Contract

Procurement
Methods
There are a number of ways that the
design and construction of the project
may be undertaken.
The method chosen will depend on a
number of factors, which include the size
and complexity of the project.
Traditional
This method usually uses the standard
form of contract by the Joint Contracts
Tribunal (JCT) or a similar
The contract requires the contractor to
carry out the construction according to
the drawings and specification drawn up
by the design team
All work is supervised on behalf of the
client by the design team leader, which is
normally the architect or on civil
engineering projects, the Consultant Civil
Engineer.

Fixed Price Contract
A Fixed Price Contract involves the
contractor agreeing to construct the
building as specified in the drawings and
Bills of Quantities (B of Q) for the client for
an agreed sum, by an agreed date.
Although it is called a fixed price contract
it does allow for the contractor to claim
additional costs for any variations to the
specification.
Allowance can also be claimed by the
contractor for an extension of time if there
is a delay which is beyond his control.
When constructing new buildings it is
possible to assess the cost of the work to
be done, in which case a fixed price can
be the basis for the contract.
A fixed price can, however, be on the
whole contract, a section of work or can
apply to a unit rate. The price is fixed
although the amount of work is not
known.
Fluctuating Price Contract
Used if the contract is due to last more
than 12 months has provision to be made
for the results of inflation.
Reimbursement Contract
In refurbishment contracts it is more
difficult to assess the cost of work to be
done, in which case a Cost
Reimbursement contract can be used
which reimburses the contractor for the
amount that it costs him to carry out the
work, plus a fee to cover overheads and
profit.
Payment of the Contractor
The contractor is paid according to the
value of the work done which is assessed
each month by the Quantity Surveyor,
It is normal to withhold 3%, which goes
into the retention fund. The moneys due
to the contractor must be paid within 14
days.
If the JCT Contract is used, half of the
retention fund is paid to the contractor on
practical completion and the balance is
paid on the architect's final certificate.
Alternatively, the whole of the retention
money is paid on the final certificate.
Advantages
All parties have a clear picture as to the
extent of their commitments.
It gives a clear breakdown of the cost of
all aspects of the project.
The unit rates allow ease of valuation for
the stage payments of work carried out
and for any variation to the original
design.
Disadvantages
Length of time taken in the design and
preparation of the Bill of Quantities
Cost of preparation for the Bill of
Quantities (approximately 3.5% of the
contract sum).
Design And Build
Contractor who is responsible for the
design, specification and the construction
The contract may be on a fixed price or
cost reimbursement basis, which may be
either negotiated, or subject to tender.
Uses
Normally used for standard type buildings
i.e. industrial units.
Useful for repetitive types of buildings,
which the contractor has constructed
previously
Past experience and familiarity of the
design and construction should result in
cost savings for the client.
Design And Build
Novated Design' or
Develop and Construct'
A variation is for a design team to be
appointed to produce concept drawings
for the project prior to going out to
tender.
Design And Build
Advantages
The developer is only dealing with one
organisation that has sole responsibility for
the success or failure of the design and
construction.
It allows the developer to be aware of the
total amount of financial commitment
prior to the commencement of
construction.
Design And Build
Management Contracting
design team to specify the building
requirements
specialist subcontractors are supervised
and co-ordinated by the management
contractor to carry out the construction.
The management contractor receives a
fee, which may be a set fee or a
percentage of the contract cost.
The management contractor will be
responsible for providing site
accommodation for which he will be
reimbursed either at cost or as a laid
down lump sum in the tender document.
Generally used on complex projects that
require a short contract period, though
which must have flexibility for
modifications during construction.
Subcontractors
Subcontractors enter into a
standard JCT type of contract with
the management contractor carry
out construction work.
It is the management contractor
who has a contractual relationship
with the subcontractors who carry
out the work, not the client.
If any problems arise it is the
management contractor who must
pursue the subcontractor for a
remedy.
Subcontractors are normally
appointed by competitive
tendering based on the drawings
and bills of quantities.
Advantages
To the contractor:
very few risks as they are guaranteed a return of
costs and they do not have the problems
associated with the employment of labour.
important that the project manager and quantity
surveyor control costs, for the management
contractor has no incentive to control costs within
the cost budget, although incentives can be
introduced.
Any costs that exceed the budget are borne by
the client.
To the developer
work can begin as soon as the first few work
packages are produced, thus allowing design
and construction to overlap.
Construction Management
Construction management is similar
in most respects to management
contracting except that whereas
with management contracting the
contract is between the client and
the contractor (the subcontractors
are engaged through the main
contractor) in construction
management the contracts for the
work packages are with the client.
The construction manager is
employed to manage the
construction work. This system tends
to be used only on large, specialist
technical projects such as power
stations.
Project Management
"the overall planning, control and co-
ordination of a project from inception to
completion aimed at meeting a client's
requirements and ensuring completion on
time, within cost and to required quality
standards".
Project management can
be used on projects of any
size, though it is normally
used on larger
developments.
Becoming increasingly
popular and is reducing the
architect's influence within
the construction industry.
Project Manager
May be an organisation or an individual.
Guides the client in the selection of a
suitable procurement system, appoint all
members of the construction team and
control and organise the project.
Appointed on a fee basis, which is not
dependent on the cost of the contract.
This tends to ensure that the project
manager works solely for the client's
interest, as he earns no commission.

