different type of contruction contract-daniel

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While construction contracts serve as a means of pricing construction, they also structure theallocation of risk to the various parties involved. The owner has the sole power to decide what

type of contract should be used for a specific facility to be constructed and to set forth the termsin a contractual agreement. It is important to understand the risks of the contractors associated

with different types of construction contracts.

Lump Sum Contract

In a lump sum contract, the owner has essentially assigned all the risk to the contractor, who inturn can be expected to ask for a higher markup in order to take care of unforeseen

contingencies. Beside the fixed lump sum price, other commitments are often made by thecontractor in the form of submittals such as a specific schedule, the management reporting

system or a quality control program. If the actual cost of the project is underestimated, theunderestimated cost will reduce the contractors profit by that amount. An overestimate has an

opposite effect, but may reduce the chance of being a low bidder for the project.

Unit Price Contract

In a unit price contract, the risk of inaccurate estimation of uncertain quantities for some keytasks has been removed from the contractor. However, some contractors may submit an

unbalanced bid when it discovers large discrepancies between its estimates and the ownersestimates of these quantities. Depending on the confidence of the contractor on its own estimates

and its propensity on risk, a contractor can slightly raise the unit prices on the underestimatedtasks while lowering the unit prices on other tasks. If the contractor is correct in its assessment, it

can increase its profit substantially since the payment is made on the actual quantities of tasks;and if the reverse is true, it can lose on this basis. Furthermore, the owner may disqualify a

contractor if the bid appears to be heavily unbalanced. To the extent that an underestimate or

overestimate is caused by changes in the quantities of work, neither error will effect thecontractors profit beyond the markup in the unit prices.

Cost Plus Fixed Percentage Contract

For certain types of construction involving new technology or extremely pressing needs, the

owner is sometimes forced to assume all risks of cost overruns. The contractor will receive theactual direct job cost plus a fixed percentage, and have little incentive to reduce job cost.

Furthermore, if there are pressing needs to complete the project, overtime payments to workersare common and will further increase the job cost. Unless there are compelling reasons, such as

the urgency in the construction of military installations, the owner should not use this type of

contract.

Cost Plus Fixed Fee Contract

Under this type of contract, the contractor will receive the actual direct job cost plus a fixed fee,

and will have some incentive to complete the job quickly since its fee is fixed regardless of theduration of the project. However, the owner still assumes the risks of direct job cost overrun


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while the contractor may risk the erosion of its profits if the project is dragged on beyond theexpected time.

Cost Plus Variable Percentage Contract

For this type of contract, the contractor agrees to a penalty if the actual cost exceeds theestimated job cost, or a reward if the actual cost is below the estimated job cost. In return fortaking the risk on its own estimate, the contractor is allowed a variable percentage of the direct

job-cost for its fee. Furthermore, the project duration is usually specified and the contractor mustabide by the deadline for completion. This type of contract allocates considerable risk for cost

overruns to the owner, but also provides incentives to contractors to reduce costs as much aspossible.

Target Estimate Contract

This is another form of contract which specifies a penalty or reward to a contractor, depending

on whether the actual cost is greater than or less than the contractors estimated direct job cost.Usually, the percentages of savings or overrun to be shared by the owner and the contractor are

predetermined and the project duration is specified in the contract. Bonuses or penalties may bestipulated for different project completion dates.

Guaranteed Maximum Cost Contract

When the project scope is well defined, an owner may choose to ask the contractor to take all therisks, both in terms of actual project cost and project time. Any work change orders from the

owner must be extremely minor if at all, since performance specifications are provided to theowner at the outset of construction. The owner and the contractor agree to a project cost

guaranteed by the contractor as maximum. There may be or may not be additional provisions toshare any savings if any in the contract. This type of contract is particularly suitable forturnkey

operation.

Resource: Check the book for full details ofConstruction Contracts

Related Civil Engineering Articles

ypes of Construction ContractsByJ. Cavan Barry, eHow Contributor

Contracts in the building industry protect the owner, contractor and architect during theconstruction process. There are hundreds of different contracts for numerous different stages in

the development process. Read on for information about the most commonly used contractsdrawn by The American Institute of Architects (AIA).


