CONTRACT MANAGEMENT

&
SPECIFICATIONS
 DEFINITION

Contract Management could be defined as a

multi-stage process that goes on through the
entire duration of the contract and ensures
that the parties meet their contractual
obligations in
order to deliver
the specific
objectives
provided
 DEFINITION: From a Legal Point
of View

A mutual agreement between two or

more parties that
something shall
be done,
an agreement
enforceable at
law.
 DEFINITION: According To
FIDIC

A contract means the General Conditions,

the Supplementary Conditions, the
Specifications, the Drawings, the Bill of
Quantities, the Tender, the Letter of
Acceptance and the Contract Agreement.
 DEFINITION: According
To Method of Payment

The agreement of how

the owner will pay
the contractor of
work
 Why Use Contract in
Construction?

• Describe scope of
work
• Establish time
frame
• Establish cost and
payment provision
• Set fourth
Major Contract Types
(Traditional)
TYPES OF CONTRACTS

Cost-Based
Contracts
 FACTORS INFLUENCINGTHE CHOICE
OF THE TYPE OF CONTRACT

• The appropriateness for providing an

adequate incentive for efficient
performance by the contractor
• The ability to introduce changes
• The allocation of risks
• The start and completion date of the
project
TYPES OF CONTRACTS

FIXED PRICE UNIT PRICING

OR LUMP SUM

TIME AND COST

MATERIAL REIMBURSABLE
S (T&M)
FIXED PRICE OR LUMP SUM
CONTRACTS
Involves a total fixed price for all construction
related activities

Can include incentives or benefits or penalties called

liquidated damages

Preferred when a clear scope and a defined schedule

has
been reviewed and agreed upon
FIXED PRICE OR LUMP SUM
CONTRACTS
ADVANTAGES

-Changes is difficult and

-Low risk on the costly
owner, higher risk to -Contractor is free to
the contractor use the lowest cost
material, equipment
-Cost known at and methods
outset -The contractor carries

DISADVANTAGES
much of the risks; the
-Contractor will tendered price may
assign best include high risk
personnel contingency
-Competent contractors
-Contractor may decide not to bid
selection is to avoid high-risk lump
easy sum contract
UNIT PRICING CONTRACTS
Unit prices can be set during the bidding process as the
buyer requests specific quantities and pricing for a
pre- determined amount of items.
No total final price; Payment to contractor is based on
the measure; Ideal for work where quantities can not
be accurately established before construction starts
Require sufficient design definition to estimate
quantities of units

Contractors bid based on units of work

Time and Cost Risk Shared: Owner is at risk for total

quantities, Contractor is at risk for fixed unit price
UNIT PRICING CONTRACTS

-Easy for contract selection

-Final cost not known from
-Early start is possible the beginning (BOQ only
-Saves the heavy cost of is estimated)
preparing many bills of -Staff needed to measure
quantities by the contractors the finished quantities and
-Fair basis for competition report on the units not
completed
-Changes can be easily made
-Unit price sometime tend
by the owner compared to
to draw unbalanced bid
lump-sum contract
-Lower risk for the
contractor
COST REIMBURSABLE
CONTRACTS
All the costs that the seller incurs during the project
are charged back to the buyer. The allowable costs
are defined in the contract.

RISK: The final cost is uncertain. The owner will have

to spend more if problems during execution arise.

The contractor can start work without a clearly defined

project scope, since all costs will be reimbursed and a
profit guaranteed.
COST REIMBURSABLE
CONTRACTS
• Most common form of negotiated contracts
• COST = expenses incurred by the contractor
COST+ FIXED for the construction of the facility (labor,
FEE (CPFF) equipment, materials and administrative
costs)
• FEE = compensation for expertise (profit)

ADVANTAGES
Fee amount is fixed
regardless of price
fluctuation
Provides incentive to
complete the project ASAP
DISADVANTAGES
Expensive materials and
construction techniques
may be used to expedite
construction
COST REIMBURSABLE
CONTRACTS
• The contractor is reimbursed for all his
COST+PERCENTAGE
costs with a fixed percentage of costs
OF COST (CPPC)
to cover his services.

ADVANTAGES DISADVANTAGES
Profitable for the No incentive to finish job
contractor quickly
Owner does not know total
price
Larges cost of the job =
higher fee the owner pays
 COST REIMBURSABLE
CONTRACTS
• Rewards contractors who minimize cost
COST+ FIXED • The contract specifies that the contractor
FEE+PROFIT will receive additional profit for completing
(CPFP) the project satisfactorily, but only within
GMP (Guaranteed Maximum Price)

ADVANTAGES DISADVANTAGES
Greater price certainty as the The owner might pay too much
contractor includes a sum for as the contractor takes on
future design development and greater risk
for risks
Less administration is requires as Scope changes tend to cost more
changes are limited; quick
settlement of the final account
TIME AND MATERIAL
(T&M) CONTRACTS

TIME and MATERIALS is a standard phrase in a

contractor for construction in which the buyer
agrees to pay the contractor based upon the work
performed by the contractor and for the materials
used in the construction (plus contractor’s mark up),
no matter how much work is required to complete
the construction.

A cross between the FP and CR Contracts.

TIME AND MATERIAL
(T&M) CONTRACTS
T&M Contracts are not common due to lack
of an upper limit for the price paid by the
buyer. The buyer and seller must establish an
agreed hourly or daily rate, including
additional expenses that could arise in the
process.

The cost must be classified as direct,

indirect, markup and overhead and should be
included in the contract
 CONSTRUCTION CONDITIONS OF
CONTRACTS
• The conditions of contract are the terms that
collectively describe the rights and obligations
of contracting parties (i.e. the employer and
the contractor) and the agreed procedures for
the administration of their contract.
• Contract conditions determine the allocation
of risk and consequently, price.
 CONSTRUCTION CONDITIONS OF
CONTRACTS
a) The parties’ main responsibilities e.g., the employer provides
the site and the right of access thereto while the contractor
provides the works in accordance with the requirements
established in the contract.

b)The timing of the works, e.g. start date, time for completion,
period for defects liability, etc.

c) Testing and remedying of defects.

d)Payment, e.g. manner in which the works are to be assessed and

certified, time for payment and interest on overdue amounts.

e)Variations and claims, e.g. the manner in which variations to the

contract are to be evaluated and paid for and how the costs which
result from employer liabilities are assessed and paid for.
 CONSTRUCTION CONDITIONS OF
CONTRACTS
f) Title (ownership) to objects, materials within the site, etc.

g) Risks and insurances, e.g. what are the employer’s and

contractor’s risk and what insurances each party will take out.

h)Termination, e.g. the reasons for termination, the procedures for

termination and the payment to be made upon termination.

i) The resolution of disputes, e.g. by adjudication, mediation,

arbitration, litigation (court of law) or a combination
thereof.
 SPECIFICATIONS

• Written description of the work to be performed

by the contractor and are prepared by the
designers
• May be simple notes on a drawing or more
detailed descriptions bound in the project manual
• Typically organized in accordance with the
Standard Construction Specifications which
establishes the organizational structure for the
documents and sections within a project manual,
each with its unique number and title
 SPECIFICATIONS
• A good understanding of the structure of
specifications and the individual sections greatly
aids in administrating the work
• Other types of specifications and standards, not
bound in the project manual, may include those of
organizations such as American Association of State
Highway and Transportation Officials (AASHTO).
Specifications and standards by such organizations
may be contract documents if they are incorporated
into the contract specifications by reference to
specific standards.