3/16/2022

Construction
Sites
Engineering &
Management
Program

Contract & Claims

CSM503
(Types of Contracts)

Prepared by
Dr. Shady Dokhan

Contents

• Types of Contracts

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Construction Contracts ‫ﻋﻘﻮد اﻟﺘﺸﯿﯿﺪ‬

Types of Contracts
Contracts

Cost Based Price Based

Cost plus Cost plus

Lump sum Unit Price
fixed fee incentive fee

Factors influencing contract choice :

§ Risk sharing
§ Flexibility
§ Incentive

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Types of Contracts
Lump-sum contract
• A single tendered price is given for the completion of specified work to the
satisfaction of the client by a certain date.
• Payment may be staged at intervals on the completion.

Types of Contracts

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Types of Contracts
Lump-sum contract
Advantages
- Prevent risks for the client
- Contract final price is known at tender

Disadvantages
- Limited flexibility for design changes.
- Usually higher price (high level of financing and high risk contingency).
- Client is that of not receiving competitive bids from desirable contractors who
may avoid a high-risk lump-sum contract.
- Contract may lead to cost cutting, or claims.

This contract may be used for a turnkey construction. It is appropriate

when work is defined in detail, limited variations are expected,
level of risk is low and quantifiable, and client does not wish to be
involved in the management of his project.

Types of Contracts
Unit price contract
• In this type of contracting, items of work are specified in Bills of Quantities
or Schedule of Rates.
• The contractor then specifies rates against each item. The rates include risk
contingency.

• Payment usually is
paid monthly for all
work completed (re-
measured) during the
month.

Bills of Quantities
B.O.Q.

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Types of Contracts

Types of Contracts

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Types of Contracts

Types of Contracts

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Types of Contracts
Unit price contract

Advantages
- Flexibility of changes
- Allow for more competition as it reduce risk on contractor
- Lower prices
- The contractor can claim additional payment for any changes

Disadvantages
- Client has no knowledge of actual cost or hidden contingency.
- Tender price is usually increased by variations and claims

The re- measurement contract is well understood and widely

used. It can be used when little or no changes are expected, level
of risk is low and quantifiable, and when design
and construction need to be overlapped.

Types of Contracts
Cost-plus contract (Cost-reimbursable contract )
• The contractor is reimbursed for actual cost plus a special fee for head office
overheads and profit, no special payment for risk.
• The fee may be a fixed amount or a percentage % of actual costs.
• The contractor must make all his records and accounts available for inspection
by the client or by some agreed third party.

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Types of Contracts

Types of Contracts

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Types of Contracts

Types of Contracts
Cost-plus contract (Cost-reimbursable contract )
Advantages
- Fast to start ( no need to wait for complete design)
- Higher flexibility of changes

Disadvantages
- Client has no knowledge of final cost off the project .
- Need of close monitoring from client
- Higher risk on owner

It may be used when it is desirable for design to proceed

concurrently with construction and when the client
wishes to be involved in contract management.

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Types of Contracts
Target cost contract
Cost targets may be introduced into cost-reimbursable contracts. In addition to the
reimbursement of actual cost plus percentage fee, the contractor will be paid a
share for any saving between target and actual cost, while the fee will be reduced if
actual cost exceeds the target.

Types of Contracts

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Types of Contracts
Guaranteed maximum cost

The contractor grantees that the total project cost wont exceed a fixed
number
Only the fee will be reduced if actual cost exceeds the guaranteed cost

Types of Contracts

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Types of Contracts
• Level of risk exposed by each of the discussed contract forms is
illustrated as shown in the figure.

Example 1:
If the cost for constructing 1 m2 of concrete flooring equals 700
L.E. & The work size is 300 m2 . The Calculate the payment in
these cases :

1- Unit price contract with

(800L.E./unit).
2- Cost plus 15%.
3- Cost plus 50,000 L.E. fixed fee.
4- Guaranteed maximum cost
200,000 L.E., Cost plus 15 %
5- Guaranteed maximum cost
250,000 L.E., Cost plus 15 %

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Example 1:

Solution :
1- (unit price)
Payment =300x800=240,000L.E.
2- (cost plus 15%)
Payment =(300x700)x1.15=241,500 L.E.
3- (cost plus 50,000 L.E.)
Payment =(300x700)+50,000=260,000 L.E.
4- (guaranteed 200,000)+ 15 %
Payment = 200,000 L.E. x 1.15 = 230,000 L.E.
5- (guaranteed 250,000)+ 15 %
Payment = (300x700) x 1.15 = 241,500 L.E.

Example 2:

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Example 2:

Example 2:

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Material available @
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Lecture 2

Thank You

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