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Lecture 25 Payment Methods
Lecture 25 Payment Methods
Lecture 25 Payment Methods
Payment Methods
LECTURE 25
Payment Methods
Construction contracts are different from sales contracts.
Capital value of construction projects is usually too high to expect a contractor to finance the
project.
Umer Lone 1
Construction Procurement Course 6/5/2017
Payment Methods
Payment methods are either based on cost or price.
Price based payment methods
In this method, a contractor is required to tender a price for the completion of work before the actual
work commences.
This price includes all the costs that contractor will incur plus his profits.
Typically used for buildings construction where contractor has sufficient information available to
accurately predict his costs.
Payment Methods
Payment methods are either based on cost or price.
Cost based payment methods
In this method, the contractor requests payments for the actual costs of the works as they are
completed plus a percentage added to those costs as contractors profit.
This is appropriate in situations where precise quantities are not available before the work
commences.
Payment method choice varies the risk exposure of contractor and client.
Umer Lone 2