Tendering

Contracts:
Form of Contract:
- Under the general law of contract, when a party makes an offer to provide goods and / or
services for some certain consideration and the party to whom the offer is made accept it, then,
provided it does not involve any illegal act, a contract which is enforceable at law exist.
- A simple contract consists of an agreement entered into by two or more parties, whereby one of
the parties undertakes to do something in return for something to be undertaken by the other.
- The offer is made by a contractor who tenders to carry out specified construction works in return
for a money payment and upon the acceptance of that offer by the client promoting the project, a
binding contract comes in to being.
Main Characteristics of Civil Engineering Contracts:
- The employer agrees to pay a certain sum in return for work, which is to be executed by the
contractor.
- The contractor is not entitled to any payment if he abandons the work prior to completion, and
will be liable in damages for breach of contract.
- Where the work is abandoned at the request of the employer, or results from circumstances that
were clearly unforeseen when the contract was entered into, then the contractor will be entitled to
payment on a quantum merit basis.
- However, contractors are usually unwilling to enter into any contracts, other than the very
smallest, unless provision is made for interim payments to them as the work proceeds.
- For this reason the standard form of civil engineering contract provides for the issue of interim
certificates at various stages of the works.
- It is customary for the contract to provide that a prescribed proportion of the sum due to the
contractor on the issue of a certificate shall be withheld.
- This sum is known as retention money and serves to insure the employer against any defects
that may arise in the work.
- The contractor is entitled to receive payment in full only after the satisfactory completion of the
work, the maintenance period expired and the maintenance certificate issued.
Types of Contracts in Civil Engineering Works:
- The Engineer / Architect often need to carefully select the form of contract which is best suited
for the particular project.
- Contracts for the execution of civil engineering works may be classified as follows;
Bill of Quantities Contracts:
- Incorporates a bill of quantities priced by the contractor.
- This BOQ is included with a schedule giving brief descriptions and quantities of all the items of
work involved.
- Most commonly used form of contract.
- This type is used where the quantities of the bulk of the work can be ascertained with reasonable
accuracy before the work is started.
- A BOQ is prepared in accordance with Civil Engineering Standard Method of Measurement /
Standard Method of Measurement of Building Works, as accurately as possible.
- In the BOQ the quantities of each item of work to be executed is entered by the PQS and the
contractor enters a unit rate against each item of work.
- The extended totals are added together to give the tender total.
- This type of contract is a measure & value contract.
- Bills of quantities greatly assist in keeping tender figures as low as possible.
- The contractor is paid for the actual amount of work done.
- There is a facility for dealing with altered works. (Variations).
- Decision on tenders is relatively straightforward as all tenderers price on a comparable basis.
- The BOQ gives tendering contractors a clear conception of the work involved.

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Lump Sum Contracts:
- Here, the contractor undertakes to carry out certain specified works for a fixed sum of money.
- The nature & extent of the works are normally indicated on drawings and the nature of the
materials & workmanship described in a specification, but no BOQ is provided.
- Largely used in conjunction with works that are small in extent, & where the work is above
ground & clearly visible.
- It has, however, occasionally been used where the works required are uncertain in character.
- By entering into a lump sum contract the employer hoped to place the burden on the contractor
for deciding full extent of the works and the responsibility for the payment of any additional costs,
which could not be foreseen before the works were started.
- The employer then pays a fixed sum for the works, regardless of their actual costs.
- An undesirable practice from the contractors point of view.
Schedule Contracts:
- The employer may supply a schedule of unit rates covering each item of work and ask the
contractor to state a percentage above or below the given rates.
- Alternatively, contractors may be requested to insert prices against each item of work.
- A comparison of the prices entered will enable the most favorable offer to be ascertained.
- Approximate quantities are sometimes included to assist the contractors in pricing the schedules
and subsequent comparison of the tendered figure.
- Really suitable for use with maintenance and similar contracts, where it is not possible to give
realistic quantities of the work to be undertaken.
- In this form of contract, it is extremely difficult to make a fair comparison between the figures
submitted by the various contractors.
- Advantage of this type is that they can be prepared quickly for projects of long duration.
- During the execution of the early stages of a project by a contractor selected from a schedule of
rates, an accurate BOQ can be prepared for the remainder of the work.
Cost Reimbursement Contracts:
- Employer pays to the contractor the actual cost of the work plus a management fee, which will
include the contractors overhead charges, supervision costs and profit.
- The management fee may be calculated in one of four different ways as follows;
Prime cost plus percentage contracts:
- Provides for the management fee payable to the contractor to be calculated as a percentage of
the actual or allowable total cost of the work.
- Permits an early staring date, because the only matter requiring agreement between the
employer & the contractor is the percentage to be applied.
- Relatively simple to operate.
- But generally unsatisfactory contractual arrangement.
- Should be confined to situations where the full nature and extent of the work are uncertain and
urgent completion of the project is required.
- No incentive exists for the contractor to complete the works as quickly as possible or try to
reduce the cost.
Prime cost plus fixed fee contracts:
- In this type the contractor is paid the actual cost plus a fixed lump sum, which has previously
been agreed upon.
- No real incentive exists for the contractor to secure efficient working arrangement on the site,
other than to earn the fixed sum as soon as possible and to release his resources for other work.
- It is advisable to prepare a document showing the estimated cost of the project in as much detail
as possible so that the work is clearly defined.

