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May 22, 2017
Construction Project Management: Contract Types
May 22, 2017
Types of ContractsAt the early stage of the construction projects, the essential argument that disturbs the owner and contractor is accepting a suitable form of the contract that meets the common objectives. (Elbeltagi, 2009). Specifying the suitable form of the contract is the first step to confirm the policies and procedures required for executing the project. When the owner, consultant and contractor develop the contract, they provide their choices compatible with the specifications and design that they previously agreed to. The contract increases the chances and probabilities of implementing the objectives and fulfilling the project. The structures of the contracts differ generally, as they are related to the size and complexity of the project.There are various forms of the contract that the owner, consultant, and contractor can use in their projects. Those forms are organized and arranged based on the risks involved and can also be arranged based on the method of payment from the owner to the contractor:
- The first type is the lump-sum suitable for the turnkey construction when the project is precisely defined and the changes are thoroughly prescribed. This type is appropriate for the project when the owner prefers that the contractor manages the project and handle it until finishing so, the owner offers a formal tender to the contractor providing the schedule of the project. The contract lacks the flexibility of making changes in design so, when the owner makes modifications, the contractor is entitled to ask for additional tender to cover the additional costs
- The second type is the cost-reimbursable suitable for the projects when the owner needs to participate in the management and expects to make modifications to the design during the construction. The owner provides the total costs to the contractor offering additional fees for the overheads. The contract includes a high level of flexibility in changing the design when the owner needs so, the total costs are estimated after the changes are made and the extended time is carefully considered
- The third is the time and material contract suitable for the projects when the owner needs to gain a higher level of control. The contract is also suitable when the scope of the projects is not completed and the owner and contractor need to work immediately. The contract does not estimate the total costs and extended time at time of placing whatever the owner and contractor trust each other