Civil, Structural and Environmental Engineering

1967 words (8 pages) Essay in Contract Law

02/02/18 Contract Law Reference this

Last modified: 02/02/18 Author: Law student

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Admeasurements contracts are normal civil engineering contracts.There are the Admeasurements contracts in which the whole of the work is re-measured, and payment made for the work actually done. Within this category fall the Bill of Quantities and Schedule of Rates contracts. Admeasurements contracts measure actual quantities of work carried out. The apply rates and prices are quoted in contractors tender, the final qualities often differ from original estimated quantity. The contractor is paid for work done rather than work originally estimated. The contractor is required to submit a priced B.O.Q or schedule of rates with tender. The B.O.Q is prepared using “Civil Engineering Standard Method of Measurement” rate is entered against each item by contractor.

The Bill of Quantities contract facilitates competitive tendering but incorporates some mechanism for the introduction and evaluation of changes in the work conditions and content during the course of tile contract

Schedule of rates Contracts are also called unit price Contracts, item rate Contracts, piece rates, or with such other names. Tenderers are required to quote unit rates in a schedule, for each item of work required under the Contract. Schedule of rates Contracts can also have quantities but these are mere estimates and are subject to adjustment as work gets completed. Quantities are included for a Tenderer to make their own assessment of the extent and accordingly take calculated risks in case of early termination. Thus in this type of a Contract, since there is no guarantee that any given quantity of work is executed, each unit rate item could carry a higher overhead cost.

Schedule of rates Contracts are useful where works are required over a period of 2-3-4 years, and where there is not much need or possibility to define the precise work extent upfront e.g. plant maintenance Contracts. Since these Contracts require a lot of detailed information to be accurately provided for work items, a lot of time and effort needs to be spent prior to Tendering. By their nature they must attempt to cover all likely requirements, providing full and detailed descriptions.

The main advantages and disadvantages of using schedule of rates contracts are:


A fully detailed design or specification is not essential at Tender stage.

Large number of Tenderers could be invited to Tender.

Provides a good basis for selection of Contractor when bills of quantities are used.

Tendering is relatively quick and therefore cost effective.

The evaluation of variations and amendments arising from changes in design/specifications is relatively simple.

Client can exercise a greater degree of control and supervision over the Contractor and select specialists to carry out certain elements through use of provisional or prime cost items.

Flexible framework permits changes to quantities or scope requirements.


Possibility of front loading of costs.

Final cost of the Contract is not known at commencement, though with a fair a degree of accuracy, the estimated final cost could be arrived at based on an estimated usage.

Contract administration is often more expensive and labour intensive in agreeing and processing monthly valuations and payments to Contractors.

Additional involvement and technical personnel required post-Contract to handle Contractor queries and finalise design/specification requirements.

Lump sum

With this kind of contract the engineer and/or contractor agrees to do a described and specified project for a fixed price. A lump sum project is a fixed-price contract that requires a bidder to submit a price for completing an entire project as opposed to bidding on individual pay items. It may also require the bidder to develop quantities from the contract package. This method is typically used for simple projects such as resurfacing, bike paths, box culvert extensions, and minor bridge widening.

This contracting technique is designed to reduce contract administration effort related to quantity measurement and verification, allowing field personnel to spend more time on inspection of the work. The only changes allowed to a fixed price are for extras or change orders. Any additional work not covered in the contract must be covered by change documents, which must indicate how estimated quantities were calculated. Any costs associated with changed or unforeseen conditions as well as added or deleted work are negotiated using standard practices. The sum is not adjusted to take into account any change in the extent of work from that estimated by the contractor at the time of contracting. The contractor therefore carries the risk of correctly estimating, at the time of contracting, the extent of work required to be carried out. Lump Sum is the most appropriate payment mechanism for design and construct contracts or construction contracts where the extent of the works are largely determined by the method of construction adopted. The payment mechanism is easy to administer, provided the Owner does not vary the Works.

Cost reimbursement

A cost reimbursement contract allows for payment of all incurred costs, within a pre-determined time, that can be allocated to the contract. All types of cost reimbursement contracts place the least cost and performance risk on the contractor. This type of contract is required when the uncertainties of performance will not permit a fixed price to be estimated with sufficient accuracy to ensure a fair and reasonable price is obtained (NOAA, 2009).

Cost reimbursement contracts create shared risks, but overall the main part of the financial risk is with the Owner. This means that the contractor who normally is more used to in using the traditional forms of contract will have little incentive to work efficiently and economically. None of the standard forms of cost reimbursable contract address the fundamental concern of the Owner, which is to encourage the contractor to cooperate in forecasting the final or out-turn costs, so that joint action may be taken to prevent any cost over-run. (NOAA, 2009).

