MODULE FOUR

TECHNICAL CONTRACTS
6.1 Technical Contracts in General.
Technical contracts differ from the ordinary contracts of trade and business in that there's no
standard product involved, but rather the product is to be installed/constructed in place according
to a unique set of requirements and plans.
Each technical project is different because of the considerable degree of complexity involved in
the preparation of a contract.

6.2 TYPES OF CONTRACTS

6.2.1 Lump - Sum Contracts.
In many construction projects, there's little or no doubt in the mind of the contractor as to what
the cost of the project will be, and he is able to give a fixed price to the owner which includes the
actual cost of construction and the contractor's profit.
In order for the contractor to give a lump-sum bid, he must have pretty complete knowledge of
what is required of him, in the form of precise plan and specifications.
Thus, competitive bidding on a lump-sum may be very deceptive if the plans and specifications
are loosely drawn or if every risk imaginable is thrown onto the contractor. When the cost of
labor and materials is very unsettled, lump sum contracts become very risky for contractors and
therefore tend to be excessively expensive for the owner.
Disadvantage
1) The interests of the owner and the contractor one essentially antagonistic to each other.
The less the contractor gives the owner in the way of labor and materials, the greater are
his profits. Unless the contractor has a reputation, which is worth something to him, the
temptation to do the poorest job he can get away with will win out, to the owner's
detriment.
2) Estimates must be very detailed and this is expensive
6.2.2 Unit Price Contracts
Uncertainties in the exact amount of work or materials required may cause a Lump sum contract
to be excessively expensive. An alternative method, where practicable, is to take bids on the
price per unit of worker or materials.
Normally, several or many items may be involved in a given contract each is given its own unit
price.

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The engineer normally has informed the bidders of the quantities of each which he estimates will
be required;
In determining who the lowest bidder is, the unit prices are multiplied by the estimated quantities
and the products added together to determine the estimated total cost
Advantage
1- The contractor is not required to take the risk that he will have to supply more materials or
labor than anticipated at a lump sum.
Disadvantage;
1- The owner doesn't know the exact total cost until construction has been completed.
2- It may lead the engineer to be careless in his estimates of the quantities required, since the
contractor will take up the slack anyhow.
6.2.3 Cost-Plus Contracts.
Where there is considerable uncertainty as to the exact cost of the project, it is logical that the
owner should pay the cost of the project and that only the profit of the contractor be the subject
of bidding or negotiation.
"Cost Plus" arrangement ("Cost plus percentage of cost") provides that the owners shall pay the
cost of construction and a profit to the contractor equal to a specified percentage of the cost.
A strong objection to this type of contract is that it provides a temptation for the contractor to
pile up costs while throwing all risks on the owner

6.3 CONTRACT DOCUMENTS

A number of different documents go to make up the entire technical contract. These "contract
documents" include the following;
1- The advertisement
2- Instructions to bidders
3- Proposal form
4- Agreement or contract
5- Specifications
6- Plans and drawings
7- Bonds
1. The advertisement
In order to make sure that there is competition in the bidding for a technical contract, it is
generally required by law that a governmental agency must advertise for bids in a newspaper or
magazine which is likely to reach prospective contractors.

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The advertisement should be made early enough to allow the contractor's time to prepare their
estimates and to make arrangements for sub-contracting, if necessary. The advertisement should
briefly describe the work and its location, the name and address of the engineer, owner and the
person authorized to receive bids, the time and place of opening the bids.
2. Instructions to Bidders.
Contractors who become interested by the advertisement will wish to obtain additional
information in order to determine whether or not to make a bid and if they are to make a bid they
will need even more information as to the details of the job & the bidding procedure. This
information is compiled in a document known as instructions to Bidders, or information to
Bidders
3. Proposal
The proposal will generally contain the following items;
1. An offer by the bidder to enter into a contract to do the stipulated work at a specified
price or prices, to begin the work at a certain time and complete it at a certain time.
2. A statement that the required bid surely accompanies the proposal.
3. An agreement to furnish the required contract bonds
4. A statement that the bidder has inspected the work sites & the plans & specifications.
5. A statement that the bid has been made without collusion or fraud.
6. A list of subcontractors maybe required, unless the owner reserves the right to himself or
to the engineer to approve subcontractors before they are engaged
7. An experience & qualification record maybe required.
8. Signature by the bidder & by witnesses if required and the address of the bidder
4. The contract
The "contract" is the agreement a legal document containing the names of the parties their
promises, the conditions and the signatures of the parties.
5. Specifications.
The plans and specifications describe the work to be done, primary from the point of view of the
results to be achieved. The plans describe the work graphically and the specifications verbally.
The plans shows the extent and quantity of the work, while the specifications indicate the kind,
quality or standard of work. The purpose of the specifications is to specify what is to be done
6. Surety Bonds
In order to give security to the owner in case of a failure of the contractor to perform all his
contract obligations, the contractor is generally required by the terms of the contract to supply
one or more bonds. These bonds are normally issued by financially responsible bonding
companies, and they guarantee the owner against loss caused by the contractor's actions. The
contractor pays a relatively small fee to the bonding company and provides them with collateral.

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Then in case of loss to the owner caused by the contractor, the owner can recover directly from
the bonding company on the bond.