BSc (Hons) QS/FM

...is a legally binding agreement (usually)

between two parties.

Usually a written (& sometimes not)

All agreements are not contracts

Test
◦ Offer and acceptance
◦ Intention to create legal relationship

All contracts are agreements

Suranga Jayasena
1 2

It is about what is agreed by the parties.

Rather than what they are, we may also look
Contract defines how they are defined.
◦ Rights and
Contract defines
◦ Obligations ◦ What is to be designed

of parties under the agreement. ◦ What is to be built and
◦ How much to be paid

Client’s right: to get the project done.
How these are defined maybe used to classify

Contractor’s right: to get paid the contracts

3 4

Simplest maybe to look at design and build
Looks at how reward (payment) is paid to the
responsibilities, i.e. classification by contractor by the client.
responsibility. ◦ >> What is agreed at the time of contract.

◦ A design contract
◦ A building/construction contract
Broadly, either
◦ A design and build contract ◦ Price Based, or

This classification may not be deep enough ◦ Cost Based
for our purposes

5 6

by Suranga Jayasena 1
BSc (Hons) QS/FM

Broadly Two
Contract Sum (for the total contract) is agreed

at signing of the contract.
◦ Lump Sum Contracts
Appropriate for most of contracts.

Client has the maximum price certainty
◦ Measurement Contracts before contractor starts performing.

7 8

Agree for a mechanism to arrive at final sum
based on actual quantities of work done.

Price certainty only at the end of
performance.

Higher price risk compared to lump sum.

Some, are “re-measurement” contracts.

Most effective when works are substantially
designed but final details not yet completed.

Client can shorten overall programme at the
expense of price certainty.

Fair Price ...?

9 10

Agreed for mechanism for final price

Price = Costs + Agreed Allowance

Costs
◦ Actual costs (prime cost) incurred by the contractor
in performing the contract >> labour, plant,
material, fuel, etc.

Allowance
◦ A fee: which needs to be agreed.

Known as Cost Reimbursement Contracts

Used When not appropriate to measure even
approximate quantities: scope not clear, risk
unreasonable to price, etc.
◦ Risk >>> Profit Margin

Examples: emergency building repair after
fire, Civil Engineering work under water.

11 12

by Suranga Jayasena 2
BSc (Hons) QS/FM

Provide for great flexibility for change
Cost + Percentage Fee

◦ Programme, scope, quantity of works, etc.

Price risk to contractor is low; to client high
Cost + Fixed Fee

Weakness in lack of incentive for contractor
minimize his “prime cost”
Cost + Fluctuating Fee

Few variants depending on the way the fee is
applied.

Target Cost Reimbursement Contract

13 14

Drawings and Specification

Performance Specification
Simplest type

Schedule of Rates
Complete drawings and full specifications

Schedule of Prices
Comprises of large amount of tender

Bills of Firm Quantities information

Bills of Approximate Quantities
Most pricing risk to the contractor

Tendency to overprice due to above

Known to be used with lump sum price (and
no BoQ)

15 16

Each bidder quantifies for pricing >>
wasteful

Difficult to evaluate bid prices

Design needs to be fully completed for
signing of the contract

Variations might become problematic to value

Price based on employers brief and user
requirements (documented as a performance
spec)

Within the parameters laid down, contractor
chooses methods, materials and the design
(often)

Flexibility to the contractor

Defined performance to be achieved

17 18

by Suranga Jayasena 3
BSc (Hons) QS/FM

Lump sum price

Natural to offer least expensive materials and
construction methods

Difficulty is to draft the Performance Spec
perfectly

Suits projects of any size.
19

Similar to Schedule of Rates, but tender
includes rates (from current market)

Bidders offer discounts (+/-) for work
sections

Facilitate bid evaluation

Usage of standard allows familiarity >>
better pricing
21

Bid can be compared on bid sum alone

Widely used, suits projects of any size

Lot of time on design and bill preparation

Risk of quantity errors in BQ is with bidder
◦ Bidder to rate strategically
◦ May cause problems in variations pricing
23
by Suranga Jayasena

Similar to BoQ but no quantities

Principles of SMM used

Bidders insert their rates

Neither contract sum nor final price
predictable

Difficult to price in absence of quantities

Used when not possible to predetermine the
extent of proposed work
20

Both Quantities and Unit Rates form part of
contract

Design to be virtually completed

Clear picture of commitment of both parties

Detail breakdown of bid/tender sum >>
better bid evaluation

Unit rates >> basis for pricing variations
22

Used when not possible to measure work
accurately

Price certainty comparatively less than
previous

Entire work re-measured on completion

Only Unit Rates form part of contract

Quantities ...?
24
4
BSc (Hons) QS/FM

Less pressure to fully complete the design
Decision on type of contract, conditions of
contract and contract documentation

Signing of contract before finalizing the
design
Selection of the contractor

Lesser overall time
Establishment of contract price (or how the
price will be arrived at)

No risk to bidder on quantity errors in the bill
(what if for large deviations)

Extra expense (time/money) on bill of firm
quantities avoided >> but, what about
remeasuring

25 26

Thank You

27

by Suranga Jayasena 5