Contracts

Types of Contracts
1. The Traditional Contract:

These contracts usually require the employer to procure the designs from an
independent architect. Based on these designs, the employer draws up a bill of
quantities (“BOQ”).
The BOQ is the underlying basis for the tender. In other words, the contract price
is arrived at, only, on the basis of the BOQ.
Under these contracts, the tenderer or contractor takes full responsibility for
construction of the project.
Although the design is the employer’s responsibility, there may be cases that
specific or micro issues related to designs may be left to the contractor.
Types of Contracts
It is widely accepted that these types of contracts are usually the most reliable
form of contracts to assess the end cost of the project.
Reason being, that in all such cases, the contractor’s bid is based on a lump sum
basis.
The down-side in such cases being that if the contractor has agreed to a lump
sum arrangement, there may be little or no lee way in subsequently raising claims
owing to delays which were within the contemplation of parties.
In other words, these contracts cap the employer’s liability, and unless some
exceptional circumstances are made out, the contractor is bound to perform the
work at the agreed rates.
Types of Contracts
Payments under these contracts will usually be made on an interim
or monthly basis.
Types of Contracts
2. Re-measurement Contracts:
Extremely rare due to their contingent and uncertain nature.

Difficult to define the scope.
Resultantly, difficult to tie down responsibilities on contractor.
Usually entered into when the work cannot be fully quantified at the
tendering stage. This can be because designs and drawings are only
preliminary or because the project is going to require a significant
amount of unforeseen work.
Types of Contracts
This will usually be preferred by owners and contractors where the
quantum of below ground work, is not capable of being ascertained at the
tendering stage.
In such cases, the payments are made on the basis of the ascertained final
sum, in fixed intervals i.e., monthly basis.
There is significant lee way for claims owing to the inherent contingent or
unforeseen nature of the scope of work.
The Contractor is usually tied to a schedule of rates i.e., rates for different
categories of work required to be undertaken by the contractor.
And for every new activity, a work order is issued.
Types of Contracts
3. Design and Build Contracts: [Turnkey or Engineering, Procurement and
Construction Contracts]
In such contracts, the employer engages a single organization to take
responsibility for all aspects of the project – right from design to
construction.
In such cases, the contractor is usually given ample freedom to sub-
contract different parts of the main work.
These contracts are usually made in cases involving civil and mechanical
works or electrical works in respect of plants and projects of such
magnitude.
These contracts are also referred to as Turn key Contracts – reason being
that once the complete scope of work is completed by the contractor, the
only thing that is required is the turn of the key to make the plant work.
Types of Contracts
Although it is all encompassing, there is a certain degree of responsibility
on the owner. At least the broad outlines of designs are to be provided by
the Owner.
Again, these contracts are usually made on a lumpsum basis.
Restal Drilling Co. vs. Commissioner of Internal Revenue:

“A contract where the essential design emanates from, or is supplied, by the
contractor and not the owner, so that the legal responsibility for the design,
suitability, and the performance of the work after completion will be made
to rest with the contractor, the contract in question will be called a turn key
contract.
Types of Contracts
4. Cost plus percentage contracts:
Here, the employer agrees to pay the cost of labour and material plus
an overhead charge on this amount in the form of a percentage as
profit.
The actual cost is also referred to as the prime cost of work.
Arguably one of the safest, if not, the safest forms of contracts for the
contractor.
Minimizes disputes since the contractor is paid so long as the work is
on going.
Types of Contracts
And the prime costs are not capable of being seriously disputed.
Thus, so long as proof of prime costs are available, and so long as

there are not delays singularly attributable to the contractor, it is
difficult for an employer to deny liability.
Types of Contracts
Other forms of contracts may include:
• Construction Management Contracts – the role of the contractor

here, is to merely supervise and otherwise co-ordinate amongst other
sub-contractors.
• A certain fee is agreed on in such cases.

Hierarchy of contract
documents
1. Request for Quotation/ Proposals
2. General Conditions of Contract
3. Special Conditions of Contract
4. Letter of Award
5. Purchase Order/ Work Order (“PO/WO”)
6. Bill of Quantities – Contract Schedule [Usually an annexure to the PO
or WO)
7. Minutes of Meetings just prior to finalization of the purchase order
or work order
Disclaimers and the RFQ / RFP
• In most contracts, the Request for Quotations / Proposals will be an
extremely broad document, highlighting the overall scope of work
required to be undertaken for the project as a whole.
• Depending on the scope of the work being awarded, only those
portions of the RFQ that pertain to the scope of work, ought to be
factored in.
• However, the RFQ itself should give a good indication as to the how
sequential or dependent the nature of the work involved is. And a
thorough study of the RFQ itself helps in factoring in the scope for
delays along with the likelihood of the nature of such delays.
General Conditions of Contract (“GCCs”)
• These are the widest in operation, and will cover all issues ranging
from the broad nature of work, right up to damages, termination, and
resolution of disputes.
• These are usually the most overlooked, yet, the most crucial of the
consolidated set of contractual documents.
Special Conditions of Contract
• These will always, almost inevitably, be a sub-set of the GCCs.
• However, the big ticket items – contract price, variations and change
orders, delays – damages / compensation, performance bank
guarantees, project schedule, etc, will be specifically catered to in the
SCC’s.
• In case of matters which are covered by both, the GCCs and the SCCs,
the SCCs will stand higher up in order of priority for ascertaining the
exact nature of the contract.

Contracts

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Types of Contracts

1. The Traditional Contract:

Extremely rare due to their contingent and uncertain nature.

Again, these contracts are usually made on a lumpsum basis.

Restal Drilling Co. vs. Commissioner of Internal Revenue:

Thus, so long as proof of prime costs are available, and so long as

• Construction Management Contracts – the role of the contractor

• A certain fee is agreed on in such cases.

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