Within the cost reimbursement category contract there are many different types these include:

Cost type – which involves payment of all incurred costs within a predetermined total estimated cost.

Cost sharing – where the Government and the contractor agree to split the cost of performance in a predetermined manner. No fee is given.

Cost-plus-fixed-fee – which allows for payment of all incurred costs within a predetermined amount plus an agreed upon fee which will not change.

Cost-plus-incentive-fee – which provides for adjustment of the fee (either up or down) using a predetermined formula based on the total allowable costs in relation to total targeted costs.

Cost-plus-award-fee – which provides for negotiation of a base fee with an award fee which can be given based upon a judgmental evaluation by the Government of contractor performance and cost control. (NOAA, 2000)

Design and Build

Design and build contract is where the design and construction aspects are contracted for with a single entity known as the design-builder or design-build contractor. The design-builder is usually the general contractor, but often it is the engineer. This system is used to minimize the project risk for an owner and to reduce the delivery schedule by overlapping the design phase and construction phase of a project. Where the design-builder is the contractor, the design professionals are typically retained directly by the contractor. The most efficient design-builder has design and construction professionals working directly for the same at-risk entity. The contract output’s specifications setting out the functional requirements. It also details the expected functional life and maintenance requirements and any other documents the employer regards as necessary (Chris Hendrickson and Tung Au, 2001).

The main advantages for the Employer of Design and build are, there is a single point responsibility for any defects either in materials or performance. The Employer does not need to ascertain whether the defect is due to design or due to workmanship. Secondly this type of contract lends itself to lump sum form of payment, or fixed payment at completion of identified stages. Provided the completion of the various stages is clearly identified then the administration of the contract is simpler than remeasure or unit price forms of contract (Chris Hendrickson and Tung Au, 2001).

The main advantages for the Contractor are that he has more control over the whole project, and can adopt designs that suit his own resources and expertise. Design and Construct is the logical method of procurement for many types of project. Although Design and build forms have many advantages for the Employer and Contractor, there are specific problems that frequently arise. (Chris Hendrickson and Tung Au, 2001).

Negotiated contracts

Negotiated Contract is a contract awarded on the basis of a direct agreement with a contractor, without going through the competitive bidding process. The acceptable contract is arrived at by discussion between a client and contractor.

Instead of inviting competitive bidding, private owners often choose to award construction contracts with one or more selected contractors. A major reason for using negotiated contracts is the flexibility of this type of pricing arrangement, particularly for projects of large size and great complexity or for projects which substantially duplicate previous facilities sponsored by the owner. If it becomes necessary to meet a deadline for completion of the project, the construction of a project may proceed without waiting for the completion of the detailed plans and specifications with a contractor that the owner can trust (Chris Hendrickson and Tung Au, 2001)


Generally, negotiated contracts require the reimbursement of direct project cost plus the contractor’s fee as determined by one of the following methods:

Cost plus fixed percentage

Cost plus fixed fee

Cost plus variable fee

Target estimate

Guaranteed maximum price or cost

The fixed percentage or fixed fee is determined at the outset of the project, while variable fee and target estimates are used as an incentive to reduce costs by sharing any cost savings. A guaranteed maximum cost arrangement imposes a penalty on a contractor for cost overruns and failure to complete the project on time. With a guaranteed maximum price contract, amounts below the maximum are typically shared between the owner and the contractor, while the contractor is responsible for costs above the maximum (Chris Hendrickson and Tung Au, 2001) .

Management contract

A management contract is an agreement between investors or owners of a project, and a management company hired for coordinating and overseeing a contract. The contract outlines the conditions and the duration of the project. It is aimed at meeting a client’s requirements in order to produce a functionally and financially viable project that will be completed on time within authorized cost and to the required quality standards. Project management is the process by which a project is brought to a successful conclusion. Contract in which the owner retains a manager to coordinate and administer contracts for construction services for the benefit of the owner. The Construction Manager is not allowed to perform construction with his/her own forces. All construction work is subcontracted by competitive bids (Project management guides, 2010).

The construction management contract is most suitable where the employer is familiar with construction, the risk associated with the project are dominated by timeliness and cost, the project is technologically complex involving diverse technologies, the employer wants to make minor variations to the project as the project proceeds, the employer requires an early start and finally the price needs to be competitive and fair. (Project management guides, 2010)

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