Construction Contract Types and Procurement Methods

Types of Contracts

Fixed-sum contract

• Lump-sum contract – The contractor completes a package of work for a single lump sum of money.
• Unit-price contract – The contractor performs certain well-defined items of work for a fixed price for each unit.
• Cost-plus-fee contract – The client pays all the construction costs and a fee for construction services. Bonuses and penalties for efficiency may apply.
• Work-by-force account – The client is its own constructor:

• Working with own forces.
• Subcontracting some parts or the entire project.

• Turnkey contract – The client delivers the facility design requirements; the contractor delivers the key to the building.
• Build-operate-transfer (BOT) contract – An extension of the turnkey method:

• The contractor designs, constructs, operates, and maintains the facility for a predetermined concession period;
• Usually the contractor receives no payment from the client, but gets all the money earned by the project;
• At the end of the concession period, ownership transfers from the contractor to the owner.

• Speculative construction – The client builds structures for sale or lease to other parties (known or unknown buyers). The developers act as their own prime contractors.

Traditional vs Turnkey Characteristics

What are the characteristics of the traditional and the turnkey procurement methods? Use figures!

Traditional method (Client contracts the designer and contractor separately)ClientDesignerContractor

• Characteristics
• Long construction period.
• Consecutive organisation.
• Clear contracting relations.

Turnkey method (Client contracts the contractor and it does everything)ClientContractor (Design, Build, Deliver)

• Characteristics
• Single point responsibility.
• Design and construction activities can be overlapped.
• The client can be sure of maximum cost before final commitment.
• Integrated design and construction.
• Improves buildability.
• Fits the constructor’s expertise, working conditions, and organisation.
• Thus costs should be lower and time on site shorter.

Management Types in Construction Projects

What types of management can be in a construction project? What are the characteristics of the management-type procurement methods?

Project Management

Project management (Client contracts a project manager and it controls everything: designer, contractors, etc.)

• In-house project manager.
• In-house and external project management team.
• External project management.

Construction Management and Management Contracting

Construction management and management contracting (Client contracts separately: designer, contractor and management)

• Management team is involved at an early stage.
• Design can be influenced to improve buildability.
• Claims can be resolved; delays can be reduced.
• Time can be saved by using a series of tenders and work packages.
• Flexibility in design to suit the client and the budget.
• More risk in design – higher requirement in design.
• No assured final cost at the start of construction.