Contract is truly an essential matter when it comes to construction projects.

Contracts generally
helps build a good working relationship between the customers and the service providers. While
construction contract is a written agreement which binds the parties involved in a construction project.
It provides duties and obligations the parties have agreed to. Additionally, it also provides provides
important protections for the parties to the contract and for both contractors and homeowners or the
owners of the project or building if they fail to perform by their obligations.

Oftentimes, construction is being associated with business. Hence, this construction business
world can be considered as contract environment wherein wide range of parties establish contractual
relationship. In a typical contract environment, the construction manager do not only build contractual
relationship with the owner but he or she also needs to negotiate or form a bond with the
subcontractors, specialty firms such as scheduling services, labor unions, as well as equipment and
materials suppliers.

Since construction is also business related, we could also recognize that in construction, we are
actually buying the construction project. However, it is not the typical purchasing process that we do
with an ordinary product. When buying purchasing product, consumers who need to purchase
something usually go to a store, look at the range of product choices, inspect the product specifications,
check its prices, and then pay. In short, purchasing an ordinary product involves the presentation of
finished product to a client then the payment and acquisition of that product follows. This process is not
applicable when purchasing construction. In construction, the facility is purchased before it is
‘‘manufactured’’. Purchasing a construction that is as-built or fully finished seldom happen because
developing a construction project typically follows procedures and processes. If ever available, these as-
built construction projects are only common to a single-family housing wherein developers build a
house even if there’s no buyer yet. Then, once finished and ready for occupancy, they will present this
to the public and the interested buyer may contact the contractor for purchase and warranty. This as-
built concept also applied in subdivisions. On the other hand, this type of construction purchasing is not
applicable to public construction project such as Tunnels, bridges, and most large construction projects.
This is because public infrastructures or public projects requires thorough planning, designing and as
mentioned earlier, construction of these infrastructures need to follow certain construction processes
not only for the success of the project but also for the welfare of the end user of those government
projects.

In each construction project, a project delivery system is important. It is simply the process on
how to start and how to end a construction project. In line with the project delivery system are the
different contract formats that contain the specific agreements of the two parties in order to deliver or
execute the construction project successfully.

First is the web based contract. It does not really differ from an ordinary contract. The only
dissimilarity is that web based contract is done electronically. All the processes such as bidding,
communication, purchase of materials, is in electronic format. Hence, the processes becomes quicker
and more efficient.
 Second, is the competitively bid contracts. This gains popularity to public sector and is
commonly used for public infrastructure projects. In competitively bid contracts, different contractors
are competing for the award of contract. This is done through the bidding process wherein the eligible
and qualified bidder with the lowest calculated responsive bid will be chosen and selected for the award
of contract of a construction project. It is well suited for public works because bidders are treated
equally and there’s no bias.

In contrast with the competitively bid contract is the negotiated contract which is used by the
private sectors. Since private sectors are not necessarily concerned with the transparency, they may use
the negotiated contract. In this contract format, the owner does not focus on who has the lowest price
offer, rather, he/she may freely choose and consider other factors in selecting the contractor such as the
contractor’s expertise or credentials. Hence, this type of contract is not applicable to public works
because the owner might become bias on his/her preferences. Additionally, this contract foemat is also
referred to as cost plus contract Normally, all direct expenses for labor, equipment, and materials as
well as overhead charges required to properly manage the job are reimbursable. In addition, the
contractor receives a fee for his expertise and the use of his plant in support of the job.

Third, is the stipulated sum contract or the lump-sum. To put simply, it is a contract in which the
contractor quotes one price, which covers all work and services required by the contract plans and
specifications. In short, lump sum consists of the fixed total cost of the project.

Fourth is the Unit price contract. In contrary to the lump-sum, or fixed-price, in this type of
contract, the project is broken down into work items that can be characterized by units. Hence, the
contractor quotes the price by units rather than as a single total contract price. It allocates different
scope of works to different contractors.

Fifth is the design build contracts. Under this contract, the owner negotiates with a firm or
contractor to both design and build the facility meeting specified requirements. In such cases, it is
advantageous for the client to have a single firm providing both design and construction services.

Next is the design-build in a consortium format. Here, the lead contractors typically form a team
consisting of consortium of designers and specialty contractors who work together to meet the needs of
the client. The owner/client contracts with the consortium as a single group providing the total project
package including the design, construction, procurement, etc.

Then,, the construction management contract. Under this contract, a professional construction
manager acts as the owner’s agent to direct and supervise the design and construction of the project.

Lastly, is the construction management at risk wherein agency construction managers are
coordinators working on behalf of the client and are not contractually liable for the successful
completion of the work. Therefore, if problems arise dure to contractor’s default, the client is still the
one who will become at risk of being liable for those problems or damages.
 To conclude, it is always important for parties entering any transaction to have a written
contract. This is certainly true especially for construction projects where most of works are complicated
and technical. Even if the parties already trust each other, contract is still necessary as it guides them of
how they are going to perform their work in order to ensure that the project will run smoothly and
successfully.