TYPES OF CONTRACT IN CIVIL ENGINEERING

 What is CONTRACT

The most broad and simple definition of contract is that " A contract is an agreement enforceable by a law".

Now as per Civil Engineering, a contract is an agreement between two or more firms/individuals based on which, one agrees to do some work for other under the given terms and conditions. Now this work mentioned above can be anything like construction or maintenance or repairs of any structures, supply of labour or materials, transportation of materials, storage of materials, etc.

Types of CONTRACT IN CIVIL ENGINEERING   

By the term types of contract in Civil engineering , we mean to say different methods of payments which are used to reimburse contractors for the construction or other services they provide.

1. ITEM RATE CONTRACT

• This types of contract in Civil engineering is also known as Unit price contract or Schedule contract.
• In these types of contract in Civil engineering, the contractor quotes rate against each item of work on the basis of schedule of quantities. And so in these types of contract in civil engineering the payment to the contractor is made on the basis of detailed measurements of works actually executed by the contractor.
• These types of contract in Civil engineering are generally employed for the projects where the quality of work is defined but the quantity of work is not known.
• The merit of these types of contract in Civil engineering is that it is more scientific as it ensures a very detailed analysis of cost and payment to the contractor. In these types of contract in Civil engineering, within agreed limits changes can be made in drawings and quantities of individual items. One of the other merits of  these types of contract in Civil engineering is that there is no urgency of providing detailed drawings at the time of bidding.
• The demerit of these types of contract in Civil engineering is that these types of contract requires additional staff to take detailed measurements. In this types of contract in Civil engineering, final cost of work is not known in start and so it becomes a problem to owner if the completion cost is too high. One of the major demerits of these types of contract in Civil engineering is  that the contractor may overprice those items of work which will be accomplished first and compensate this by lowering the price of works which will be accomplished later. This will help contractors to improve their cash flow. In these types of contract in Civil engineering the contractor may quote high amount for different items of work which will led to an unbalanced tendor. 
• These types of contract in Civil engineering are used for highway projects, civil works projects, railway projects and pipelines.

2. PERCENTAGE RATE CONTRACT

• In these types of contract in Civil engineering the department/owner gives the schedule of quantities along with rate, amount and total amount. And so in these types of contract in Civil engineering, the contractors are required to carry out works as per with the rates given by owner with some percentage above or below the rates.
• The merit of these types of contract in civil engineering is that here the chance of unbalanced tender gets eliminated as the contractors cannot quote their own rates for an individual item.
• The demerit of these types of contract is that as the contractors have only to write percentage above or below so they can write rate in short amount of time without having detailed analysis of works at the time of bidding.

3. LUMP-SUM CONTRACT

• These types of contract in civil engineering is also known as firm-price contract or fixed-price contract.
• In these types of contract in civil engineering, the contractor is required to quote a fixed sum/ lump sum to undertake the work complete in all respect in given time according to drawing, designs and specifications.
•  In these types of contract in civil engineering the contractor have to assume the risk for both quantity and quality.
• In these types of contract in civil engineering, the department also provides schedule of rates for various items of works, which regulates the payment of contractor in case of any additions and alterations made.
• The merit of these types of contract in civil engineering is that the final cost of work is known earlier. At the time of completion of project , there is no need of detailed measurement of each work, except in case of any additions and alterations made. One of the other merit of these types of contract in civil engineering is that in this type of contract the contractor tries to complete project as early as possible.
• The demerit of these types of contract in civil engineering is that the owner aims to get more and more work while the contractor aims to maximize his profit. This generally creates dispute between them. One of the other demerit of this types of contract is that it requires detailed drawings, designs and specifications at the time of bidding because if not available dispute may arise at the time of execution of works.
• These types of contract in civil engineering is generally used for building projects.

4. COST PLUS CONTRACT

• In these type of contract in civil engineering, the contractor agrees to take work for the costs involved with the project along with an additional amount to cover the cot of doing business and an allowance for profit.
• Now this additional cost mentioned above may be in terms of fixed fee, a percentage of specified reimbursable costs or a sliding-scale amount.
• These types of contract in civil engineering are generally used where it is desired to get construction work underway prior to completion of design i.e where shortest possible project time is the main criteria in place of the cost involved.

• COST PLUS - FIXED FEE 

• In cost plus- fixed case, the contractor is paid an agreed fixed lump sum amount over and above the actual cost of work. This fixed fee includes the overhead and profit to the contractor and so the contractor tries to finish work as early as possible. The demerit of this types of contract is that the contractor will only focusses on early completion of project which can affect the quality of work. Here the cost of project also increases because of application of extra resources which will be used to reduce the time of the project.

• COST PLUS- PERCENTAGE

• In cost plus percentage case, the contractor is paid an agreed percentage in addition of the actual cost of work. This type of contract is generally adopted when labor and material costs are liable to fluctuate heavily in market. This type of contract offers somehow little protection for the owner on cost of project or the length of performance. The demerit of this type of contract is that, here the contract may tries to prolong the project completion to continue a revenue stream at a set return.

• COST PLUS- SLIDING

• This type of contract can be considered as a combination of the cost plus fixed fee and cost plus percentage case. In this type of contract , first of all a target amount of project is estimated. Now, the plus amount of fee varies inversely according to the increase or decrease of the estimated cost. The merit of this type of contract is that here both parties will be benefitted in the lowest possible cost of construction. the demerit of this type of contract is that if the estimated cost is not calculated correctly , then the contractor will get more amount on the basis of savings.