CONTRACT wereement which recognises and governs the rights and duties of wgreement.Ll A contract is le ible because it meets the of the law. A\ ally involves the exchange of goods, \ contr the parties to the formation of a contract generally requires an offer wal intent to be bound. Each party must have capacity to In the An acceptance, consideration cnter the contract.“ Although most oral contracts are binding, some types of contracts may such as being in writing or by deed.) In the givil law tradition, contract law is a branch of the law of obligations. ‘51 4 construction contract is a mutual or legally binding agceement between two parties based on policies and document form. The two parties involved are one or more owners, and conditions recorded one or more contractors. The owner has full authority to decide what type of contract should be used for a specific development to be constructed and to set forth the legally-binding terms and conditions in a contractual agreement!!! A construction contract is an important piece of document that outlines the scope of work, risks, duties, and legal rights of both the contractor and the owner, © Contents imp sum contract 2 Lump sum and scheduled contract 1,3 Commercial contracts 1.4 Domestic construction contracts 1.5 Percentage rate contract 1.6 Cost plus fixed fee contract 17 Cost plus percentage of cost contract L8 Subcontract agreement 1.9 Unit Cost Contract 1.10 Special contracts + 2See also + 3References Biercronsno 6 0Types A en types of contracts are: Lump sum contract ‘Commercial contract Domestic building contract! Percentage rate contract Item rate contract or Unit price contract, Lump sum and scheduled contract! Cost plus fixed fee contract Cost plus percentage of cost contract, Subcontract agreement 4 Special contracts“) @ © Lamp sum contract See also: Lump sum contract in construction Ina lump sum contract an owner agrees to pay a contractor a specified lump sum after the completion of work without a cost breakdown. {7 After work no detailed measurements is required. / \ump sum and scheduled contract In Jump sum contract the complete work as per plan and specifications is carried out by ‘contractor for certain fixed amount as per agreement. The owner provides required information, and contractor charges certain amount. This contract is suitable when the number of items are limited or when it is possible to work out exact quantities of work to be executed. The detailed specifications ofall items of work, plans and detail drawings, security deposit, penalty, progress and other condition of contract are included in agreement. Though it is ump sum and scheduled contract, contractor will be paid at regular interval of 2-3 months as p f work on the — basis of certificate issued by engineer in charge. A scheduled 0 making payment of extra items. we ‘Under a lump sum contract, a “fixed price” for ‘and contractor before the work begins. This co and commercial contracts. It can b re ofyp A Domestic construction contracts A domestic building contract is an a for the construction of a commercial particular country; not foreign or int ‘At Containing all the work th esidential building coscn ork hat should be performed a i existing or occurring inakie Percentage rate con: When the lowest rate and comparative p. cmaian among the contractors an : : to the opening of the tender, then the percentage rate contact is used. Pereona ey eee ied Prior type of contract where there is no possibility of unbalanced tender Serre “Cost plus fixed fee contract In cost plus fixed fee, the owner pays the contractor an agreed amount over and above the documented cost of work. This is a negotiated type of contract where actual and direct costs are paid for and additional fee is given for overhead and profit is normally negotiated among parties. The owner is in more control of the project; however, the risks are transferred to the owner {2 A cost plus contract states that a client agrees to reimburse a construction company for building expenses such as labor, materials, and other costs, plus additional payment usually stated as a percentage of the contract’s full price. This type of construction contract is an alternative to lump sum agreements. It allows flexibility and transparency for the homeowner, and reduces the risk for a contractor since a Cost Plus construction contract guarantees them a profit. The difference between this type of contract which is a cost-based contract with lump-sum contract is that in guaranteed maximum price (GMP), if there is any savings resulted from cost under runs, then that would be stipulated price contract, and the contractors will keep the savings obtained from the cost under runs for themselves and there is no obligation for them to give them back to the owners. Nevertheless, this saving can be shared by both the contractor and the owner! Another difference is about status of the plans. The lump-sum contract may be used when the owner does have a complete set of construction plans, specifications ete. available, otherwise, the guaranteed maximum price (GMP) is preferred to be included to compensate for this lacking. When the Cost-Plus is utilized, it is better for the owner to determine the guaranteed maximum price, to prevent any further cost and contractor needed to provide the primary input for owner about the project cost,!14! Duke and Carmen stated "Cost-plus with GMP provides an upper limit on total construction costs and fees for which an owner is responsible. If the party providing the work under this pricing method runs over GMP, it is responsible for such overruns...Cost-plus with GMP and an agreement for sharing cost savings can incentivize both parties to a construction contract to work together as efficiently as possible,"{!4)we in this type of contract, the owner has more authori 2 of nuthorities in monitor ; a nner ies in monitoring, inspecti project periodically before ultimate payment. Therefore, the me ng esPesting and auditing th to contractor and this would be an attraction for the custo: ig Be transere from owner customer! + Cost plus percen ¢ of cost contract In cost plus percentage, the owner pays greater ‘ requiting detailed expense accounting. In this ype eteacinc: conn Se ee Cost of work pis certain percentage as profit, Various contract documents drawing, specifientons are not necessucy at REMeSTsgning the agrecmeat Comet er records for cost of material and labour and contractor wil be paid aiyoarae incharge. This type of contract is suitable for emergeney work like difficulties in foundat conditions, construction of expensive structure etc. unis usually actual Subcontract agreement A subcontractor agreement isa contract primarily between a builder ora principal contractor and subcontractor. It outlines the perimeters of specialist work to be done for the construction project. Minit Cost Contract This contract is based on units put in place rather than a single price. The payment is calculated at a specific rate for each item such as cubic yard for concrete times quantity put in place. “The Contractor quotes an owner a priee for a particular task or scope of work, though at the time of contracting the parties may not know the actual number of the units of work to be completed." Consequently, the owner does not have an exact final price tll the project is finished This type of contract is normally utilized where the quantity of work cannot be established such as Chil engineering construction projects where excavation of soil and rock are involved. The, contractor is paid based on the units that have been put in place and verified by the owner id Unit Cost contracts provide more flexibility in discrepancies in field quantities and because of this, it is always used on heavy and highway construction contracts.4! Associated General Contractors of America (AGC) states that this type of contract is hardly used for the entire project and is mostly applied to when contracting with subcontractors which identification of different quantities are of matter of importance and they are commonly used for repair and ‘maintenance work, For this reason, its “not particularly useful for most private building projects, except as part of a lump sum or cost-plus contract, applied to select components of ‘work items such as dirt removal or fill, finish hardware, etc.""¥#1 r ‘At common law, the elements of a contract are; offer, acceptance, intention to create legal relations, consideration, and legality of both form and content.