Partnering
The creation of a special relationship
between contracting parties in the
design/construction industry.
This relationship encourages the parties to
change their traditional adversarial
relationships to a more co-operative,
team based approach, which promotes
the achievement of mutually beneficial
goals, including the prevention of major
disputes.
Features
Commitment from top management
Continual improvement
Time for benefits to emerge
Based on equality of all partners
Interest in mutual profitability
Free and open exchange of information
Keeps project teams together
Well thought out incentive schemes
Problem Resolution
Mutual Objectives
Consideration
All parties seek a win-win solution
Value is placed on long-term relationships
Trust and openness are encouraged
An environment for long-term profitability
exists
All are encouraged to openly address any
problems
All understand the no one benefits form
exploiting the other
Innovation is encouraged
Each partner is aware of the others needs,
concerns, objectives and is interested in
helping their partner to achieve this
Overall performance is improved.
Objectives
Improved efficiency
Reduction in costs
Guaranteed profits
Reliable product quality
Speedier construction
More reliable completion time
Continuity of workload
Shared risk
Reliable flow of design information
Lower legal costs

Potential Benefits
Reduced exposure to litigation
Better productivity
Lower risk of overrun in time and cost
Better quality
Lower costs
Greater potential for profit
Better decision and problem solving
systems

Cost Implications
Reduction in:
Project cost - approx 5%
Client cost approx 6%
Profits increase by between 4% and 9%
Potential Problems
Lowest bid mentality
Complacency
Intellectual Property
Corruption
The wrong people used
Loss of opportunity
Private Finance Initiative
(PFI)
An arrangement where public sector
assets and services are acquired through
private sector funding which reduces
government/public sector borrowing.
Used for roads, bridges, schools, hospitals,
prisons normally over 20 million value
Procedure
Public sector sponsor establishes a business
case strategy
Project advertised in the Official Journal of
European Union (OJEU)
Bidders short listed (Normally a consortium set
up specifically for the project which forms a
Special Purpose Company (SPC)
Contract awarded and notified in OJEC
Finance
SPC provides 10% of finance remainder
from banks
Finance is recouped of 25-30 years from
tolls or service charge
Advantages
Potential for high returns
Continuity of work
Involvement in design
Buildability input
More control over programme
Disadvantages
Very high bidding costs
Competitive market
Long bidding process
High level of resources required
Complex and demanding
Tough contract terms
High level of liquidated and ascertained damages
Fixed price for contractor