is paid a fixed fee on a prime cost basis for the work performed under the contract and in addition he receives a percentage on the savings effected against either a prior agreed estimated total cost or a target value arrived without changing the specification. It was presumed that by proper management of the work, the contractor can reduce the cost of work. But due to tremendous increase in the cost of materials it never materialise and hence this system is not getting popularity. BACK
- 21. 21 10. Labour contract This is the most commonly adopted system for the construction of private individual buildings in small cities. The contractor arranges all necessary labour, tools & plant and equipments required. The materials are supplied by the owner and he appoints an Engineer to supervise the work to maintain the quality and economy in construction. This system is suitable in the works of Govt. departments as they are in a privileged position to buy large quantities of materials at cheap rates. BACK
- 22. 22 11. Joint venture contract In case of huge important projects the construction works can be categorised into different parts and each part can be given to a specialised contractor in that field. This method improves the quality of work and the project can be completed within a short period of time. Thus the project works can be divided among different contractors and hence joint venture system of contract developed. BACK
- 23. 23 12. BOT system Build operate and transfer is a new system in which the land is acquired by the Govt. and the contractor is asked to build the structure and then operate it until he collects the money he had spent for the construction, as fees from the users. Once the construction cost is recovered, the structure is handed over to the owner. No payment is made to the contractor by the owner/Govt. Security is provided to the builder by the Govt. regarding law and order problems if any. Bridges and roads are usually constructed by adopting this system of contract. Toll is collected from the users/vehicles passing over it by the contractor to recover the construction cost.
- 24. SELF STUDY: Responsibilities of Owner / Client. Responsibilities of Engineer. Responsibilities of Contractor. 24 BACK