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General Condition of the Contract for Construction (AIA # A201-1997)

1. The General Conditions Contractstatestheresponsibilities,rightsandrelationships oftheowner,contractorandarchitect;thisistypically one ofthe firstcontractsto bedrawn ona

project.

Change Order (AIA # G701-2001)

2. Change Ordersare filed whenchangesinthe workspecifiedinthe General Conditions Contractarecalled out,includinganychangesto thecontractsum ortime. Expectto seethiscontractat

almostanypointintheconstructionproject.

Application and Certificate for Payment and Continuation Sheet (AIA #

G702-1992 and G703-1992)

3. Certificates for Paymentare forms forthecontractorto apply forpaymentand forthearchitectto verifythatpaymentisdue;theyrequirethecontractorto show thecompletion ofthe

contractto date.

Thecontinuationsheetbreaksthecontractsum into portions ofthe workinaccordance witha

schedule of valuesasrequiredbythe General Conditions Contract.

Certificate of Substantial Completion (AIA # G704-2000)

4. A Certificate of Substantial Completionrecords whenasubstantial ordesignatedamount oftheworkis finished. Thecontractorcompletesalistandthearchitect verifiesthatthe workis

substantiallycomplete.

Contractor's Affidavit of Payment of Debts and Claims (AIA # G706-

1994)

5. Thisaffidavitissubmittedbythecontractor withthe finalrequest forpayment. Itstatesthatallpayrollsandbills for materialsandequipmentconnected withthe workhavebeenpaid.

Expert Insight

6. Constructioncontractscanbeextremelyconfusingandintimidating fortheinexperienced. Seeklegalconsultation (preferably withaprofessional who specializesinconstructionlaw) when

drawingcontracts.

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Construction is defined as "a process that consists of the building or assembling ofinfrastructure." (See 1. below) On the other hand, a Construction Project "includes all material

and work necessary for the construction of a finished structure for occupancy by End Customer.This includes site preparation, foundations, mechanical, electrical work, and any other work

necessary to complete the project." (See 2. below)

There are different types of construction projects:

1. ResidentialResidentialconstructionprojectsincludehouses,townhouses,apartments,condominiums,

cottages,single unitdwellingsandsubdivisions. Thehousingdesignsaregenerallydoneby

architectsandengineersandtheconstructionisexecutedbybuilders who hiresubcontractors

forstructural,electrical, mechanicaland otherspecialty work. Thistype ofproject mustconform

to localbuildingauthorityregulationsandcodes ofpractice. Manynew buildersareattractedto

residentialprojectsbecause ofitsease ofentryintherealestate market. This makesitahighly

competitive market withpotentiallyhighrisksas wellashighrewards.

2. BuildingBuildingconstructionisperhapsthe mostpopulartype ofconstructionproject. Itistheprocess

ofaddingstructureto realproperty. Most oftheprojectsareroom additionsandsmall

renovations. Mostnew buildingconstructionprojectsareconstruction ofshelteredenclosures

with walk-inaccess forthepurpose ofhousingpeople,equipment, machinery orsupplies. It

includesinstallation of utilitiesandequipment.3. Institutional and Commercial

Institutionalandcommercialbuildingconstructioncoversagreat variety ofprojecttypesand

sizessuchashospitalsandclinics,schoolsand universities,sports facilitiesandstadiums,large

shoppingcentresandretailchainstores,light manufacturingplantsand warehousesand

skyscrapers for officesandhotels. Specialtyarchitectsandengineersare oftenhired for

designingaparticulartype ofbuilding. This marketsegmenthas few competitorsbecause ofthe


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highcostsandgreatersophistication ofinstitutionalandcommercialbuildingsascomparedto

residentialconstructionprojects.

4. IndustrialIndustrialconstructionis onlyasmallpart ofthe wholeconstructionindustryneverthelessitisa

veryimportantpart oftheindustry. Theseprojectsaregenerally ownedbybig, for-profit

industrialcorporationssuchas manufacturing,powergeneration, medicine,petroleum,etc.

