Chapter 4 : Contracts and contract types Flashcards
What are the 4 learning objectives for the contracts and contracts types chapter?
- understand project development cycle
- understand what is a contract and its components
- understand difference between direct and indirect cost
- appreciation of different contract types
Why do we use contracts? (6)
- describe the scope of the work
- define the project’s duration
- specify amount/method of payment
- set control mechanisms
- manage and allocate risks
- assign responsibilities and obligations
A contract is an ______ between the _____ and the ________________ to execute a _______ _______ of work
A contract is an agreement between the owner and the performing organization to execute a defined scope of work.
A contract is a ______ _______ agreement that ______ the _____ to provide the specified products and obligates the ______ to pay for it.
A contract is a mutually binding agreement that obligates the seller to provide the specified products and obligates the owner to pay for it.
The type of contract is chosen by the _____ according to
owner, the nature of the product
A contract might by in writing or oral. Only time when the contract has to be writing is
land sale
6 proofs for the existence of a contract
- an offer was made
- an offer was accepted
- there was a mutual agreement
- there was consideration
- subject matter of the contract is legal
- owner and seller have the capacity to enter into agreement
6 things usually specified in a contract
- names and addresses of parties involved
- scope of work covered
- period of the contract
- contract price and method and terms of payment
- language and source of law governing contract
- listing of other documents considered as being part of the contract (engineering drawings and specs)
6 types of contracts
- Lump sum
- Unit price
- Cost + Fixed Percentage
- Cost + Fixed Fee
- Cost + Fixed Fee + Profit Sharing
- Cost + Fixed Fee + Sliding Fees
Lump sum contracts are used for projects such as building projects where it is possible to _______ accurate quantities of work prior to construction.
Lump sum contracts are used for projects such as building projects where it is possible to compute accurate quantities of work prior to construction.
What is the lump sum contract?
when the contractor provides a single quoted price for the entire job based on a complete set of plans and specifications
What is included in a lump sum contract price?
- direct costs for labour
- direct costs materials, equipment
- indirect costs, project and home office overheads
- contractor’s profits
What are the specifications for a lump sum contract?
- scope of project must be well defined
- higher mark-up to account for risk
- payment according to % of work done
Advantage, lump sum contract
- price assumed to be guaranteed
Disadvantages, lump sum contract
- owner required to have detailed plans and specifications before bidding and construction can commence
- little to no flexibility to make changes
- litigation and considerable wrangling over the cost of contract changes if any modifications
When are unit price contracts are used?
When it is not possible to calculate the exact quantity of material required. (broken down into work items such as : 16 windows)
Disadvantages, unit price contracts
- true project price is not known until project completion
- unit contract prices susceptible to being manipulated via unbalanced bidding for profit and unbalanced bidding for front end loading
Advantages, unit price contracts (2)
- unit price contracts best used when design responsibility remains with the owner or when design is completed during construction
- this has a lower risk than lump sum for the contractor
3 characteristics of cost + fixed percentage contract
- best for contracts with new technology
- not recommended for time limited projects
- risk shifted more towards the owner.
4 characteristics of cost + fixed fee contract
- incentive for the contractor to get job done asap
- contractors may tend to use expensive materials to get job done quicker
- owner risk only in direct cost
- contractor can lose profit if project is delayed
In what type of contract is it encouraged for the contractor to keep costs at a minimum?
cost + fixed fee + profit sharing
In what type of contract the risk is shared between both the owner and the contractor?
- cost + fixed fee + sliding fee
5 responsibilities with concomitant risks that can be assigned to contracting parties through contract provisions
- force majeure
- indemnification
- occupational safety and health of workers
- suspension of work
- liquidated damages
