Types of construction contracts
Formal contract
For all the project execution methods discussed above — except for internal execution — the projects are built under a formal contract called a contract.
Standard contract
Contracts are often complex legal documents that, if disputes arise, can be challenged in arbitration courts.
So most countries have adopted standard treaty documents, which have been tried and tested for many years under different judicial systems.
Legal advice
Turnkey, BOT, and project management execution methods vary greatly from project to project and are therefore not adequately covered by any standard contract.
All parties are strongly advised to seek legal advice before entering into any agreement for these types of projects. Failure to do so can prove to be really costly.
FIDIC
However, the construction contracting system is best suited for the use of standard contracts, the most widely recognized of which is the FIDIC (Federation International des Engineers Consoles).
Other leasing systems, e.g. British ICE, is basically akin to FIDIC.
Traditionally, civil engineering work was carried out under the following main categories of construction contracts:
1. lump sum;
2. Cost plus;
3. target price;
4. Quantity Bills (BQ).
The main features of the above type of contract are described below.
Also
lump sum
In the case of aggregate contracts, the contractor is entitled to pay a fixed price for completing all the work described in the tender.
The snag is the contractor’s obligation to include all work considered incidental to the completion of the contract, whether or not such work items are included in the contract documents.
An experienced contractor is, in most cases, able to foresee such incidental items and Allow them to be included in their tender, and real problems occur when the aggregate compensates for risks such as unforeseen underground conditions and errors in contract documents that can significantly change the scope of work to be performed by contractors.
Needless to say, contractors are often hesitant to undertake work under this type of contract because of the high risk.
Owners also may not be served by the same amount of contracts (excluding very simple and straightforward tasks) because there is always the possibility of endless disputes after disagreements over how.
Understand the various conditions presented in the contract documents. For the above reasons, large amounts of contracts are no longer used in civil engineering work.
Cost-plus
In addition to the cost, the contractor pays direct construction costs to the contractors based on salary vouchers, equipment records, invoices, and other related documentation.
The only competing factor is the tenders’ reference to direct costs or percentage mark-up on fixed costs to cover overheads and profits.
Such a system is obviously favored by contractors, as it does not cover virtually any risks and guarantees a stable income.
On the other hand, employers should be aware of costs and contracts, as these provide no incentive for contractors to undertake construction in a rational and efficient manner.
In contrast, the work can be extended over a longer period of time, with the contractor obtaining a secure return on his construction resources.
Nowadays, contracts are used in addition to cost only for tasks that are difficult to predict in complexity and quantity, e.g. Repair the bridge.
Proposed price
The Target Price Agreement has been specifically developed to provide economies of scale for systems in addition to the cost.
To encourage contractors to be efficient, that is, to complete the work as fast as possible, the initial cost is estimated, and upon completion.
The difference between this target and the actual cost is computed by computing either positive or negative. Some kind of default formula is a mark-up (or fixed amount).
While the target price is an improvement over costs and contracts, the lack of clarity about how awards and penalties related to a contractor’s performance can be overwhelming.
One of the most frequently heard complaints from contractors is that the target is misdiagnosed and that the unforeseen risks are unfairly causing the loss.
BQ
The project is broken down into a number of certified construction items in quantity contract bills. Before construction, tenderers are requested to enter the unit price for each of these items.
If the tender is accepted by the owner, the price of this unit will be the basis for payment by measuring the work done by the item.
The FIDIC standard contract is a widely used system for proposals ranging from bills of proportions.
The development of FIDIC-based construction contracts over the last two decades.
They are fast settling in developing countries and are easily the most common means of implementing I road projects today.
For this reason, the rest of this chapter is devoted to discussing the aspects of project implementation under the FIDIC system.
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