5. Specialized Industrial ConstructionThistype ofconstructionproject usuallyinvolves verylargescaleprojects withahighdegree of

technologicalcomplexitysuchasnuclearpowerplants,chemicalprocessingplants,steel mills

and oilrefineries.

6. Highway ConstructionHighwayconstructioninvolvestheconstruction,alteration, orrepair ofroads,highways,streets,

alleys,runways,paths,parkingareas,etc. Itincludesallincidentalconstructioninconjunction

withthehighwayconstructionproject.

7. Heavy ConstructionHeavyconstructionprojects usuallyinvolveprojectsthatarenotproperlyclassifiedaseither

"building" or "highway." Examples ofthistype ofproject wouldbe: waterandsewerline

projects,dams,sewagetreatmentplantsand facilities, floodcontrolprojects,dredgingprojects,and watertreatmentplantsand facilities.

These are the more popular types of construction projects. Construction is a big industry and

there are now several construction companies that you can choose from. This, coupled with theuse of the internet, has made it easier for the consumer to make a decision on how to proceed

with his or her projects. You just need to do a little research. Don't hesitate to contact theseconstruction companies and ask questions. Construction projects are a major undertaking and

you need to make the right decisions when you embark on these projects.

Read more:http://www.articlesbase.com/construction-articles/different-types-of-construction-

contracts-and-projects-2608312.html#ixzz1IEdyNA1w

Under Creative Commons License:Attribution

For other uses,seeConstruction (disambiguation).


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Inlargeconstructionprojects,suchasthisskyscraperinMelbourne,cranesareessential.

In the fields ofarchitecture and civil engineering, construction is a process that consists of the

building or assembling ofinfrastructure. Far from being a single activity, large scale

construction is a feat ofhuman multitasking. Normally, the job is managed by aproject manager,and supervised by a construction manager, design engineer, construction engineer, orproject

architect.

For the successful execution of aproject, effectiveplanning is essential. Those involved with thedesign and execution of the infrastructure in question must consider the environmental impact of

the job, the successful scheduling,budgeting, construction site safety, availability ofbuilding

materials, logistics, inconvenience to the public caused by construction delays, andbidding, etc.


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Contents

[hide]

y 1 Types ofconstructionprojectso 1.1 Buildingconstructiono 1.2Heavy/civilconstructiono 1.3 Industrialconstruction

y 2 Constructionprocesseso 2.1 Designteamo 2.2Financialadvisorso 2.3 Legalconsiderationso 2.4 Interaction ofexpertiseo 2.5 Procurement

2.5.1 Traditional 2.5.2 Designandbuild 2.5.3 Managementprocurementsystems

y 3Authorityhaving jurisdictiony 4 Constructioncareersy 5Historyy 6 Seealsoy 7 References

[edit] Types of construction projects

Construction ofaprefabricatedhome

In general, there are three types of construction:

1. Buildingconstruction2. Heavy/civilconstruction3. Industrialconstruction

Each type of construction project requires a unique team to plan, design, construct, and maintainthe project.


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technologies and methods have emerged. University Construction Management departments areon the cutting edge of the newest methods of construction intended to improve efficiency,

performance and reduce construction waste.

[edit] Heavy / civil construction

Mainarticle:Civilengineering

Civil engineering deals with the design, construction and maintenance of the physical andnaturally built environment, including works such as bridges, roads, canals, dams and buildings.

[edit] Industrial construction

Industrial construction, though a relatively small part of the entire construction industry, is a veryimportant component. Owners of these projects are usually large, for-profit, industrial

corporations. These corporations can be found in such industries as medicine, petroleum,

chemical, power generation, manufacturing, etc. Processes in these industries require highlyspecialized expertise in planning, design, and construction. As in building and heavy/highwayconstruction, this type of construction requires a team of individuals to ensure a successful

project. Industrial construction is very important.Sometimes it may cause or harm theenvironment.