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Prime cost plus fluctuating fee contracts:

In this type the contractor is paid the actual cost of the work plus a fluctuating fee.
The lower the final cost prime cost the greater will be the fee that the contractor receives.
An incentive then exists for the contractor to carry out the works quickly and cheaply as possible.
Target cost contracts:
These are used on occasions to encourage the contractor to execute the work as cheaply as
possible.
A target estimate usually obtained from a priced bill of quantities.
A basic fee is quoted as a percentage of the agreed target estimate.
The target estimate may be adjusted for variations in quantity and design, fluctuations in cost of
labor and materials.
The actual fee paid to the contractor is determined by increasing or reducing the basic fee by an
agreed percentage of the saving or excess between the actual cost and the adjusted target
estimate.
All-in Contracts:
In this type the employer, frequently using the services of Engineer / QS, normally gives his
requirements in broad outlines to contractors, who are asked to submit full details of design,
construction and cost, & probably including maintenance of the work for a limited period.
This type sometimes called as package deals / design & build contracts.
Here the contractor uses his own professional design staff & undertakes both complete design &
construction.
All-in contracts can be on fixed price / cost reimbursement basis / competitive / negotiated /
management contracting system.
The employer may require the contractor to finance the project until it is revenue producing, in
which case it is often referred as a turnkey contract.
Advantages:
Single point responsibility is provided. i.e. the contractor is solely
responsible for failure in the design and /or the construction.
The client has only one person to deal with the contractor whose
design team includes architects, quantity surveyors, structural
engineers, etc.
The client is aware of his financial commitment from the start.
Close intercommunication between the contractors design and
construction teams promotes co-operation in achieving smoother
running of the contract & prompt resolution of site problems.
Disadvantages:
Variations from the original design are discouraged by the contractor &,
if allowed, are expensive.
The client has no means of knowing whether he is getting value for
money unless he employs his own independent advisors, which adds to
his costs.
If the contractors firm is relatively small, he is unlikely to be expert on
design & construction.
Negotiated Contracts:
Management Contracts:
The management contract is a system whereby a main contractor is appointed, either by
negotiation or in competition, and works closely with the employers professional advisor(s).
All physical construction is undertaken by sub-contractors selected in competition.
The management contractor provides common services to the sub-contractors such as welfare
facilities, and plant and equipment that are not confined to one sub-contractor.

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He is paid a fee for his services and in addition, the cost of his on-site management, common
services and the cost of all work undertaken by sub-contractors.
Most appropriate to large/ complex projects.
Advantages:
Work can begin on site as soon as the first one or two works packages
have been designed.
Overlapping of designs and construction can reduce the overall duration
of the project, resulting in an earlier return for clients investment.
The contractors practical knowledge & management expertise are
available to assist the design team.
The design of later work packages may be delayed until more
information becomes available, without extending the construction
period.
The contractor, being part of the clients team, is able to identify with
the clients needs and interests.
Because works contracts are entered into close to the time of their
commencement on site, they can be based on current prices.
Disadvantages:
Uncertainty as to the final cost of the project until the last works contract
has been signed.
The number of variations and the amount of re-measurement required
may be greater than on traditional contracts because of the greater
opportunity to make changes in design during the construction period,
because of problem connected with the interface between packages,
and because packages are sometimes let on less than complete design
information.

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