A simple contract consists of an agreement between two or more parties under certain terms and conditions whereby one party undertakes to execute works or to supply materials at specified rates and the other party undertakes to make necessary payments for the work completed by the first party.
The word “Contract” is derived from the latin word “Contractum” meaning drawn together. If the contract terms are set out in writing in proper documents, which the parties subsequently sign, then, both parties are bound by these terms.
The country’s contract act imposes upon each party, entering into a contract, a legal obligation (responsibility) to perform (observe) the terms of the contract and gives to the other party the right to enforce the fulfillment of these terms or to claim damages (compensation) in respect of the loss sustained (owned) in consequence of breach (violation) of the contract.
Types of civil engineering contracts
Some of commonly used types are explained below;
1. Bill of Quantities
This type of contract which includes a BOQ (bill of quantities) priced by the contractor is the most commonly used form of contract for civil engineering works. The quantities of various items can be estimated with reasonable accuracy before the work is actually started. A bill of quantities is prepared giving as accurately as possible the quantities of each item of work to be executed and the contractor enters a unit rate against each item of work. This type of contract is also known as “Item Rate Contract” Bill of Quantities greatly assists in keeping the tender cost as low as possible because there is maximum competition among the contractors.
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2. Unit Price Contract
In this type of contract the client (owner from whose benefit the work is done) may refer to schedule of unit rates covering each item of work and ask the contractors, when tendering, contractors quote a percentage above or below the given scheduled rates (when it is above, it is called premium and when below, it is called rebate or discount) for which the contractor would be willing to execute the work
When a contract includes both scheduled and non-scheduled items then the contractors are asked to quote an overall premium on the total cost of scheduled items but, as regards the non-scheduled items are concerned, the contractor will mention the item-rates and no extra premium would be permissible. For non-scheduled items, technical specifications have to be very carefully written or drafted in order to avoid any dispute regarding the quality of materials, their manufacture or any particular sizes (cross-section) to be used. A comparison of rates entered in BOQ will enable the most favorable tender to be accepted.
3. Lump sum Contract
In a lump sum contract, the contractor undertakes to execute certain specified works for a fixed amount of money. The nature and extent of the work are normally indicated on drawings and the nature of materials and workmanship are described in specifications, but no BOQ is provided. Lump sum contract is most commonly used, for example, in dewatering operations and other small works.
4. Labor Contract
This is a contract where labor and workmanship is provided by the contractor but all the materials are supplied by the client. It is suitable for those cases where an employer is in a position to buy large quantities of materials at favourable prices.
The advantages is that the speed of work will be increased but, at the same time, there will be more wastage of materials. Labor rates for the scheduled items are also given in the schedule of rates published by the competent authority.
5. Cost Plus Percentage contract
In the cost plus percentage contract, the accounts are properly maintained by the contractors showing the actual expenditure on the work. This is supported by proper receipts and invoices (bills, cash memos, etc). The profit of the contractor is decided as a negotiated percentage which may vary from 10 to 255 of the actual cost of contract. No incentive exists for the contractor to complete the work as early as possible, rather, the contractor will try to increase the cost of the work in order to secure more profit.
6. Cost plus fixed Profit contract
This is similar to the previous type of contract with the difference that the amount of profit is fixed and will not vary with increase or decrease of actual cost of the work. Proper maintenance of accounts by the contractor is must. However, in this category, the contractor will try to complete the work as early as possible.
Note: Cost plus percentage and cost plus fixed profit contracts are together called “Reimbursement Contract” i.e. first you pay price and then claim the money from authority.
7. Package Deal Contract
If a contracting firm is well reputed and provides both design and construction facilities, the project as a whole may be awarded to this firm; the agreement become a “Package Deal Contract”. Special type of buildings such as hotels, picture houses, shopping plazas, etc., may be built on the basis of package deal contract. However, the success of such a contract mostly depends upon the reputation and understanding of the firm with the client.
8. Serial Contract
If a contractor is already working on certain contracts at a construction site and later on more works are planned on the same site, theses works may be awarded to the same contractor, generally at the same rates, depending upon his previous performance. This becomes a serial contract. If the client is satisfied with the quality of work completed by a particular contractor, it is preferable to award subsequent contracts for other works to the same contractor rather than appointing another party with whom the client had no prior dealing.
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