[edit] Construction processes

[edit] Design team

Shasta Dam underconstructionin June 1942

In the modern industrialized world, construction usually involves the translation of designs intoreality. A formal design team may be assembled to plan the physical proceedings, and to

integrate those proceedings with the other parts. The design usually consists ofdrawings andspecifications, usually prepared by a design team including surveyors, civil engineers, cost

engineers (orquantity surveyors), mechanical engineers, electrical engineers, structuralengineers, and fire protection engineers. The design team is most commonly employed by (i.e. in


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contract with) the property owner. Under this system, once the design is completed by the designteam, a number of construction companies or construction management companies may then be

asked to make a bid for the work, either based directly on the design, or on the basis of drawingsand abill of quantities provided by a quantity surveyor. Following evaluation of bids, the owner

will typically award a contract to the most cost efficient bidder.

The modern trend in design is toward integration of previously separated specialties, especiallyamong large firms. In the past, architects, interior designers, engineers, developers, construction

managers, and general contractors were more likely to be entirely separate companies, even inthe larger firms. Presently, a firm that is nominally an "architecture" or "construction

management" firm may have experts from all related fields as employees, or to have anassociated company that provides each necessary skill. Thus, each such firm may offer itself as

"one-stop shopping" for a construction project, from beginning to end. This is designated as a"design Build" contract where the contractor is given a performance specification, and must

undertake the project from design to construction, while adhering to the performancespecifications.

Several project structures can assist the owner in this integration, including design-build,

partnering, and construction management. In general, each of these project structures allows theowner to integrate the services of architects, interior designers, engineers, and constructors

throughout design and construction. In response, many companies are growing beyondtraditional offerings of design or construction services alone, and are placing more emphasis on

establishing relationships with other necessary participants through the design-build process.

The increasing complexity of construction projects creates the need for design professionals

trained in all phases of the project's life-cycle and develop an appreciation of the building as anadvanced technological system requiring close integration of many sub-systems and their

individual components, including sustainability. Building engineering is an emerging disciplinethat attempts to meet this new challenge.

[edit] Financial advisors

Trump International Hotel and Tower (Chicago)

May23,2006


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September 14,2007 (3 monthsbeforecompletion)

Many construction projects suffer from preventable financial problems. Underbids ask for too

little money to complete the project. Cash flow problems exist when the present amount offunding cannot cover the current costs for labour and materials, and because they are a matter of

having sufficient funds at a specific time, can arise even when the overall total is enough. Fraudis a problem in many fields, but is notoriously prevalent in the construction field. Financial

planning for the project is intended to ensure that a solid plan, with adequate safeguards andcontingency plans, is in place before the project is started, and is required to ensure that the plan

is properly executed over the life of the project.

Mortgage bankers, accountants, and cost engineers are likely participants in creating an overall

plan for the financial management of the building construction project. The presence of themortgage banker is highly likely even in relatively small projects, since the owner's equity in the

property is the most obvious source of funding for a building project. Accountants act to studythe expected monetary flow over the life of the project, and to monitor the payouts throughout

the process. Cost engineers apply expertise to relate the work and materials involved to a propervaluation. Cost overruns with government projects have occurred when the contractor was able

to identify change orders or changes in the project resulting in large increases in cost, which arenot subject to competition by other firm as they have already been eliminated from consideration

after the initial bid.[1]

Large projects can involve highly complex financial plans. As portions of a project arecompleted, they may be sold, supplanting one lender or owner for another, while the logistical

requirements of having the right trades and materials available for each stage of the buildingconstruction project carries forward. In many English-speaking countries, but not the United

States, projects typically use quantity surveyors.

[edit] Legal considerations

Thissectiondoes not cite any references or sources.

Pleasehelpimprovethisarticlebyaddingcitationsto reliablesources. Unsourced material maybe

challengedandremoved. (October 2006)

Mainarticle:Constructionlaw


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ConstructionalongOntario Highway401, wideningtheroad from six to twelvetravellanes.

A construction project must fit into the legal framework governing the property. These include

governmental regulations on the use of property, and obligations that are created in the processof construction.

