CONSTRUCTION CONTRACTS

Types of contract
Types of contract in this instance indicate the
relationships between the parties participating in the
construction rather than how the construction is measured
or paid for.
Traditional contract
Contractual relationships between parties
•With the traditional contract, the Employer appoints a single
contractor, who may be a Management contractor subcontracting
all the construction or may employ his or her own construction
workers.
•The Contractor will enter into contracts with all subcontractors.
Except where nominated by the Employer, the contractor is free to
choose the subcontractors.
•The employer will have already appointed a Design Team co-
ordinated by a Design Leader.
•There is thus a contractual relationship between the Employer and
Contractor and also between the Employer and one or more design
organisations forming the Design Team.
•The Design Team does not have a contract with the Contractor in
this type of contract.
•This type of contract usually involves competitive tendering.
• In this process the Tender documents are prepared by the
Design Team for the Employer and made available to a number
of tenderers suitably qualified to construct the project.
•Each tenderer determines the price for which the project can
be built.
• These tenders are submitted to the Employer. After analysis
of the various tenders by the design Team, the employer selects
a Contractor, usually the lowest tenderer, to construct the
project.
• The selected Contractor and the Employer enter into the
Agreement formalizing their relationship and the obligations
they have to each other.
• The contractor then constructs the project in accordance with
the Contract Documents.
Management of construction
•The Project Manager’s authority has to be accurately
defined and explained in the contract documents.
•Some standard conditions merely refer to the architect or
engineer. It is preferable if the Project Manager who is
the actual person responsible for the construction is
named either in the Contract Documents or in an
attachment.
•The Project Manager may be the Design Leader or
another person appointed by the design Leader or by the
Employer.
•The Project Manger is not necessarily resident on site
but may have assistants who are.
•The Design Team and the Employer should communicate
through the Project Manager to the Contractor.
•Any specification sections prepared by the Design Team
must reflect this relationship. For example, only the
Project Manager should be designated to receive the
Contractor’s submissions.
•Neither the Employer nor the Project Manager has a
contractual relationship with suppliers, Subcontractors or
sub-subcontractors.
• Communication with these entities must always be
through the Contractor.
•The project Specification should not be directed or
addressed to subcontractors or to suppliers.
•The single contract is the most common method of
construction contracting on less complex projects.
• It is usually the simplest to administer. With the
centralization of responsibility, one Employer, one
Contractor and one Construction Contract, there is
reasonable assurance that the project will be completed on
programme and without coordination problems.
•Even though the Contractor may divide the work into
subcontracts, the Contractor remains responsible for all of
the work needed to fulfil the contract.
•The lines of responsibility to the Employer must be
clearly defined.
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Traditional Contract
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Management contract

Contractual relationship
•With management contracting, the Employer employs a single
Management Contractor.
•The Management Contractor is appointed before product
selections have been finalized by the Design Team.
• The Contractor assists the Design Team to finalize the
Contract Documents and is therefore part of the Design Team.
•The Design Team is directly appointed by the employer.
•The Management Contractor has separated contracts with each
of the works contractors but usually the Employer has to
approve each contract before Acceptance.
Selection of Management Contractor
•The Management Contractor charges a fee which is usually a percentage
of actual construction costs.
•Different management contractors may tender various percentage fees.
•It is, however, more usual that the Management Contractor is selected
because of his or her reputation.

