Types of contracts

Contracts are of the following types -

1-  Item rate contracts, including

(a) Percentage rate contract

(b) Schedule rate contract

(c) Labour rate basis

(d) Through rate basis

2- Lump sum contract

3- Combination of both item rate and lump sum contract.

4-Unit Price Construction Contract

5-Cost Plus Construction Contract

6-Target Cost Construction Contract

1-  Item rate contracts-  In this type of contract, the contractors have to quote rate of each item of the work without reference to any schedule of rates. This method is adopted when a reasonably complete schedule of rate is not available for the place where the work is to be done. 

(a) Percentage rate contract- In this type of contract, the rates for various items are fixed by the department and the contractor agrees to do the work at a percentage above or below the fixed rates. This method is adopted for works at places where a reasonable and complete schedule of rates is available. 

(b) Schedule rate contract- In this type of contract, the work is alloted at fixed rates for different items and the payment depends upon the quantity and type of work done or supply made. 

(c) Labour rate basis- In some cases the contractor quote the labour rate at some percentage above or below the rates prevailing in the site of various items of work. 

(d) Through rate basis-- In some cases the contractor quote the rates for doing work some percentage above or below the through rates. 

2- Lump sum contract- In this type of contract, the contractors have to quote a lump sum figure for completing the work according to the given specifications, drawings etc. This type of contracts are given only in special conditions. 

3- Combination of both item rate and lump sum contract-  IN this contract, a fixed sum is agreed upon for the completion of a particular work by the contractor. In cases of any addition or alterations the payment is made or deducted on the basis of schedule of rates.

 

4-Unit Price Construction Contract 

The total price of the project in the unit price contract is based on the price of each item’s unit. The contractor is paid as per the rates of items specified in the bill of quantity.

The risk is shared with the contractor and the owner. This type of contract has more flexibility for design changes than the lump sum contract.

The construction of the project can be started before finishing the designs, so the total cost of the project will be uncertain at the early stages of the project.

5-Cost Plus Construction Contract

The contractor is paid based on the actual cost of the project, including direct and indirect costs, plus a specific fee. This fee could be a fixed fee or percentage of costs.

All risks are assigned to the owner, and he gets involved with the contractor in the management of the project. The contractor has no risk in case of increasing the cost of the project; also, there isn’t any incentive for an early finish.

This type of contract is ideal when the project scope is uncertain in the early stages of the project. The contractor can start the execution of the project before finishing the design. It is impossible to estimate the cost of the project before the construction has been completed.

6-Target Cost Construction Contract

Target cost contract has common features of the lump sum and cost-plus contracts. The contractor is paid based on the actual costs plus a certain fee either fixed or percentage of total cost in case of the cost of the project doesn’t exceed certain target cost specified by the owner.

There is a risk carried by the contractor in case of an increase in the cost of construction projects. The contractor is also rewarded a percentage of any savings between target and actual cost.