The project must adhere to zoning andbuilding code requirements. Constructing a project thatfails to adhere to codes will not benefit the owner. Some legal requirements come from malum in

se considerations, or the desire to prevent things that are indisputably bad - bridge collapses orexplosions. Other legal requirements come from malum prohibitum considerations, or things that

are a matter of custom or expectation, such as isolating businesses to a business district andresidences to a residential district. An attorney may seek changes or exemptions in the law

governing the land where the building will be built, either by arguing that a rule is inapplicable(the bridge design will not collapse), or that the custom is no longer needed (acceptance of live-

work spaces has grown in the community).

A construction project is a complex net of contracts and other legal obligations, each of whichmust be carefully considered. A contract is the exchange of a set of obligations between two or

more parties, but it is not so simple a matter as trying to get the other side to agree to as much aspossible in exchange for as little as possible. The time element in construction means that a delay

costs money, and in cases of bottlenecks, the delay can be extremely expensive. Thus, thecontracts must be designed to ensure that each side is capable of performing the obligations set

out. Contracts that set out clear expectations and clear paths to accomplishing those expectationsare far more likely to result in the project flowing smoothly, whereas poorly drafted contracts

lead to confusion and collapse.

Legal advisors in the beginning of a construction project seek to identify ambiguities and other

potential sources of trouble in the contract structure, and to present options for preventingproblems. Throughout the process of the project, they work to avoid and resolve conflicts thatarise. In each case, the lawyer facilitates an exchange of obligations that matches the reality ofthe project.

[edit] Interaction of expertise


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Apartmentcomplex underconstructioninDaegu,South Korea

Design, finance, and legal aspects overlap and interrelate. The design must be not onlystructurally sound and appropriate for the use and location, but must also be financially possibleto build, and legal to use. The financial structure must accommodate the need for building the

design provided, and must pay amounts that are legally owed. The legal structure must integratethe design into the surrounding legal framework, and enforce the financial consequences of the

construction process.

[edit] Procurement

Procurement describes the merging of activities undertaken by the client to obtain a building.There are many different methods of construction procurement; however the three most common

types of procurement are:

1. Traditional (Design-bid-build)2. Designand Build3. Management Contracting

There is also a growing number of new forms of procurement that involve relationshipcontracting where the emphasis is on a co-operative relationship between the principal and

contractor and other stakeholders within a construction project. New forms include partneringsuch as Public-Private Partnering (PPPs) aka Private Finance Initiatives (PFIs) and alliances such

as "pure" or "project" alliances and "impure" or "strategic" alliances. The focus on co-operationis to ameliorate the many problems that arise from the often highly competitive and adversarial

practices within the construction industry.

[edit] Traditional

Mainarticle:Design-bid-build

This is the most common method of construction procurement and is well established andrecognized. In this arrangement, the architect orengineeracts as the project coordinator. His or

her role is to design the works, prepare the specifications and produce construction drawings,administer the contract, tenderthe works, and manage the works from inception to completion.


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There are direct contractual links between the architect's client and the main contractor. Anysubcontractor will have a direct contractual relationship with the main contractor.

[edit] Design and build

Mainarticle:Design-build

Construction ofthePhase-1 (firsttwo towers) ofthe

Havelock City Project,Sri Lanka.

This approach has become more common in recent years and includes an entire completed

package, including fixtures, fittings and equipment where necessary, to produce a completed

fully functional building. In some cases, the Design and Build (D & B) package can also includefinding the site, arranging funding and applying for all necessary statutory consents.

The owner produces a list of requirements for a project, giving an overall view of the project's

goals. Several D&B contractors present different ideas about how to accomplish these goals. Theowner selects the ideas he likes best and hires the appropriate contractor. Often, it is not just one

contractor, but a consortium of several contractors working together. Once a contractor (or aconsortium/consortia) has been hired, they begin building the first phase of the project. As they

build phase 1, they design phase 2. This is in contrast to a design-bid-build contract, where theproject is completely designed by the owner, then bid on, then completed.

