Contract and Payment structures

Whether

responsibility for the design,

procurement , construction, commissioning is
allocated to one contractor or not
Whether the main contractor will both mange the
project and undertake construction or will be
responsible management only while the
construction is undertaken by other contractor
The basis upon which is payment is to be paid

Procurement routes

2. Turnkey contract

The

contract is responsible for both

construction design and construction
The client should have an engineer who
protect the interest of the client

The

contractor is responsible only for the

management of the contract whereas the
construction of the work will be undertaken
by other contractors appointed by the client
Construction Management Contract is for
use on construction projects where the
employer appoints separate contractor to
carry out the works, and a construction
manager to oversee the completion of the
works for a fee.

Is

a cost-type contract (also known as an open-book

contract) where the contractor is compensated for
actual costs incurred plus a fixed fee subject to a
ceiling price.
GMP Combines construction management with
the design and build
The contractor is responsible for the management
of the design such as
programming, coordinating the work of designers

The contractor is responsible for cost overruns,

unless the GMP has been increased via formal
change order (only as a result of additional scope
from the client, not price overruns, errors, or
omissions).

There are three main ways in which contract

is calculated
Lump sum
Remeasurement/bill of quantity and
Cost reimbursement(cost plus)

Advantages of lump sum

It provides the maximum incentives to the
contractor to complete the work on time
It reduces to minimum the amount of
administration involved after contract
agreement

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The

ground condition on the site

Material quantity and specification
number of labors and labor hours
Descriptions and quantities of bought- out
items
Types of constructional plant which will be
required and for what periods
Time required by the designers

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The site organization and facilities and which will

be required and for how long.
Factors which will affect the site productivity
Geographical and climatic factors as they affect
site work
Access to site
Local availability of material and labor
NB: The contractor should give similar information
to the subcontractors
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It

involve in estimation of quantity, cost of the

materials, labor, supervision and plant which will
be required to execute the work.
It is commonly used in building and engineering
contracts

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In Cost reimbursement contract (cost plus contract),

the contractor is reimbursed the actual cost they
incur.
It can be used where the scope of the work to be
carried out can not be properly defined at the
beginning and the risk associated with the works are
high (repair/rehabilitation). This is a high form of
contracting for the client as the final cost is not
known when the contract is entered in to.

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Advantage of terms of payment

The

employer avoids having to restrict the tender list

to large firms possessing the resources to finance the
contract.
It ensures that the renderers do not have to inflate
their tender prices by financing charges.
It gives encouragement to and allow the employer to
take advantage of firms possessing technical
initiatives who would otherwise be held back from
expanding by lack of liquid cash.
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The employer minimizes the risk of being

saddled with a contractor who has insufficient
cash with which to carry out the contract and of
having therefore to either support the
contractor financially or terminate the contract.

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After

issue of completion certificate by the architect

or engineer, there is no excuse for delay
Late payment is breach of contract
Many contract charge interest on client of being
delay of payment
If payment is delayed after notice from the
contractor for more than a specified period, the
contract has right to suspend the work or terminate
the contract

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It is recommended to avoid advance payment

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With contracts for building and civil engineering

works, it is usual for the purchaser to retain a
proportion of the contract price until the work has
been completed.
This percentage varies but is usually between 10
per cent and 20 per cent.

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