Contracts 2

Contract Contract

A promise enforceable by law A promise enforceable by law

St. Scholastica’s CollegeInterior Design DepartmentSt. Scholastica’s CollegeInterior Design Department

Arch’t. Larry Angelo A. Carandang MSCM

uap-piid

Arch’t. Larry Angelo A. Carandang MSCM

uap-piid

A product of a bargain A product of a bargain

there must be an offer by the offeror and an acceptance by an offeree

there must be an offer by the offeror and an acceptance by an offeree

• 2 Kinds of Contracts• 2 Kinds of Contracts

UNILATERALUNILATERAL Involving a promise on one side only.

BILATERALBILATERAL consist of promises on both sides.

Among others, the contract includes:Among others, the contract includes:outlines the work to be done as shown by the designer’s

drawings and specifications.

shows the amount the professional is to be paid and in what manner.

indicates the date agreed upon for completion of the work.

responsibilities and penalties in case of default by any one of the contracting parties.

1. Lump Sum

2. Unit Price

3. Cost-plus Fee

4. Cost-plus percentage of cost

5. Administration Type

6. Construction Management

1. Lump Sum

o Advantageso Advantages- when the type of project is highly standardized

and where a variety of operations is required, making it impracticable to breakdown the project down into units.

- when designer has completed all plans and specs, the owner has the advantage of knowing in advance the exact cost.

- minimizes costly and un-planned changes and extra works.

1. Lump Sum

o Disadvantageso Disadvantages

- Requires from the beginning, complete set of plans and specs immediately.

- constant inspection and supervision required to make certain services are completed in the manner prescribed in the contract.

2. Unit-Price

o Advantageso Advantages- Makes it possible to start the project even when set of plans and specs are not yet completed, thus saving precious time, especially when meeting completion date.- for privately owned projects, this is highly advantageous for which accurate estimates on material and item take-offs are difficult to prepare from the beginning.


- complicates the payment provisions of the contract.- the owners will not know in advance the exact

cost of the project.

3. Cost-Plus Fixed Fee contract

o Advantageso Advantages- for large, privately owned projects for which accurate estimates are highly difficult to prepare during planning and design stages.

- makes it possible to start the project w/ only preliminary plans and specs, thus again, saving precious time in overall date of completion.

- designer is not tied up and is very free to act in the best interest of the client through out the entire stage of construction of the project.


- No specific incentive for the designer to exert his best efforts towards efficiency and the cost of the work may be increase because of this.

- Demands greater degree of accuracy in purchasing and cost accounting

3. Cost-Plus Fixed Fee contract

- again, in comparison to Lump-Sum contract, the project owner has no way of knowing in advance, the exact cost of the project.

4. Cost-Plus Percentage of the Cost

o Advantageso Advantages- gives the owner a free hand to decide and request for changes of work w/o undermining the designer’s fee.- makes it possible to start the project w/ only preliminary plans and specs, thus again, saving precious time in overall date of completion.

- the designer is again not tied up with the original set of plans and specs and therefore is very free to act in the best interest of the client throughout the entire stage of construction of the project.

4. Cost-Plus Percentage of the Cost

o Disadvantageso Disadvantages- additional speculative elements are introduced into the contract as compared with the straight-forward Cost-Plus-Fee type, thus complicating manner and schedule of payment unnecessarily.

- since designer’s fee is increased by the increase in project cost, designer is tempted to jack-up the production and/or cost of materials and other items.- the owner, again, will not have the assurance in advance, of the total cost of the project, thus making budgeting a more challenging task.

5. Administration Contract

o Advantageso Advantages- for large privately owned projects, designer has absolute freedom to work for the best interest of the project/client because he/she is not tied up with rigid set of plans and specs.

- makes it possible to start the project w/ only preliminary plans and specs, thus again, saving precious time in overall date of completion.

5. Administration Contract

o Disadvantageso Disadvantages- requires the owner to set up and maintain own construction and accounting organization for the specific project. - assurance of obtaining good, skilled workers for the respective job tends to be diminished.

- the owner, again, will not have the benefit of knowing in advance, the total cost of the project, thus making budgeting a more challenging task.

- because it is the owner who hires contractors, tendency is greater of being charged a higher price for the project, assuming the owner is not as familiar as the designer in construction projects.

6. Construction Management Contract

o Advantageso Advantages- Management and general supervision is placed on the hands of the designer – lower additional fee for the client, while obtaining an additional professional fee for the designer.

- affords the owner – designer to try the latest developments in the industry, which may be relatively new but pioneering. Advantageous to both! o Disadvantageso Disadvantages

- cost of project is not known in advance.

- by contract definitions, the client is bound by the acts of the designer, whereas the acts of the designer

becomes his/her own responsibility.

Contract Claims & Negotiations Contract Claims & Negotiations

for unexpected delays, disruptions or work changes from the planned activities that can

result in additional costs being incurred or completion time being missed.

for unexpected delays, disruptions or work changes from the planned activities that can

result in additional costs being incurred or completion time being missed.



When properly prepared, claims can take several forms:When properly prepared, claims can take several forms:1.1.

Claim for VariationsClaim for Variationsex: change orders, extra work orders, etc.

2.2.

Claim for prolongation of completionClaim for prolongation of completionex: time extension, weather disturbances, Acts

of God, etc.3.3.

Claim for acceleration of completionClaim for acceleration of completionex: time compression, date of opening of use,

etc.Failure to take action when a claim is justifiable and negotiable could mean

profits lost!

Failure to take action when a claim is justifiable and negotiable could mean

profits lost!Such failure of action can often mean the big difference between a modest profit or a

substantial loss to your contract!

Such failure of action can often mean the big difference between a modest profit or a

substantial loss to your contract!

Contract Claims & Negotiations Contract Claims & NegotiationsThe basis for which a claim typically are assembled include the following:The basis for which a claim typically are assembled include the following:

1.1.

Disputed variations or changes.Disputed variations or changes.2.2.

Delays and disruptions in the work.Delays and disruptions in the work.3.3.

Acceleration ( or compression ) of time.Acceleration ( or compression ) of time.4.4.

Changes to contract work program and schedule.Changes to contract work program and schedule.5

.5.

Extension of time.Extension of time.6.6.

Errors in design and/or “design as you go” approach.Errors in design and/or “design as you go” approach.7

.7.

Late documentation approvalLate documentation approval8.8.

Suspension of the works.Suspension of the works.

9.9.

Late delivery of owner-supplied materials and equipmentLate delivery of owner-supplied materials and equipment

10.10. Changes to site conditions ( misrepresented )Changes to site conditions ( misrepresented )

11.11.

Late payments or payment defaults.Late payments or payment defaults.


• Key elements of claim management• Key elements of claim management

1.1.

Complete and accurate site documentation.Complete and accurate site documentation.2

.2.

Accurate assessment of contractual entitlements.Accurate assessment of contractual entitlements.3

.3.

Correctly quantified ( estimated ) costings.Correctly quantified ( estimated ) costings.

4.4.

Adopting the appropriate strategiesAdopting the appropriate strategies

5.5.

Presenting a clear, logically constructed, well-reasoned and substantiated claim.Presenting a clear, logically constructed, well-reasoned and substantiated claim.

6.6.

Maintaining the channels of negotiation w/ a view to obtaining a mutually acceptable settlement.

Maintaining the channels of negotiation w/ a view to obtaining a mutually acceptable settlement.

Where a claim arises, it is always preferable to settle it quickly and effectively.

Where a claim arises, it is always preferable to settle it quickly and effectively.