Kent Hansen, director of engineering for the National Asphalt Pavement Association (NAPA),pointed out that state departments of transportation (DOTs) usually use design build contracts asa way of getting projects done when states don't have the resources. In DOTs, design build

contracts are usually used for very large projects.[2]

[edit] Management procurement systems

Mainarticle:Construction management


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In this arrangement the client plays an active role in the procurement system by entering intoseparate contracts with the designer (architect orengineer), the construction manager, and

individual trade contractors. The client takes on the contractual role, while the construction orproject manager provides the active role of managing the separate trade contracts, and ensuring

that they all work smoothly and effectively together.

Management procurement systems are often used to speed up the procurement processes, allowthe client greater flexibility in design variation throughout the contract, the ability to appoint

individual work contractors, separate contractual responsibility on each individual throughout thecontract, and to provide greater client control.

[edit] Authority having jurisdiction

Theexamplesandperspectiveinthissectiondeal primarily with North America and do not

represent a worldwide view of the subject. Pleaseimprovethisarticleanddiscusstheissue on

thetalkpage. (November 2010)

Seealso:Planningpermission

Construction onabuildinginKansas City, Missouri

In construction, the authority having jurisdiction (AHJ) is the governmental agency or sub-agency which regulates the construction process. In most cases, this is the municipality in which

the building is located. However, construction performed for supra-municipal authorities areusually regulated directly by the owning authority, which becomes the AHJ.

During the planning of a building, the zoning andplanning boards of the AHJ will review the

overall compliance of the proposed building with the municipal General Plan and zoningregulations. Once the proposed building has been approved, detailed civil, architectural, and

structural plans must be submitted to the municipal building department (and sometimes thepublic works department) to determine compliance with thebuilding code and sometimes for fit

with existing infrastructure. Often, the municipal fire department will review the plans forcompliance with fire-safety ordinances and regulations.


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y Skilled- On-site managers whom possessextensiveknowledgeandexperienceintheircraft orprofession.

y Technicaland Management- Personnel withthegreatesteducationalqualifications, usuallygraduatedegrees,trainedto design, manageandinstructtheconstructionprocess.

Skilled occupations in the UKrequire further education qualifications, often in vocationalsubject areas. These qualifications are either obtained directly after the completion ofcompulsory education or through "on the job" apprenticeship training. In the UK, 8500

construction-related apprenticeships were commenced in 2007.[3]

Skills in the United States andabroad differ very little: the very simple change that can be obviously perceived is language:

some of the latest skills required in the United States can be interpreted by contactingConstruction Citizen s in America and abroad.

Technical and specialised occupations require more training as a greater technical knowledge isrequired. These professions also hold more legal responsibility. A short list of the main careers

with an outline of the educational requirements are given below:[4]

y Architect-Typicallyholdsatleasta5to 6-yeardegreeinarchitecture. To usethetitle"architect" theindividual mustholdcharteredstatus withtheRoyal Institute of British

Architectsandbe ontheArchitects Registration Board.

y Civil Engineer-Typicallyholdsadegreeinarelatedsubject. TheChartered EngineerqualificationiscontrolledbytheInstitution of Civil Engineers. Anew universitygraduate must

holdamaster'sdegreeto becomechartered,persons withbachelor'sdegrees maybecomean

Incorporated Engineer.

y Building Services Engineer- Oftenreferredto asan "M&E Engineer" typicallyholdsadegreeinmechanical orelectricalengineering. Chartered EngineerstatusisgovernedbytheChartered

Institution of Building Services Engineers.

y Project Manager-Typicallyholdsa4-year orgreaterhighereducationqualification,butareoftenalso qualifiedinanother fieldsuchasquantitysurveying orcivilengineering.

y Quantity Surveyor-Typicallyholdsa master'sdegreeinquantitysurveying. Charteredstatusisgained from theRoyal Institution of Chartered Surveyors.

y Structural Engineer-Typicallyholdsabachelors or master'sdegreeinstructuralengineering,new universitygraduates mustholda master'sdegreeto gaincharteredstatus from the

Institution of Structural Engineers.

[edit] History

Documents

different type of contruction contract-daniel