Management of construction
•This is done by the Management Contractor in the usual way.
• The Design Team should remain responsible for the adequacy for the
Specification, even though some product decisions may be influenced by
the Management Contractor.
•As the Management Contractor will appoint a person to dispatch parts of
the Specification to different construction contractors, it may be
appropriate for that person to be defined as the Project Manager.
•Nevertheless, the Management Contractor will depend on the Design
Team to advice on the acceptable quality of the work.
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Construction contractors
Construction management contract
Introduction
•In such a contract, the Employer appoints a Construction Manager
as an added participant in the process.
• The Construction Manager is employed by the Employer to
oversee and administer the project.
•Usually the Construction Manager will not perform any of the
construction work. However, a contractor can serve as
Construction Manager and may perform portions of the
construction.
• Construction Management includes acting as the Employer’s
Representative in evaluating tenders and awarding contracts for all,
or various, parts of the project. The project may be fast track and
the construction management function may also include some
design services.
Contractual relationship
•The Employer has contracts with the Design Team, a Construction Manager and
each construction contractor.
•The Design Team is occasionally appointed by the Construction Manager.
•The Construction Manager is part of the Design Team.
Selection of Construction Manager
•This is the same as for a Management contractor
Selection of works contractors
•The construction Manager invites tenders and evaluates them and makes
recommendations to the Employer.
•Even though the construction Manager is part of the Design Team and may assist in
decision making, the remainder of the Design Team should ensure that the
Specification is complete and technically correct.
Advantages
•If the Construction Manager defaults after commencement of construction the
works contracts are still binding.
Disadvantages
•If the works contractor defaults, the Employer is primarily responsible.
•Although used in the United States, this type of contract is not favoured in the
United Kingdom or Middle East as Employers prefer to deal with a single party for
the construction.
 Construction Management Contract
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Project Management Contract
•When construction management is extended to oversee the design
and planning stages it is called project management.
•The project management technique has been utilized for both
government and private sector projects.
•Large project for construction overseas have been handled in this
manner with particular success.
•Projects involving many buildings and significant site works often
require this type of supervision and coordination to solve logistical
and scheduling problems.
• Complex operations such as buildings for industrial and process
engineering firms use project management to coordinate the work
and reduce the time required for design and construction.
Contractual relationship
•The Employer has contracts with the Design Team, a Project Manager and a
single main Contractor.
•Note that the Project Manager does not manage several construction contractors
as with a construction management contract.
Project Manager
•The Project Manager usually recommends the appointments of the Design Team
and the Contractor to the Employer and fulfils the following functions:
• Initial concept consultant
• Ensures that the Design Team are properly qualified for the task
• Ensures that the Employer’s requirements are properly described
• Ensures that the Design Team brief is correct
•Such a Project Manager can be very useful with very large projects when there
may be a very large number of design and construction specialists requiring
considerable coordination.
•Take care that the Project Manager does not administer the project with
excessive bureaucracy.
•Take care also that project management is cost effective for any particular
project.
Project Management Contract
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 Design and manage contract

•Like design and construct, this type of contract has the

advantage that the Employer deals with only one party.
• In this case, however, it is the Design Team and the
Design Leader in particular who manage both the design
and construction.
•This contract is suitable for small works only, as usually
the Design leader will not have the necessary contracting
experience to manage the construction of complex works.
 Design and Manage Contract
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Design and construct contract
•Such a contract suits those Employers who prefer to deal with one
body only for both the design and construction.
•Usually, that body is a Contractor, who will employ a consultant
Design Team if there are not exiting in-house design staffs.
•If the Employer has had a long experience with a particular
Contractor, it may be possible to successfully negotiate a design
and construct contract with him or her.
•The principal problem if tenders are sought is the high cost of
tendering.
• Each tenderer has to produce at least an outline design in order to
obtain a construction cost. The cost of tendering is reduced if it is
possible to use a standard building or one similar to another already
constructed.
Design and Construct Contract
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Design, manage and construct contract

•The difference between such a contract and design and

contract is that the Employer first appoints a Design Team
to prepare an outline design.
•The employer can then obtain budget prices at an early
stage in the selection of the Contractor.
•If the Employer wishes to negotiate with a single
contractor, it must be reasonably certain that the final
Contract Sum will be acceptable.
•If tender prices were obtained on the basis of the outline
design, the Employer may be able to select a single
Contractor with whom a price can be negotiated for the
detailed design.
Design, Manage and Construct Contract
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Subcontractors Suppliers
Direct labour
•Many large manufacturing firms have their own in-
house design staff and have a number of contractors who
are familiar with firm’s manufacturing processes.
•Some large contractors are also developers and so are
both employers and contractors.
• The Design Team may be in-house or consultants.
•There is, however, a tendency for the developer and
contractor parts of the organization to be separate
companies under a parent company.
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Construction subcontracts

•It is just as important for the contractor to have a

contract with the subcontractors as it is with the
Employer.
• In the subcontract documents between the Contractor
and subcontractors, the contractor will include much of
the contract documentation received from the Employer
and will require different forms of Tender and
Acceptance/Agreement.